Business Provisions

Topic

Previous Tax Law

New Tax Law

Tax Rates

Corporate tax rate

Top rate of 35 percent

Flat rate of 21 percent (effective 1/1/2018)

Alternative minimum tax (AMT)

20 percent

Repealed; AMT credits refundable from 2018 through 2021(1)

Personal service corporations

Flat rate of 35 percent

Flat rate of 21 percent

Dividends received deduction

70 & 80 percent deduction for any dividend received from corporations owning < 20 or ≥ 20 percent of stock of another corporation, respectively(2)

Deduction amounts reduced to 50 & 65 percent for corporations owning < 20 or ≥ 20 percent of stock of another corporation, respectively(2)

Pass-through treatment

Individual rate on ordinary income

Deduction of 20 percent of domestic qualified business income (QBI); subject to limitation(3); expires after 12/31/2025

Cost Recovery

Bonus depreciation

40, 30 & 20 percent bonus depreciation for qualified property in 2018–2020, respectively; property must be new to qualify

100 percent through 2022 for qualified property placed in service after 9/27/2017(4); 80, 60, 40 & 20 percent bonus depreciation for property placed in service in 2023 to 2026, respectively

Luxury auto depreciation limitations

$3,160, $5,100, $3,050 & $1,875 for first, second, third & remaining recovery years, respectively(5)

$10,000, $16,000, $9,600 & $5,760 for first, second, third & remaining recovery years, respectively(5)

Cost recovery for certain farm property

Seven-year recovery period for machinery & equipment, grain bins, fences & cotton ginning assets; property (other than nonresidential real property, residential real property & trees or vines bearing fruit or nuts) is subject to the 150 percent declining balance method

Modifies recovery period to five years for certain farm property; required use of 150 percent declining balance method repealed(6)

Cost recovery for residential rental & nonresidential real property

27.5 years for residential rental real property & 39 years for nonresidential real property 

Maintains previous law recovery periods for residential rental real property & nonresidential real property; 30-year alternative depreciation system (ADS) recovery period for residential rental property

Citrus plant replanting costs

Deductible by materially participating third parties holding a minority interest during the entire taxable year while the loss-suffering taxpayer holds an equity interest of at least 50 percent

Expands deductibility to cover third parties acquiring the entire equity interest held by the loss-suffering taxpayer; effective for replanting costs paid after 12/22/2017 & before 12/22/2027

Small Business Reforms

Section 179 expensing

Up to $520,000; phaseout beginning at $2,070,000 of assets placed in service

Up to $1 million; phaseout beginning at $2.5 million of assets placed in service(7)

Cash method of accounting

Allowed for C corporations that do not exceed a $5 million gross receipts test

Allowed for C corporations with less than $25 million of gross receipts

Required use of inventories

Gross receipts > $10 million

Gross receipts > $25 million

Required application of §263A uniform capitalization rules to inventory

Gross receipts > $10 million for property acquired for resale; no threshold for manufactured property

Gross receipts > $25 million for property acquired for resale or manufactured property

Required use of percentage-of-completion method for long-term contracts

Gross receipts > $10 million

Gross receipts > $25 million

S corporation conversion to C corporation

Not addressed

Distributions from an eligible terminated S corp treated as paid from accumulated adjustments account & earnings & profits on a pro rata basis; §481(a) adjustments taken into account ratably over six-year period; applies to S corps that revoke elections during two-year period following enactment date

Reform of Business-Related Exclusions, Deductions, etc.

Interest expense

Deduction allowed for interest expense

Deduction limited to business interest income, floor plan financing interest & 30 percent of entity’s adjusted taxable income; excess carried forward indefinitely(8)

Net operating loss (NOL)

Carried back two years & carried forward 20 years

Deduction limited to 80 percent of taxable income for tax periods after 2017; no carryback, carried forward indefinitely – retains previous law treatment for property & casualty (P&C) insurance companies & permits NOL deductions for life insurance companies(9)

Like-kind exchanges

Deferral of gain permitted on like-kind exchanges of certain property held for productive use in a trade or business or for investment

Limits deferral of gain on like-kind exchanges to real property that is not held primarily for sale

Capital contribution definition

Contributions to capital do not include any contribution in aid of construction from a (potential) customer

Expands previous law to also exclude contributions made by a non-shareholder governmental entity or civic group

Local lobbying expenses

Deduction allowed for expenses incurred in connection with influencing local legislation

No deduction for amounts paid or incurred after 12/22/2017

Deduction for domestic production activities

Up to 9 percent for domestic production activities

Repealed; effective for taxable years beginning after 12/31/2017

Entertainment expenses(10)

Deduction limited to 50 percent of expense

No deduction for amounts paid or incurred after December 31, 2017

Employee achievement awards

Defined as an item of tangible personal property given to an employee in recognition of either length of service or safety achievement presented as part of a meaningful presentation; deductible by employer, excludible from employee income

Clarifies “tangible personal property;” excludes cash & gift cards

FDIC premiums

Deductible

Deduction limited for taxpayers with consolidated assets more than $10 billion(11)

Tax-free rollover of publicly traded securities gain into small business investment companies

Permitted within 60 days of sale

Repealed

Capital assets

Property held by  taxpayer generally considered capital asset unless otherwise excluded

Self-created patents, inventions, models, designs & secret formulas or processes are excluded

Partnership technical termination

Partnership treated as terminated if, within any 12-month period, there’s a sale or exchange of 50 percent or more of the total interest in partnership capital & profits

Repealed

Carried interest

Capital gains rate after one-year holding period for interests received in exchange for performance of services

