Business News
Understanding TCJA of 2017
What tax code changes were made?
Written by: Paul Bloodsworth
October 24, 2024
[3 minute read]
Summary
The Tax Cuts and Jobs Act (TCJA) of 2017 was a landmark piece of legislation that overhauled the U.S. tax system, with the goal of stimulating economic growth through tax reductions.
It significantly lowered corporate tax rates, cut individual income tax rates across various brackets, nearly doubled the standard deduction, and introduced new business-friendly provisions like the flat-rate pass-through deduction.
While it provided significant tax relief for both individuals and businesses, many of its provisions are set to sunset in 2025, leading to potential tax increases unless new legislation is enacted.
In this article, we will:
- list 10 tax code changes provided by TCJA of 2017.
The Tax Cuts and Jobs Act (TCJA) of 2017 was a comprehensive tax reform law passed in December 2017, affecting both individuals and businesses. Here are the major components:
1.) Individual Tax Rate Changes
- Lowered tax brackets: The TCJA reduced tax rates for most income brackets. The top rate decreased from 39.6% to 37%.
- Doubling the Standard Deduction: The standard deduction nearly doubled from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for married couples filing jointly.
- Elimination of Personal Exemptions: Personal exemptions, which allowed deductions for each family member, were eliminated.
2.) Child Tax Credit
- Increased Child Tax Credit: The child tax credit was increased from $1,000 to $2,000 per qualifying child. There was also a $500 non-refundable credit for other dependents.
3.) State & Local Tax (SALT) Deduction Limitation
- The deduction for state and local taxes paid was capped at $10,000, significantly impacting taxpayers in high-tax states.
4.) Mortgage Interest Deduction
- The cap for mortgage interest deductions was reduced from $1 million to $750,000 of mortgage debt for new homeowners.
5.) Corporate Tax Rate Reduction
- The corporate tax rate was reduced from 35% to a flat 21%, one of the most significant changes for businesses.
6.) Pass-Through Business Income Deduction
- A new 20% deduction was introduced for qualified business income from pass-through entities, such as partnerships, LLCs, and sole proprietorships.
7.) Alternative Minimum Tax (AMT) Changes
- For individuals, the AMT exemption amounts were increased, reducing the number of taxpayers subject to the AMT.
- For corporations, the corporate AMT was repealed.
8.) Estate Tax
- The estate tax exemption was doubled, from $5.49 million to $11.18 million per individual, reducing the number of estates subject to the tax.
9.) Changes to Deductions and Credits
- Medical Expense Deduction: The threshold for deducting medical expenses was temporarily reduced to 7.5% of AGI (adjusted gross income) for tax years 2017 and 2018.
- Miscellaneous Itemized Deductions: Certain deductions (e.g., tax preparation fees, unreimbursed employee expenses) were suspended.
- Moving Expenses Deduction: This deduction was eliminated except for active-duty military members.
10.) International Taxation Changes
- Territorial Tax System: Shifted from a worldwide tax system to a territorial system, meaning U.S. corporations are no longer taxed on most foreign profits.
- One-Time Repatriation Tax: Imposed a one-time tax on untaxed foreign earnings of U.S. companies (15.5% for cash and 8% for other assets).
Sunset Provisions for TCJA of 2017