Taking Stock: Tax Reform Update

December 21, 2017 / by NEPC


The tax reform bill was passed by both the US House and Senate on December 20th and will be sent to the President for approval. There has been much speculation about what would remain in the bill and what would be removed. The clear winner appears to be the corporate world, where tax rates have been slashed from 35% to 21%, the corporate AMT has been repealed and preferential rates will apply to the repatriation of foreign-sourced income. Most corporate tax changes have no expiration date. The analysis of the impact to investment opportunities arising from corporate tax changes will be forthcoming as the magnitude of the bill is synthesized. 

Individuals will also have changes to their taxes, and we have highlighted some of those below. Most of these changes are effective January 1, 2018 and most expire in 2025. 

Individual Tax Rates

The top marginal individual rate was reduced from 39.6% to 37%.  The marginal individual tax brackets have also changed.  The new brackets are as follows:

Tax Rate


Married Filing Jointly


$0 to $9,525

$0 to $19,050


$9,526 to $38,700

$19,051 to $77,400


$38,701 to $82,500

$77,401 to $165,000


$82,501 to $157,500

$165,001 to $315,000


$157,501 to $200,000

$315,001 to $400,000


$200,001 to $500,000

$400,001 to $600,000


Over $500,000

Over $600,000

Alternative Minimum Tax (AMT)

AMT remains in effect for individual taxpayers, although the exemption amount has been increased to $70,300 (single) or $109,400 (married) from $54,300 (single) and $84,500 (married).  In addition, the bill increases the individual AMT phase-out thresholds to $1,000,000 for married taxpayers filing a joint return and half that amount for all other taxpayers.

Standard Deductions and Personal Exemptions

The standard deduction has approximately doubled to $12,000 (single) and $24,000 (married).  At the same time, the personal exemption has been repealed (the personal exemption for 2017 is $4,050 for each individual).   

Phase out of Itemized Deductions (PEASE)

One concession made to high-income taxpayers is related to the phase out of itemized deductions (aka, the Pease limitation). In 2017, couples begin to lose the benefit of their itemized deductions once AGI exceeds $313,800 ($261,500 for singles). This phase out would be repealed in 2018 under this proposal.

State and Local Taxes (SALT)

Where previously state and local income or sales taxes and property taxes were deductible through itemized deductions, those deductions are now limited to a combined amount of $10,000 per tax return. 

Interest on Homeowners Mortgage

For new mortgages (defined as those acquire after December 15, 2017) the deductibility of interest paid on mortgages for a principal residence and second residence is limited to the interest on $750,000 of debt (down from $1 million of debt previously).  The deductibility of mortgage interest on mortgages already in place as of December 15, 2017 will be grandfathered under the old rules ($1 million of debt limit).

Medical Expense Deductibility

Medical expenses will be deductible for two tax years (2017 and 2018) through itemized deductions if they exceed 7.5% of AGI.  After December 31, 2018, the limit reverts back to the previous limitation of expenses in excess of 10% of AGI.

Pass-Through Entity Income
Owners or investors in pass-through entities or sole proprietorships may deduct up to 20% of the domestic qualified business income received from a pass-through entity.  However, that deduction phases out for taxpayers with taxable income over $157,500 (single) or $315,000 (married).

Gift Taxes

The top gift tax remains at 40%.  The basic exclusion amount is doubled from $5 million to $10 million per individual (adjusted for inflation). 

Miscellaneous Deductions

Expenses that fall under the category “miscellaneous itemized deductions” would no longer be deductible. These expenses are currently subject to the 2% of AGI floor.  The expenses that fall into this category that are related to portfolio management include items such as tax preparation fees, investment-related expenses, and trustee fees (including fees paid for an IRA).

Generation Skipping Trust (GST)

The top GST tax rate remains at 40%.  However, the GST exemption amount is doubled from $5 million to $10 million (inflation adjusted).

Estate Tax

The estate tax exclusion doubled from $5 million to $10 million per individual (inflation adjusted). For married persons, any unused portion of the estate tax exclusion may be used by the surviving spouse.

Charitable Contributions

The proposal would make two changes to the deductibility of charitable contributions. Donations of cash to public charities would be deductible up to 60% of Adjusted Gross Income (AGI), rather than the current 50% limit. In addition, the charitable deduction for 80% of the amount paid to a college for the right to purchase athletic tickets would be repealed.

Healthcare Individual Mandate Requirement

The penalty for individuals who fail to maintain adequate health insurance has been repealed effective January 1, 2019.  There is no expiration date to this repeal.


We would encourage you to consult your tax adviser to understand what portions of the tax reform impact your specific situation.  Following are a few items to consider prior to December 31, 2017 to maximize your current tax year deductions.

  • State and Local Taxes – If you make estimated tax payments, consider making your 2017 fourth quarter payment before December 31, 2017 in order to obtain the maximum deductibility of your 2017 SALT obligation. Additionally, if your property taxes are paid in arrears, consider making the payment for 2017 that is due in 2018 before December 31, 2017.
  • Charitable Contributions – The deductibility for charitable contributions will remain under the tax reform; however, individuals who may no longer itemize in the future should consider making additional deductible charitable contributions in 2017.
  • Gifting and Planning – Because of increases in the exclusions and GST exemptions, as well as changes to tax treatment and rates for income from pass-through entities, it is important to understand the impact to your estate plan. We encourage you to work with your estate planning adviser to evaluate options to maximize your plans under the new rules.  

Topics: Endowments & Foundations, Private Wealth, Taking Stock

Read our disclaimers.