Capital gains rate after three-year holding period with respect to any applicable partnership interest

Research & development credit

Tax credit available to businesses that develop new or improved products or processes

Explicitly retained(12)

Accrual basis income recognition

Taxpayers may defer recognition of income for advance payments to the end of succeeding tax year if same methodology is followed for financial statement purposes

Explicitly retained

Fines & penalties

No deduction allowed if related to any law violation

Deduction allowed for payments identified in a court order or settlement agreement as restitution, remediation or required to come into compliance with a law violation

Deduction for settlements paid in connection with sexual harassment or sexual abuse

Generally deductible as ordinary & necessary trade or business expense

No deduction for settlement, payout or attorney fees related to sexual harassment or sexual abuse if subject to a nondisclosure agreement

Reform of Business Credits

Clinical testing expense credit

50 percent business tax credit for certain expenses related to testing drugs for rare diseases or conditions

50 percent credit decreased to 25 percent

Rehabilitation credit

20 percent credit for qualified rehabilitation expenditures related to a certified historic structure; 10 percent credit if related to a qualified rehabilitated building(13)

20 percent credit for qualified rehabilitation expenditures, to be claimed over a 60-month period; repeals 10 percent credit for qualified rehabilitated buildings

Work opportunity tax credit

Nonrefundable tax credit for 40 percent of qualifying wages paid to certain employees who qualify as members of disadvantaged groups

No change

Unused business credits

Deduction allowed for unused business credits; carried back one year; carried forward 20 years

No change

Employer credit for paid family & medical leave

Not addressed

Tax credit available to eligible employers of 12.5 percent of wages paid to qualifying employees during any period such employees are on family & medical leave if payment rate under program is 50 percent of wages normally paid(14)

Bond Reforms

Taxation of private activity bond interest

Tax-exempt

No change

Taxation of governmental advance refunding bond interest

Tax-exempt

Repealed

Tax credit & direct-pay bonds

Provide tax credits to investors in lieu of interest payments

Prospectively repeals ability to issue new bonds

Professional sports stadium bonds

Interest on bonds used to finance professional sports stadiums is tax-exempt

No change

Compensation

Excessive employee remuneration

Deductible compensation for publicly traded corporate employers limited to $1 million for covered employees—includes CEO & three other most highly compensated officers

Covered employees include CEO, CFO & three other most highly compensated officers; covered employees maintain designation for all future years(15)

Tax-exempt organization executive compensation

Not addressed

21 percent excise tax on compensation more than $1 million paid to five highest-paid employees; remuneration of a covered employee that isn’t deductible under the $1 million limitation isn't considered

Qualified equity grants

Not addressed

Allows qualified employees(16) to elect to defer recognition of income attributable to qualified stock(17)

Expatriated corporation stock compensation

15 percent excise tax imposed on value of stock compensation held by insiders of an expatriated corporation

Increases 15 percent rate to 20 percent

Other Provisions

Sales of partnership interests by foreign taxpayers

Taxable gain determined according to “asset use” & “business activities” tests(18)

Taxable gain determined according to the results of a hypothetical sale of partnership assets; in certain cases, transferee required to withhold 10 percent of realized amount

Section 743 substantial built-in loss

Exists if adjusted basis in partnership property exceeds property’s FMV by more than $250,000

Expands definition to include situations where transferee would be allocated a net loss in excess of $250,000 upon hypothetical disposition of partnership property immediately after transfer of partnership interest

Partner loss limitations

Basis limitation on partner losses doesn’t include partner’s share of charitable contributions & foreign taxes

Basis limitation on partner losses is decreased to reflect partner’s share of charitable contributions & foreign taxes

Identification of shares of stock sold, exchanged or otherwise disposed of

Taxpayers may use either a first-in, first-out (FIFO) or specific identification method when less than entire holding of particular stock is sold, exchanged or otherwise disposed of

No change

Qualifying beneficiaries of an electing small business trust (ESBT)

Individuals, estates & certain charitable organizations eligible to hold S corporation stock directly

Expands list of qualified beneficiaries to include nonresident alien individuals

Charitable contribution deduction for ESBTs

Determined according to rules generally applicable to trusts

Determined according to rules generally applicable to individuals

UNICAP production period rules for beer, wine & distilled spirits

Interest expense attributable to aging periods must be capitalized

Aging period not considered production period; interest expense attributable to aging periods is currently deductible

Beer excise tax

$18 per barrel; $7 per barrel for small brewers(19), up to 60,000 barrels

$18 per barrel; $16 per barrel for first 6 million; $3.50 per barrel for small brewers(21), up to 60,000 barrels

Transfer of beer between bonded facilities

Tax-free if breweries are owned by the same brewer

Tax-free to transferor even if common ownership does not exist if the transferee accepts responsibility for payment of the tax

Wine excise tax

$1.07 per wine gallon for alcohol contents of 14 percent or less (excludes mead & sparkling wine); small domestic producers allowed credit against wine excise tax

$1.07 per wine gallon for alcohol contents of 16 percent or less (includes mead & certain sparkling wine); all producers allowed credit against wine excise tax; modifies credit calculation

Distilled spirits excise tax

$13.50 per proof gallon

$2.70 per proof gallon on first 100,000; $13.34 on proof gallons between 100,000 & 22.13 million; $13.50 per proof gallon exceeding 22.13 million

Bulk distilled spirits

Distillers may transfer spirits in bond in containers at least one gallon in size without payment of tax

Distillers may transfer spirits in approved containers other than bulk containers in bond without payment of tax

