By L. Michael Gracik, Jr., CPA, Managing Partner
This article was written with information available as of January 23, 2018. The article covers a code section which was included in the “Tax Cuts and Jobs Act” signed into law on December 22, 2017. The IRS is expected to release regulations and other publications to clarifying the specific provisions covered in this Act. Please consult your tax advisor for up-to-date information and to discuss how this provision affects your specific situation.
The Tax Cuts and Jobs Act of 2017 keeps in place the current tax structure; whereby net long term capital gains and qualified dividends are subject to maximum tax rates of 20% and 15%. Long term capital gains resulting from the sale of collectibles and unrecaptured depreciation continue to be taxed at rates of 28% and 25% respectively.
The 0% capital gains tax rates also continue for up to $38,600 for individuals and $77,200 for Married couples filing joint tax returns. For taxpayers filing as head of household the 0% tax rate ends at $51,700.
The transition from the 15% rate to the 20% rate continues to use the old top tax brackets. As a result, the 20% maximum rate will start to apply for married couples filing jointly with taxable income over $479,000, $452,400 for taxpayers filing as head of households, and $425,800 for all single taxpayers. These breakpoints will continue to be indexed for inflation.
The 3.8% net investment income tax was left in place. This tax will continue to apply to taxpayers with adjusted gross income (AGI) over $250,000 for married couples filing jointly and $200,000 for all other filers. These AGI thresholds are not indexed for inflation.
For trusts and estates, the new 0% breakpoint is $2,600 and the 15% breakpoint is $12,700. It continues to make sense for estates and trusts to consider making distributions of Distributable Net Income (DNI) to individual beneficiaries with more favorable tax brackets. These trust and estate breakpoints will also apply in 2018 for taxpayers subject to the Kiddie Tax.
Short term capital gains continue to be taxed at ordinary income tax rates.
Additional Tax Resources:
- “Tax Cuts and Jobs Act adds new considerations for M&A transactions”
- Do your 2017 investments qualify for the Virginia Qualified Equity and Subordinated Debt Credit?
- Due date reminders for non-income tax filings
- Individual Tax Planning: Neighborhood Assistance Program (NAP) Credit Benefits
- The Tax Cut and Jobs Act: 4 Tax Changes Homeowners Need to Know
- “Withholding Taxes: Are You Compliant?”
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.