2021 Tax Updates

Complete Analysis of the Tax Cuts and Jobs Act

Individual Tax Return Changes

• Standard deduction increased
  • Married $25,100
  • Head of household $18,800
  • Single filers $12,550
• Personal exemptions suspended
• Capital gains provisions conformed
  • The Act generally retains present law 0%, 15%, and 20% tax rates on net capital gains and qualified dividends
• Deductions for personal casualty & theft losses suspended
• Child tax credit increased
  • Partial credit for non-child dependents
  • For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the child tax credit is increased to $2,000
• State and local tax (SALT) deduction limited
  • A taxpayer may claim an itemized deduction up to $10,000
    • Up to $5,000 for married taxpayers filing separately
  • Mortgage interest deduction limited
    • Tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the deduction for home mortgage interest is limited to interest on up to $750,000 ($375,000 for married taxpayers filing separately) of acquisition of indebtedness
    • Deduction for interest on home equity indebtedness is suspended
    • New lower limit doesn’t apply to acquisition indebtedness incurred before Dec. 15, 2017
  • Medical expense deduction threshold temporarily reduced from 10% to 7.5%
  • Individual charitable contribution deduction limitation increased from 50% to 60%
  • Alimony deduction by payor/inclusion by payee suspended – for any divorce or separation agreement executed after Dec. 31, 2018
  • Miscellaneous itemized deductions suspended
  • Exclusion for moving expense reimbursements suspended
  • Moving expenses deduction suspended
  • Repeal of ACA individual mandate – After 12/31/18
  • Individual AMT retained, with higher AMT exemption amounts
  • Estate and gift tax retained, with increased exemption amount
    • Estate exemption goes to $11.2 million

Business Tax Changes That Affect Most Of Us

• Corporate tax rates reduced
• For tax years beginning after Dec. 31, 2017, the corporate tax rate is a flat 21% rate
• Corporate alternative minimum tax repealed
• Increased Code Section 179 expensing
• For property placed in service in tax years beginning after Dec. 31, 2017, the maximum amount a taxpayer may expense under Code Sec. 179 is increased to $1 million, and the phase-out threshold amount is increased to $2.5 million.
  • For tax years beginning after 2018, these amounts (as well as the $25,000 sport utility vehicle limitation) are indexed for inflation Temporary 100% cost recovery of qualifying business assets
• Luxury automobile depreciation limits increased
  • For passenger automobiles placed in service after Dec. 31, 2017 for which the additional first-year depreciation deduction under Code Sec. 168(k) is not claimed, the maximum amount of allowable depreciation is increased to: $10,000 for the year in which the vehicle is placed in service, $16,000 for the second year, $9,600 for the third year, and $5,760 for the fourth and later years in the recovery period.
  • For passenger automobiles placed in service after 2018, these dollar limits are indexed for inflation.
  • For passengers autos eligible for bonus first-year depreciation, the additional first-year depreciation allowance remains at $8,000.

• Recovery period for certain real property improvements is shortened

• Limits on deduction of business interest
  • For tax years beginning after Dec. 31, 2017, every business, regardless of its form, is generally subject to a disallowance of a deduction for net interest expense in excess of 30% of the business’s adjusted taxable income.

• Employer’s deduction for fringe benefit expenses limited

• Nondeductible penalties and fines and No deduction for amounts paid for sexual harassment subject to nondisclosure agreement

• Deduction for local lobbying expenses eliminated

• New credit for employer-paid family and medical leave

• Pass-Throughs
  • New deduction for pass-through income
  • For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the Act adds a new deduction for noncorporate taxpayers for qualified business income–also referred to as the “pass-through deduction.” The deduction reduces taxable income, rather than adjusted gross income (AGI), but is available to taxpayers who take the standard deduction. The deduction is generally 20% of a taxpayer’s qualified business income (QBI) from a partnership, S corporation, or sole proprietorship. QBI is defined as the net amount of items of income, gain, deduction, and loss with respect to the trade or business.