Tax treatment of Alaska Native Corporations & Settlement Trusts

Generally subject to tax under the same rules as other corporations & trusts, with exceptions

Native corporations may assign certain payments to a settlement trust without gross income inclusion; Native corporations may elect to deduct contributions made to a settlement trust

Aircraft management services

Excise tax imposed on amounts paid for taxable transportation; 7.5 percent plus a flat dollar amount for each domestic flight

Exempts certain payments related to the management of private aircraft from excise taxes imposed on taxable air transportation

Qualified opportunity zones

Not addressed

Deferral/permanent exclusion of capital gains reinvested in a corporation or partnership that invests at least 90 percent of its assets in qualified opportunity zone property, which are targeted at certain low-income community population census tracts to be established in each state

Low-income housing credit

Tax credit available to owners of qualified residential rental buildings in low-income housing projects

No change

International Tax Provisions

Interest-charge domestic international sales corporation (IC-DISC)

Taxation on profits generated by small U.S. manufacturers from U.S.-manufactured products sold overseas can be deferred indefinitely & reinvested into business

Retained

Future foreign earnings

Worldwide income tax based on residence & source

Territorial system with base erosion provisions(20) (21)

Previously excluded subpart F income inclusion

Not addressed

U.S. shareholders no longer required to include previously excluded subpart F income in qualified foreign base company shipping operations

Foreign base company income

Not addressed

Eliminates foreign base company oil-related income as a category of foreign base company income

CFC stock attribution rules

Not addressed

Provides “downward attribution”(22) from a foreign person to a related U.S. person for purposes of determining whether the foreign corporation is a CFC

Subpart F U.S. shareholder definition

U.S. person owning 10 percent or more of the total combined voting power

U.S. person owning 10 percent or more of the total share value

Subpart F 30-day rule

A corporation must be controlled for an uninterrupted 30 days before subpart F inclusions apply

Repealed

PFIC insurance business exception

Passive income does not include income from a corporation predominantly engaged in an insurance business

Passive income does not include income from a corporation with insurance liabilities constituting more than 25 percent of its total assets

Interest expense apportionment

Interest expense allocated among members of an affiliated group based on FMV of assets

Allocation based on adjusted tax basis of assets

Untaxed accumulated foreign earnings

Not addressed

15.5 percent for cash/cash equivalents, 8 percent otherwise, payable over eight years

 

  1. Prior-year minimum tax credit is refundable in an amount equal to 50 percent of excess of credit for tax year over amount of credit allowable for year against regular tax liability for 2018 to 2020 (100 percent for 2021).
  2. Deduction is 100 percent of dividend received where member of the same affiliated group.
  3. Deduction does not apply to specified service businesses, except in case of taxpayer whose taxable income does not exceed $157,500 for single filers ($315,000 married filing jointly (MFJ)) with a phaseout beginning at the same levels over the next $50,000 ($100,000) of taxable income. QBI is all domestic business income other than investment income (except income from publicly traded partnerships that’s eligible for inclusion), investment interest income (other than qualified real estate investment trust and corporate dividends), net capital gain, foreign currency gains, etc. The deduction is limited to the greater of 50 percent of W-2 wages paid with respect to the business or 25 percent of W-2 wages paid plus 2.5 percent of the unadjusted basis of all qualified property.
  4. Definition of qualified property expanded by removing requirement that original use begin with taxpayer. Excludes certain property used in regulated public utility businesses and property used in a trade or business that has floor plan financing indebtedness; includes qualified film, television and live theatrical productions.
  5. Amounts adjusted for inflation annually. Additional $8,000 allowed for assets qualifying for bonus depreciation; phased down in 2018 and 2019 to $6,400 and $4,800, respectively, for automobiles acquired before September 28, 2017, but placed in service after September 27, 2017.
  6. Five-year recovery period does not apply to grain bins, cotton ginning assets, fences or any other land improvement. Original use must commence with the taxpayer. A 150 percent declining balance method will continue to apply to any 15- or 20-year farm property to which the straight-line method does not apply.
  7. Definition of qualified property expanded to include certain improvements to nonresidential real property, including roofs, HVAC systems, fire protection and alarm systems and security systems.
  8. Adjusted taxable income is calculated without regard to items not properly allocable to a trade or business, any business interest expense or business interest income, the 20 percent pass-through income deduction, floor plan financing interest, any NOL deduction and, for taxable years beginning before January 1, 2022, any deduction for depreciation, amortization or depletion. The interest deduction is not limited for any taxpayer with average annual gross receipts for the preceding three taxable years of $25 million or less or a regulated public utility business (including electric cooperatives). Real property trade or businesses described in IRC §469(c)(7)(C) may elect to not be subject to the limitation provided they make an irrevocable election and use the alternative depreciation system (ADS) for any of its non-residential real property, residential real property and qualified improvement property. Farming businesses may also elect not to be subject to the limitation provided they use the ADS method to depreciate farming property with a recovery period of 10 years or more. Electing farming businesses specifically include agricultural and horticultural cooperatives.
  9. NOLs for any tax year are generally excess of life insurance deductions over life insurance gross income for that year. Deduction is limited to 80 percent of the excess and can be carried forward indefinitely (no carryback).
  10. Includes entertainment, amusement or recreation activities; does not include qualified meal expenses.
  11. No deduction allowed for taxpayers with total consolidated assets of $50 billion or more. For taxpayers with consolidated assets between $10 billion and $50 billion, disallowed deduction calculated based on ratio of the excess of total consolidated assets exceeding $10 billion to $40 billion.
  12. For tax periods beginning after December 31, 2021, certain research and experimentation expenditures, including software development costs but excluding land acquisition and improvement costs and mine (including oil and gas) exploration costs, would be required to be capitalized and amortized over a five-year period. For foreign research projects, this amortization period increases to 15 years. Upon retirement, abandonment or disposition of property, any remaining basis would continue to be amortized over remaining amortization period.
  13. Requires the use of straight-line depreciation or the ADS method.
  14. Credit increased by 0.25 percentage points (but not above 25 percent) for each percentage point by which rate of payment exceeds 50 percent. Credit is effective for wages paid in tax years beginning after December 31, 2017, and before tax years beginning after December 31, 2019.
  15. Would not apply to any remuneration under written binding contracts in effect on November 2, 2017, that isn’t modified in any material respect; renewals are considered material modifications.
  16. Qualified employees exclude any individual who, with respect to the employer corporation, (1) was a 1 percent owner at any time during the 10 preceding calendar years, (2) has ever held the position of CEO or CFO, (3) is a family member of an individual described in (1) or (2), or (4) was one of the four highest compensated officers for any of the 10 preceding taxable years.
  17. Stock must be received from a nonpublicly traded corporation in connection with the exercise of an option or in settlement of a restricted stock unit granted in connection with the performance of services.
  18. In determining whether the asset use or business activities test are met, due regard is given to whether such assets, income, gain or loss were accounted for through such trade or business. The extent to which the income, gain or loss is derived from assets used in or held for use in the conduct of the U.S. trade or business and whether the activities of the trade or business were a material factor in the realization of the income, gain or loss is considered.
  19. Small brewers are defined as brewers producing fewer than 2 million barrels of beer during a calendar year.
  20. 100 percent of foreign-sourced portion of dividends paid by foreign corporation to U.S. corporate shareholder owning 10 percent or more of foreign corporation’s stock exempt from U.S. taxation. No foreign tax credit or deduction allowed for any foreign taxes paid or accrued with respect to any exempt dividend. The new law also includes provisions relating to deductions for disqualified related-party amounts paid or accrued pursuant to a hybrid transaction between a hybrid entity and an expanded definition of intangible property.
  21. Provides an election to preserve NOLs and coordinate NOL, overall foreign loss and foreign tax credit carryforward rules upon transition.
  22. “Downward attribution” provides that certain stock of a foreign corporation owned by a foreign person is attributed to a related U.S. person for purposes of determining whether the related U.S. person is a U.S. shareholder of the foreign corporation.

