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TAX REFORM: SOME (VERY) BROAD OBSERVATIONS

Taxes

The Federal Tax Laws have recently been significantly reshaped and the changes affect us all. Much press has been devoted to discussing changes to the Standard Deduction, State/Local Income Tax Deduction, and Mortgage Interest Deduction. We offer below a few broad brush observations on lesser addressed aspects of the tax legislation that impact Individuals:

  •  Portfolio investing is not impacted much. Dividends and Capital Gains still receive favorable tax treatment. The Net Investment Income “surtax” is unchanged. Retirement saving incentives were not proscribed - except ROTH IRA Conversions can no longer be recharacterized before year end. Permitted uses for 529 Plan funds are expanded to cover pre-college years.
  • Almost all the changes impacting individuals “sunset” after seven years. Many of today’s politicians will not be around to deal with the consequences in seven years when most changes affecting Individuals revert to last year’s tax law.
  • The reach of the dreaded Alternative Minimum Tax (AMT) is shortened. Significantly fewer individuals are expected to payAMT. While AMT was repealed outright for Corporations, for Individuals many AMT disallowed deductions are now not deductible for Regular Tax purposes (or the deduction is limited) while the AMT exemption is both increased and indexed for inflation.
  • Alimony changes in 2019. Next year, Alimony will no longer be deductible by the payor or taxed as income to the recipient.
  • The Estate Tax Exemption has doubled. Estates below $11.2 million ($22.4 million for couples) no longer trigger any Federal Estate Taxes (until this change also “sunsets” in 2025!) but State Estate Taxes can still take a noticeable tax bite.

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