Kelly Polis: Permanent tax law changes from TCJA
We are nearing the end of the 2017 TCJA (President Trump’s Tax Cuts and Jobs Act), which was a huge benefit to almost everyone. It contains a sunset clause that returns most of the tax code to pre-2017 levels. In fact, everyone’s taxes are raised significantly in most cases.
There are some provisions in the TCJA that are considered permanent.
Deduction of alimony payments. Before the TCJA, you could deduct alimony payments above the line on your tax return. This is no longer the case and after the TCJA ends, these will no longer be deductible. Oh! Tax rates will rise, but this will not reduce taxable income.
Commercial vehicle depreciation deduction. Before the TCJA, the deduction for “luxury cars” was very limited. (Just to understand how ridiculous this rule is, a Toyota Prius was considered a luxury vehicle.) The TCJA significantly increased the luxury car depreciation allowance for vehicles placed in service after 2017. That’s not going to change.
Section 529 Qualified Expense Plan The TCJA extended the tax credit for up to $10,000 of tuition paid at private K-12 schools. This will not end in 2024.
The Section 179 expense deduction for business assets has been doubled from the pre-TCJA limits and then indexed to increase with inflation each year. The TCJA also increased the phase-out threshold, which was also indexed to inflation. This will not end at the TCJA sunset in 2024.
The corporate tax rate, which was reduced from an indexed rate of 35% before the TCJA to a flat rate of 21%, will not rise again after 2024. This change is permanent. What is not permanent is the qualified business income deduction to make non-C corporation business tax rates generally the same. Therefore, partnerships, subsidiaries, sole proprietorships and rentals will not receive an adjustment to their taxable income, effectively making their business activities taxed at a potentially higher rate of 38%.
Business entertainment. Before the TCJA, businesses could deduct 50% of qualified entertainment expenses. The TCJA changed the word “eligible” to business meals only. When the TCJA expires, this limit will not expire. Still only meals will be discounted and only 50% off.
Article 1031 Exchange rules. The TCJA limits a Section 1031 exchange to being real property only. (Real estate.) When 2025 comes, this restriction will still be in effect. Dang! Section 1031 exchanges have been a favorite tax planning tool. It was all about exchanging like property and delaying the tax. Now the only “like-kind” property will permanently be real estate.
There is a strong chance that Congress will vote in 2024 to extend the TCJA as is for at least another year. Who wants to come back and run for re-election without doing anything and causing most people’s taxes to increase dramatically?
Have you heard? Proverbs 28:7a says, “He who keeps the law is a wise son.”
Kelly Bullis is a Certified Public Accountant in Carson City. Call him at 775-882-4459. Online at BullisAndCo.com. Also on Facebook.