Individual Provisions

Topic

Previous Tax Law

New Tax Law

Reduction & Simplification of Individual Income Tax Rates

Individual rates on ordinary income(1)

Seven brackets with top rate of 39.6 percent*

Seven brackets with top rate of 37 percent*^

Unearned income of children

Unearned income exceeding $2,100 taxed at parents’ rates; remaining income up to $2,100, less child’s standard deduction, taxed at child’s rate

Unearned income exceeding $2,100 taxed at rates applicable to estates & trusts; remaining income up to $2,100, less child’s standard deduction, taxed at child’s rate

Capital gains rate(1)

Top rate of 20 percent*

No change

Carried interest

Capital gains rate after one-year holding period for interests received in exchange for performance of services

Capital gains rate after three-year holding period

Standard deduction

$6,500 for single filers, $9,550 head of household & $13,000 MFJ

$12,000 for single filers, $18,000 head of household & $24,000 MFJ(2)

Personal exemption

$4,150(3)

Repealed^

Identification of shares of stock sold, exchanged or otherwise disposed of

Taxpayers may use either a first-in, first-out (FIFO) or specific identification method

No change

Treatment of Business Income of Individuals, Trusts & Estates

Nonpassive losses from flow-through entity

Deductible to extent sufficient tax basis exists

Nonpassive losses limited to $250,000 ($500,000 MFJ); excess loss treated as NOL & carried forward

Pass-through tax rate

Individual rate on ordinary income

Deduction of 20 percent of domestic qualified business income (QBI); subject to limitation(4); expires after 12/31/2025

Simplification & Reform of Family & Individual Tax Credits

Child tax credit

$1,000; phaseout at $75,000 for single filers ($110,000 MFJ)

$2,000 ($1,400 refundable); phaseout beginning at $200,000 for single filers ($400,000 MFJ)(2)

Family tax credit

Not addressed

$500 nonrefundable credit for dependents other than qualifying children; phaseout at $200,000 for single filers ($400,000 MFJ)(2)

Education tax credits

Three higher education tax credits provided:  American Opportunity Tax Credit (AOTC), Hope Scholarship Credit & Lifetime Learning Credit

No change

Education savings rules

Qualified education expenses restricted to qualified higher education

Elementary & secondary school expenses, up to $10,000, treated as qualified expenses for §529 plans

Student loan indebtedness

Generally included in taxable income unless certain exceptions apply

Income from discharge of student loan debt on account of death or total & permanent disability of student excluded from taxable income(2)

Student loan interest

Deduction for qualified student loan interest paid during year for nondependent taxpayers with adjusted gross income (AGI) less than $80,000 single ($160,000 MFJ)

No change

Tuition & related expenses

Deduction for qualified tuition & fees paid during year

No change

Qualified tuition program rollovers to qualified ABLE programs

Tax-free rollovers to qualified ABLE accounts under §529A are not permitted

Permits rollover of amounts from qualified tuition programs to ABLE accounts without penalty; effective for distributions made after December 22, 2017(2)

