On December 22, 2017, the federal Tax Cuts and Jobs Act of 2017 (“TCJA”) was signed into law. Here are some key elements of the TCJA that may affect your personal taxes:
- Estate and Gift Tax:
- The 2018 exemption jumped to $11.2 million per person ($22.4 million per married couple). Married couples may still take advantage of portability, i.e. the ability of a surviving spouse to use his or her own exemption as well as the unused portion of a deceased spouse’s exemption.
- The annual gift tax exclusion amount is increased to $15,000 per donee.
- The tax rate on amounts in excess of the estate and gift tax exemption remains at 40%.
- Income Tax:
- The marriage penalty is eliminated and the standard personal deduction is doubled to$12,000.
- Short-term capital gains are still taxed as ordinary income; long-term capital gains rates are 0%, 15%, or 20%, depending on your income bracket.
- The alternative minimum tax is adjusted for inflation.
- Your charitable giving may now equal 50% of your adjusted gross income (up from 50%).
- The threshold for deducting medical expenses has dropped from 10% to 7.5%.
- The deduction for state and local taxes is capped at $10,000.
- The following deductions are disappearing:
- Casualty and theft losses;
- Unreimbursed employee expense;
- Tax preparation expense;
- Moving expense;
- Employer subsidized parking and transportation reimbursement.
Important note: Changes relating to personal taxation (including estate and gift tax) sunset December 31, 2025. This means that unless Congress votes to extend these changes, the tax regime will revert to its 2017 state as of January 1, 2026. This is especially significant for those of you who have very sizable estates. You may want to consider, for example, making lifetime gifts to your family while you and your spouse can take advantage of the combined exemption of $22.4 million before it decreases by half in 2026.