Palm Beach Society features Richard DeNapoli
Trump Tax Law Most Significant Reform since the Reagan Administration
Change is on the Horizon
By: Richard L. DeNapoli, J.D., LL.M., CFP®, Chief Trust Officer, and Fiduciary Counsel
at Coral Gables Trust Company and Richard S. Bernstein, CEO of Richard S. Bernstein & Associates, Inc.
On December 22, 2017, President Trump signed into law the first significant reform of the US Tax Code
since Ronald Reagan was in office. It will impact Americans far and wide, affecting how we make decisions
on buying a home, health insurance, setting up a business, and even when to get a divorce. We highlight
some of the major parts of the law here.
Personal tax rates and income brackets will be lowered, yet they will sunset in 2025. The top rate falls from
39.6% to 37%, the 35% bracket stays the same, while the 33% bracket falls to 32%, the 28% bracket to 24%,
the 25% bracket to 22%, and the 15% bracket to 12%. The lowest bracket remains at 10%. The standard
deduction has essentially doubled, while the personal exemption is gone. The law also temporarily raises the
exemption amount and exemption phase-out threshold for the alternative minimum tax (AMT), which
affects higher earners. All of these changes sunset in 2025. The sunset provision was required to allow the
Senate to comply with "Reconciliation" rules that block a Democratic filibuster.
The deduction for state and local income taxes, property taxes and sales tax, or SALT, remains for those who
itemize their taxes, but it is now subject to a $10,000 cap. This will likely hurt taxpayers and homeowners in
high tax states. The mortgage interest deduction for new home purchases has also been lowered from $1 million
to $750,000. The tax deduction for alimony payments will no longer be deductible for the person who
writes the checks. This provision will apply to couples who sign divorce or separation paperwork after
December 31, 2018.
The new law temporarily doubles the estate tax exemption for single filers to $11.2 million from $5.6 million,
indexed for inflation. For a married couple, this means a $22.4 million exemption for 2018. This provision
sunsets in 2025, meaning that since death is unpredictable, wealthy clients will still need to plan for the
estate tax using traditional strategies such as purchasing life insurance policies inside Irrevocable Life
Insurance Trusts (ILITs).
While the Republicans were not able to repeal Obamacare earlier in 2017, the new tax law does permanently
end the Obamacare individual mandate starting in 2019. The individual mandate applied penalties to individuals
that did not obtain health insurance coverage.
Another big change is the cut in the corporate tax rate from 35% to 21%. The 35% rate meant that the US
had the highest corporate tax rate of any large, developed country. The new law will now place US just
below the weighted average for the European Union countries. The alternative minimun tax for corporations
has also been repealed. Owners, partners and shareholders of pass-through entities will also get a break
in the form of a 20% deduction for their pass-through income. Unlike the tax breaks for individuals, these
corporate tax changes do not expire in 2025.