Itemized deductions limitation

Total amount of otherwise allowable itemized deductions reduced by 3 percent of the amount by which the taxpayer's AGI exceeds a threshold; does not reduce itemized deductions by more than 80 percent

Repealed(2)

 

Simplification & Reform of Deductions & Exclusions

Home mortgage interest

Deduction for mortgage interest paid or incurred on up to $1 million of acquisition indebtedness & $100,000 of home equity indebtedness

Deduction for mortgage interest paid or incurred on up to $750,000 of acquisition indebtedness; deduction for interest paid on home equity loans eliminated(2)(5)

State & local taxes paid or accrued not in connection with a trade or business

Deduction for:  (1) state, local & foreign real property taxes, (2) state & local personal property taxes & (3) state & local income taxes (or state & local sales tax paid, if higher)

Deduction limited to $10,000 for the aggregate of:  (1) state & local real & personal property taxes & (2) state & local income tax (or state & local sales tax paid, if higher)(2)

Personal casualty & theft losses

Deduction for casualty & theft losses incurred

Eliminated except for losses incurred within a major disaster area under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (as amended 2016)(2)

Wagering losses

Deduction allowed to extent of wagering gains

Clarifies that “wagering losses” include any otherwise allowable deduction incurred in connection with wagering transactions

Gifts to charity

Deduction for charitable contributions made during year; deduction for cash contributions limited to 50 percent of AGI

Deduction for cash contributions modified to increase AGI limitation to 60 percent(2)(6)

Miscellaneous itemized deductions

Deduction for tax preparation fees, unreimbursed employee expenses & other miscellaneous items paid during year to extent they exceed 2 percent of AGI

Repealed(2)

Medical & dental expenses

Deduction for out-of-pocket expenses paid or incurred during year to extent expenses exceed 10 percent of AGI

For 2017 & 2018, deduction for out-of-pocket expenses paid or incurred during year to extent expenses exceed 7.5 percent of AGI; threshold raises to 10 percent of AGI beginning in 2019

Alimony paid

Deduction for qualifying amounts paid under a divorce or separation instrument

Repealed (both deduction & income inclusion); effective for divorce decrees executed after December 31, 2018

Moving expenses

Deduction & income exclusion for qualified expenses paid for moving at least 50 miles in connection with a job or business

Deduction & income exclusion eliminated except for active-duty members of the armed forces(2)

Educator expenses

Deduction up to $250 ($500 MFJ) for qualified expenses paid by eligible educators

No change

Bicycle commuting reimbursement

Reimbursements up to $20 per month excludible from employees’ gross income

Repealed(2)

 

Gain on sale of principal residence

Exclusion up to $250,000 for single filers ($500,000 MFJ) of gain from sale of principal residence where home used as principal residence for at least two of previous five years

No change

Simplification & Reform of Savings, Pensions & Retirement

Recharacterization of certain IRA & Roth IRA contributions

Contributions to a traditional IRA permitted to be recharacterized as contributions to a Roth IRA or vice versa; permits recharacterization of conversions

Recharacterization can’t be used to unwind Roth IRA conversions

Extended rollover period for the rollover of plan loan offset amounts in certain cases

An employee who receives a plan loan distribution has 60 days to contribute the distribution to an eligible retirement plan to avoid additional tax

The 60-day rollover period is extended to the due date for filing the employee's tax return for that year (including extensions)

Length-of-service award programs for bona fide public safety volunteers

Provides exception to deferred compensation plan rules if aggregate amount of length-of-service awards accruing for a bona fide volunteer with respect to any year of service does not exceed $3,000

Increases the aggregate amount of length-of-service awards for bona fide volunteers to $6,000

Alternative Minimum Tax

Alternative minimum tax

28 percent top rate; exemption of $55,400 for single filers ($86,200 MFJ); exemption amounts begin to phase out at $123,100 & $164,100, respectively

28 percent top rate; exemption of $70,300 for single filers ($109,400 MFJ) beginning after 12/31/2017; exemption amounts begin to phase out at $500,000 & $1 million, respectively^

Elimination of Shared Responsibility Payment for Individuals Failing to Maintain Minimal Essential Coverage

Affordable Care Act individual mandate

Individuals not covered by health

plan that provides at least minimum

essential coverage must pay

individual shared responsibility

payment(7)

Individual shared responsibility

payment reduced to zero for months

beginning after 12/31/2018

Other Provisions

Contributions to ABLE accounts

Contributions are not deductible & generally may not exceed the annual gift tax exclusion amount or limits imposed on accounts under the qualified tuition program of its respective state

Increases contribution limit to ABLE accounts under certain circumstances; designated beneficiary may claim saver’s credit for contributions made to ABLE account(2)

Contesting IRS levy

The IRS has nine months to return the monetary proceeds from the sale of wrongfully levied property; an action for wrongful levy must be brought within nine months from the levy date

Extends period of time IRS has to return monetary proceeds to two years; also extends the time period for bringing a civil action for wrongful levy to two years(8)

 

Combat zones

Members of the armed forces serving in combat zones are afforded a number of tax benefits, including income exclusions for certain military pay

Grants combat zone tax benefits to the Sinai Peninsula of Egypt(9)

2016 disaster area relief

Distributions from qualified retirement plans are generally included in income; early distributions are generally subject to a 10 percent additional early withdrawal tax – taxpayers may roll over distributions into another eligible retirement plan within 60 days to avoid income inclusion; individuals may claim itemized deductions for personal casualty losses, subject to limitation

Provides an exception to the 10 percent early withdrawal tax in the case of a distribution due to a qualified 2016 disaster – taxpayers may recognize income attributable to a qualified 2016 disaster distribution ratably over three years; taxpayers are allowed a period of up to three years for recontributions of qualified 2016 disaster distributions – modifies casualty loss limitations associated with a 2016 disaster(10)

    * Plus 3.8 percent net investment income tax on unearned income when modified adjusted gross income exceeds $200,000 for single filers ($250,000 married filing jointly (MFJ)).

