15 Facts About TCJA

What is the TCJA?

The Tax Cuts and Jobs Act (TCJA), passed in 2017, brought significant changes to the U.S. tax code. It aimed to simplify taxes, reduce rates, and stimulate economic growth. Here are some key facts about this landmark legislation.

1. Largest Overhaul Since 1986: The TCJA represents the most extensive revision of the U.S. tax code since the Tax Reform Act of 1986.

2. Corporate Tax Rate Reduction: The corporate tax rate dropped from 35% to 21%, aiming to make U.S. businesses more competitive globally.

3. Individual Tax Brackets: The TCJA adjusted individual tax brackets, reducing the rates for most income levels.

4. Standard Deduction Increase: The standard deduction nearly doubled, rising to $12,000 for single filers and $24,000 for married couples filing jointly.

5. Personal Exemption Elimination: The act eliminated personal exemptions, which previously allowed taxpayers to deduct a set amount for each household member.

Impact on Families and Individuals

The TCJA brought several changes that directly affect families and individual taxpayers. These adjustments aimed to simplify filing and provide tax relief.

6. Child Tax Credit Expansion: The child tax credit increased from $1,000 to $2,000 per qualifying child.

7. State and Local Tax Deduction Cap: Deductions for state and local taxes (SALT) were capped at $10,000, impacting taxpayers in high-tax states.

8. Mortgage Interest Deduction Limit: The mortgage interest deduction limit was reduced to $750,000 for new loans.

9. Medical Expense Deduction Threshold: The threshold for deducting medical expenses was temporarily lowered to 7.5% of adjusted gross income.

10. Alimony Deduction Changes: Alimony payments are no longer deductible for the payer, nor are they considered taxable income for the recipient for divorces finalized after 2018.

Business and Investment Implications

The TCJA also introduced several provisions affecting businesses and investors. These changes aimed to stimulate investment and economic growth.

11. Pass-Through Deduction: Owners of pass-through entities, like S-corporations and LLCs, can deduct up to 20% of their qualified business income.

12. Bonus Depreciation: Businesses can immediately deduct 100% of the cost of eligible property, like machinery and equipment, in the year it is placed in service.

13. Interest Expense Limitation: The deduction for business interest expenses is limited to 30% of adjusted taxable income.

14. Repatriation Tax: The TCJA imposed a one-time tax on overseas profits, encouraging companies to bring foreign earnings back to the U.S.

15. Net Operating Loss (NOL) Changes: NOLs can no longer be carried back to previous years but can be carried forward indefinitely, though limited to 80% of taxable income.

Final Thoughts on TCJA

The Tax Cuts and Jobs Act (TCJA) brought significant changes to the U.S. tax code. It lowered the corporate tax rate, aimed to simplify individual taxes, and introduced new deductions. Businesses saw a drop in their tax burdens, potentially boosting investments. For individuals, the standard deduction nearly doubled, though some itemized deductions were capped or eliminated. The child tax credit increased, benefiting many families. However, the state and local tax (SALT) deduction cap hit high-tax states hard. The alternative minimum tax (AMT) exemption increased, reducing its impact on taxpayers. While the TCJA aimed to spur economic growth, its long-term effects on the deficit and income inequality remain debated. Understanding these changes helps navigate the evolving tax landscape. Stay informed to make the most of the TCJA's provisions.