Do the New 2018 Tax Laws Affect You?
The new year brought new laws. One of the most highly publicized, and impactful new laws brought significant changes to the U.S. tax code. If you are an individual seeking divorce, a homeowner or potential home buyer, or a business owner you may be affected by this new law.
The largest revision of the tax code affects corporations, and the rate that corporate profits are charged. The new tax law lowers the federal income tax rate from 35% tax rate to 21%.
Late last year, corporations had the ability to fully and immediately expense the cost of assets acquired. This provision incentivized corporations to make purchases. This will start to decrease by 20% per year from 2023 through 2026.
Certain small business owners will benefit from a specific part of the corporate tax plan. “Pass through entities,” or LLCs taxed as partnerships and S corporations, with some exceptions, can claim a 20% deduction on their qualified business income. The exceptions include professional service industries such as law or accounting that have limitations on the income tax deduction.
Homeowners may also be affected by the new law. The mortgage interest deduction has shrunk on new mortgages. The former cap was interest on up to $1 million of mortgage debt but for 2018 and beyond the cap is lowered to interest accrued on $750,000 of mortgage debt. The new tax bill still allows for the second-home mortgage deduction. Under the current tax bill this reverts in 2026, when interest on up to $1 million can be deducted, irrespective of when the home was purchased.
For taxpayers selling their primary home, the capital gain deduction remains. A capital gain is the profit from the sale of an asset. If the homeowners have lived in the home for two of the past five years, capital gains can be excluded up to $500,000, or $250,000 for single tax filers.
Individuals who divorce after 2018 will be at a disadvantage with respect to maintenance (formerly alimony) payments, or court-regulated financial support from one spouse to another after divorce. The law reverses the concept that made maintenance payments deductible to the person making the payments. Any divorce or separation agreement completed after December 31, 2018 is subject to the new law. For agreements starting in 2019, the alimony payments will no longer be deductible (for the payer) or taxable (for the recipient).
Choosing legal counsel familiar with the latest developments in the ever-changing law is a wise investment.