    ^ Expires after December 31, 2025, except amounts would continue to be indexed for inflation using chained measurement of the consumer price index where applicable.

  1. See also Individual Brackets tab below.
  2. Reverts to its form before January 1, 2018, after December 31, 2025.
  3. Subject to phaseout based on AGI under previous law. This limitation is repealed under the new law, except would revert to its form before January 1, 2018, after December 31, 2025.
  4. Deduction does not apply to specified service businesses, except in case of taxpayer whose taxable income does not exceed $157,500 for single filers ($315,000 MFJ) with a phaseout beginning at the same levels over the next $50,000 ($100,000) of taxable income. QBI is all domestic business income other than investment income (except income from publicly traded partnerships that’s eligible for inclusion), investment interest income (other than qualified real estate investment trust and corporate dividends), net capital gain, foreign currency gains, etc. The deduction is limited to the greater of 50 percent of W-2 wages paid with respect to the business or 25 percent of W-2 wages paid plus 2.5 percent of the unadjusted basis of all qualified property.
  5. Interest deductions related to acquisition indebtedness for existing mortgages are unchanged. Interest deductions related to home equity loans, except where proceeds are used for home acquisition, is disallowed, regardless of when the debt was incurred.
  6. Repeals exception to contemporaneous written acknowledgment requirement for contributions of $250 or more when donee organization files required return. Effective for contributions made in tax years beginning after December 31, 2016.
  7. Tax imposed for any month an individual does not have minimum essential coverage unless an exception applies. Tax for any calendar month is one-twelfth of tax calculated as an annual amount. Annual amount is equal to greater of flat dollar amount (lesser of sum of individual annual dollar amounts for members of taxpayer’s family or 300 percent of adult individual dollar amount of $695 for 2018) or excess income amount (2.5 percent of excess of taxpayer’s household income for taxable year over threshold amount of income for requiring taxpayer to file income tax return).
  8. Effective for levies made after December 22, 2017, and levies made on or before December 22, 2017, if the nine-month period has not expired as of December 22, 2017.
  9. Generally effective beginning June 9, 2015, through any subsequent tax year beginning before January 1, 2026.
  10. A qualified 2016 disaster distribution includes any distribution made on or after January 1, 2016, and before January 1, 2018, to an individual whose principal place of abode at any time during calendar year 2016 was in a 2016 disaster area. Personal casualty loss relief applies to losses arising in tax years beginning after December 31, 2015, and before January 1, 2018.

Insurance Company Provisions

Topic

Previous Tax Law

New Tax Law

General Provisions

Corporate tax rate

Top rate of 35 percent

Flat rate of 21 percent (effective January 1, 2018)

Alternative minimum tax (AMT)

20 percent

Repealed; AMT credits refundable from 2018 to 2021

Dividends received deduction

70 & 80 percent deduction for any dividend received from corporations owning < 20 or ≥ 20 percent of stock of another corporation, respectively(1)

Deduction amounts reduced to 50 & 65 percent for corporations owning < 20 or ≥ 20 percent of stock of another corporation, respectively(1)

Bonus depreciation

40, 30 & 20 percent bonus depreciation for qualified property in 2018 to 2020, respectively; property must be new to qualify

100 percent through 2022 for qualified property placed in service after September 27, 2017(2); 80, 60, 40 & 20 percent bonus depreciation for property placed in service in 2023 to 2026, respectively

Section 179 expensing

Up to $520,000; phaseout beginning at $2,070,000 of assets placed in service

Up to $1 million; phaseout beginning at $2.5 million of assets placed in service(3)

Interest expense

Deduction allowed for interest expense

Deduction limited to business interest income, floor plan financing interest & 30 percent of entity’s adjusted taxable income; excess carried forward indefinitely(4)

Net operating loss (NOL)

Carried back two years & carried forward 20 years

Deduction limited to 80 percent of taxable income for tax periods after 2017; no carryback; carried forward indefinitely.

Retains current law treatment for property & casualty (P&C) insurance companies & permits NOL deductions for life insurance companies(5)

Deferred compensation

Employee compensation not includable in gross income until year of receipt; employer deduction allowed at that time

No change

§162(m) deduction for excessive employee remuneration

Deduction for compensation paid or accrued with respect to a covered employee of a publicly traded corporation limited to no more than $1 million per year. Commissions, performance-based remuneration & payments to a tax-qualified retirement plan are excluded from this limitation

Redefines covered employee; covered employees maintain that distinction for all future years; repeals the performance-based compensation exception

Accounting methods – tax year of inclusion

For an accrual-basis taxpayer, an amount is included in gross income when all events have occurred that fix the right to receive such income & the amount thereof can be determined with reasonable accuracy (the “all events test,” unless an exception applies)

Accrual-basis taxpayers would be required to recognize income no later than the tax year in which item is recognized as revenue on the applicable financial statement; this change may limit the §1276 treatment to defer market discounts for tax purposes

Insurance Company Provisions (Other than Life)

Proration rules

P&C insurance companies required to reduce reserve for losses incurred deduction by 15 percent of tax-exempt interest, deductible portion of dividends received & increase in cash value of life insurance, endowment or annuity contracts owned by company

