Kelly Bullis: Permanent tax law changes from TCJA

We’re getting close to the end of TCJA of 2017 (Tax Cuts and Jobs Act under President Trump), which has been a major benefit to just about everybody. It has a sunset provision in it that reverts most of the tax law back to pre-2017 levels. In effect raising everybody’s taxes by quite a lot in most cases.

There are some provisions in the TCJA that are permanent.

Alimony payments deduction. Prior to TCJA, you could deduct payments for alimony above the line on your tax return. No longer and after the TCJA sunset, these will still no longer be deductible. Ouch! Tax rates will go up, but not reduce taxable income by this.

Business vehicle depreciation deduction. Before TCJA, deduction for “luxury autos” was severely limited. (Just to understand how ridiculous that rule was, a Toyota Prius was considered a luxury auto.) The TCJA greatly increased the luxury auto depreciation allowances for vehicles placed in service after 2017. This will not change.

Section 529 plan qualified expenses. TCJA extended the tax break for up to $10,000 of tuition paid at private K-12 schools. This will not end in 2024.

Section 179 Expense Deduction for business assets were doubled from pre-TCJA limits and were then indexed to increase with inflation every year. TCJA also increased the phase out threshold, also indexed for inflation. This will not end when TCJA sunsets in 2024.

The corporate tax rate, lowered from an indexed rate of 35% pre TCJA to a flat 21% will not go back up after 2024. That change is permanent. What isn’t permanent is the Qualified Business Income Deduction to make non-C Corporation business tax rates generally the same. So, Partnerships, Sub-S Corporations, Sole-Proprietor businesses, and rentals will no longer get an adjustment to their taxable income, effectively making their business activities taxed at a potential top rate of 38%.

Business Entertainment. Prior to TCJA, businesses could deduct 50% of qualified entertainment expenses. TCJA changed “qualified” to business meals only. When TCJA expires, this limit will not. Still only meals will be deductible and still only at 50%.

Section 1031 exchange rules. TCJA limits a section 1031 exchange to only being real property. (Real Estate.) When 2025 rolls in, this limitation will still be in effect. Dang! Section 1031 exchange used to be a favorite tax planning tool. It was all about exchanging like-kind property and delaying the tax. Now the only “like-kind” property will permanently be real estate.

There is a strong chance that in 2024, Congress will vote to extend TCJA as is for at least one more year. Who wants to go back and run for re-election having done nothing and causing most everybody’s taxes to increase substantially?

Have you heard? Proverbs 28:7a says, “Whoever keeps the law is a wise son.”

Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 775-882-4459. On the web at BullisAndCo.com. Also on Facebook.