Proration factor changed to “applicable percentage” of 5.25 percent divided by top corporate tax rate, i.e., 25 percent beginning in 2018

Loss reserve discounting

Loss payment pattern for each line of insurance business determined by reference to industrywide historical loss payment pattern applicable to such line of business; may elect to use own particular historical loss payment patterns

Historical payment pattern election repealed

Nonlife tax reserves

P&C companies must discount deduction for unpaid losses based on loss payment pattern using midterm applicable federal rates(6)

Amount of unpaid losses discounted using corporate bond yield curve (as specified by the U.S. Department of the Treasury)(7)

Section 847 special loss discount account

P&C companies may elect to claim a deduction equal to difference between amount of reserves computed on a discounted basis & amount computed on an undiscounted basis(8)

Repealed

Life Insurance Company Provisions

Company & policyholder share percentages

Complex calculation based on company’s share of net investment income

Company’s share is 70 percent; policyholder’s share is 30 percent

Small life insurance company deduction

Life insurance companies with assets < $500 million may deduct 60 percent of first $3 million of life insurance-related income; deduction is phased out for companies with income between $3 & $15 million

Repealed

Life insurance surtax

No surtax on life insurance companies currently exists

No change

Deferred acquisition costs

1.75 percent for annuities; 2.05 percent for group life; 7.7 percent for other specified insurance contracts; 60-month & 120-month amortization periods based on premium level

2.09 percent for annuities; 2.45 percent for group life; 9.2 percent for other specified insurance contracts; expands 120-month amortization period to 180 months; preserves 60-month amortization of the first $5 million (with phaseout)

Life insurance tax reserves

Actuarial-based tax reserves; can’t be less than contract’s cash surrender value; can’t be greater than statutory reserve

Tax reserves for any contract equal to greater of (1) net surrender value of contract or (2) 92.81 percent of reserve computed as required by the National Association of Insurance Commissioners (NAIC) at time reserve is determined. Tax reserves can’t be less than contract’s cash surrender value or greater than the statutory reserve

Adjustment for change in computing life insurance reserves (§807(f))

Adjustments in computing reserves may be taken into account over 10 years, regardless of effect on taxable income

Adjustments treated as a change in method of accounting; subject to §481 rules

Policyholders surplus account (PSA)

Special rule for distributions from pre-1984 PSAs provides tax deferral opportunity(9)

Eight-year inclusion of PSA balances

  1. Deduction is 100 percent of dividend received where member of the same affiliated group.
  2. Definition of qualified property expanded by removing requirement that original use begin with taxpayer.
  3. Definition of qualified property expanded to include certain improvements to nonresidential real property, including roofs, HVAC systems, fire protection and alarm systems and security systems.
  4. Adjusted taxable income is without regard to items not properly allocable to a trade or business, any business interest expense or business interest income, the 20 percent pass-through income deduction, floor plan financing interest, any NOL deduction and, for taxable years beginning before January 1, 2022, any deduction for depreciation, amortization or depletion. Interest deduction not limited for any taxpayer who meets a $25 million gross receipts test, is a regulated public utility business (including electric cooperatives) or a real property business. Farming businesses may elect not to be subject to limitation provided they use ADS method to depreciate farming property with recovery period of 10 years or more. Electing farming businesses specifically include agricultural and horticultural cooperatives.
  5. NOLs for any tax year are generally excess of life insurance deductions over life insurance gross income for that year. Deduction is limited to 80 percent of the excess and can be carried forward indefinitely (no carryback).
  6. Loss payment pattern computed based upon assumption that all losses are paid (1) in general, during the accident year and the three calendar years following the accident year, or (2) in the case of lines of business relating to auto or other liability, medical malpractice, workers’ compensation, multiple peril lines, international coverage and reinsurance, during the accident year and 10 calendar years following the accident year. For long-tail lines of business, a special rule extends the loss payment pattern period, so the amount of losses that would have been treated as paid in the tenth year after the accident year is treated as paid in the tenth year and in each subsequent year (up to five years) in an amount equal to the amount of the losses treated as paid in the ninth year after the accident year.
  7. Amount of losses that would have been treated as paid in the third year after the accident year treated as paid in third year and in each subsequent year in an amount equal to the average of the amount of the losses treated as paid in the first and second years after the accident year, and in the case of lines of business relating to auto or other liability, medical malpractice, workers’ compensation, multiple peril lines, international coverage and reinsurance, the amount of losses that would have been treated as paid in the tenth year after the accident year would be treated as paid in the tenth year and in each subsequent year in an amount equal to the average of the amount of the losses treated as paid in the seventh, eighth and ninth years after the accident year; would result in a lower tax deduction for reserves.
  8. Companies that make this election are required to make a special estimated tax payment equal to the tax benefit attributable to the deduction. Amounts added to the special loss discount account are automatically subtracted from the account and made subject to tax if they have not already been subtracted after 15 years.
  9. Tax rules for insurance companies enacted in 1959 included a rule that half of a life insurer’s operating income was taxed only when the company distributed it, and a PSA kept track of untaxed income. In 1984, this deferral of taxable income was repealed, although existing policyholders’ surplus account balances remained untaxed until they were distributed. Legislation enacted in 2004 provided a two-year holiday that permitted tax-free distributions of these balances during 2005 and 2006.

Individual Brackets

Single

2018 Ordinary Rates

2018 Capital Gains Rates

Bracket

Previous Tax Law*

New Tax Law*^

Previous Tax Law*

New Tax Law*^

$0–$9,525

10%

10%

0%

0%

9,526–38,600

15%

12%

0%

0%

38,601–38,700

15%

12%

0%

15%

38,701–82,500

25%

22%

15%

15%

82,501–93,700

25%

24%

15%

15%

93,701–157,500

28%

24%

15%

15%

157,501–195,450

28%

32%

15%

15%

195,451–200,000

33%

32%

15%

15%

200,001–424,950

33%

35%

15%

15%

424,951–425,800

35%

35%

15%

15%

425,801–426,700

35%

35%

15%

20%

426,701–500,000

39.6%

35%

20%

20%

More than 500,000

39.6%

37%

20%

20%

Head of Household

2018 Ordinary Rates

2018 Capital Gains Rates

Bracket

Previous Tax Law*

New Tax Law*^

Previous Tax Law*

New Tax Law*^

$0–$13,600

10%

10%

0%

0%

13,601–51,700

15%

12%

0%

0%

51,701–51,800

15%

12%

0%

15%

51,801–51,850

15%

22%

0%

15%

51,851–67,500

25%

22%

15%

15%

67,501–82,500

25%

22%

15%

15%

82,501–133,850

25%

24%

15%

15%

133,851–157,500

28%

24%

15%

15%

157,501–200,000

28%

32%

15%

15%

200,001–216,700

28%

35%

15%

15%

216,701–424,950

33%

35%

15%

15%

424,951–452,400

35%

35%

15%

15%

452,401–453,350

35%

35%

15%

20%

453,351–500,000

39.6%

35%

15%

20%

More than 500,000

39.6%

37%

20%

20%

Married Filing Separately

2018 Ordinary Rates

2018 Capital Gains Rates

Bracket

Previous Tax Law*

New Tax Law*^

Previous Tax Law*

New Tax Law*^

$0–$9,525

10%

10%

0%

0%

9,526–38,600

15%

12%

0%

0%

38,601–38,700

15%

12%

0%

15%

38,701–45,000

25%

22%

15%

15%

45,001–70,000

25%

22%

15%

15%

70,001–78,075

25%

22%

15%

15%

78,076–82,500

28%

22%

15%

15%

82,501–118,975

28%

24%

15%

15%

118,976–157,500

33%

24%

15%

15%

157,501–200,000

33%

32%

15%

15%

200,001–212,475

33%

35%

15%

15%

212,476–240,025

35%

35%

15%

15%

240,026–300,000

39.6%

35%

20%

15%

More than 300,000

39.6%

37%

20%

20%

Married Filing Jointly

2018 Ordinary Rates

2018 Capital Gains Rates

Bracket

Previous Tax Law*

New Tax Law*^

Previous Tax Law*

New Tax Law*^

$0–$19,050

10%

10%

0%

0%

19,051–77,200

15%

12%

0%

0%

77,201–77,400

15%

12%

0%

15%

77,401–156,150

25%

22%

15%

15%

156,151 – 165,000

28%

22%

15%

15%

165,001–237,950

28%

24%

15%

15%

237,951–315,000

33%

24%

15%

15%

315,001–400,000

33%

32%

15%

15%

400,001–424,950

33%

35%

15%

15%

424,951–479,000

35%

35%

15%

15%

479,001–480,050

35%

35%

15%

20%

480,051–600,000

39.6%

35%

20%

20%

More than 600,000

39.6%

37%

20%

20%

    * Plus 3.8 percent net investment income tax on unearned income when modified adjusted gross income exceeds $200,000 for single filers ($250,000 MFJ). Bracket income levels would be inflation adjusted based on a chained measurement of the Consumer Price Index.

    ^ Expires after December 31, 2025.

Transfer Provisions

Topic

Previous Tax Law

New Tax Law

Estate tax

40 percent tax rate with $5.6 million basic exclusion amount per taxpayer(1)

40 percent rate with inflation adjusted $10 million basic exclusion amount per taxpayer^(1)

Gift tax

40 percent rate with $5.6 million basic exclusion amount per taxpayer(1); $15,000 annual exclusion(2)

40 percent rate with basic exclusion amount per person(1); $15,000 annual exclusion retained^(2)

Generation-skipping transfer tax

40 percent rate with $5.6 million basic exclusion amount per taxpayer(1)

40 percent rate with basic exclusion amount per taxpayer^(1)

    ^ Expires after December 31, 2025, except amounts would continue to be indexed for inflation using chained measurement of the consumer price index where applicable.

  1. Basic exclusion amount adjusted for inflation annually.
  2. Annual exclusion amount adjusted for inflation annually.

Exempt Organizations Provisions

Topic

Previous Tax Law

New Tax Law

Tax-exempt organization executive compensation

Not addressed

21 percent execise tax on compensation exceeding $1 million paid to five highest-paid employees; remuneration of a covered employee that isn't deductible under the $1 million limitation isn't considered

Exempt Organizations – Unrelated Business Income Tax

Unrelated business income (UBI)

Subject to UBI tax

Organization operating multiple unrelated business activities may not offset losses of one activity against income of another; UBI increased by amount of certain fringe benefits for which deduction is disallowed

Exempt Organizations – Excise Taxes

Excise tax on private foundations

Two-tier excise tax rate system (2 percent on net investment income; reduced to 1 percent in certain cases)

No change

Excise tax on private colleges & universities

Not addressed

1.4 percent on net investment income(1)

  1. Applies to institutions with 500 or more tuition-paying students and assets with a value of at least $500,000 per full-time student, not including those used directly in carrying out the institution’s educational purpose. Assets and related net investment income of related organizations would be treated as part of the private college or university. Only applies to institutions with more than 50 percent of their tutition-paying students located within the United States.