2017 Federal Tax Reform Creates Urgent Need for Taxpayers to Review Their Tax Strategy

Varnum LLP

After last minute political and procedural hurdles were cleared, the Tax Cuts & Jobs Act (the "Tax Act") was passed December 20, 2017. The administration reportedly is working out the timing of signing the bill due to concerns about a variety of potential effects of enacting the new law prior to year end, but the bill is expected to be signed into law by President Trump very soon. And while these federal changes are being evaluated, taxpayers should also consider state tax implications of these changes, along with likely state legislative actions to modify state tax laws or decouple from certain of the federal provisions that affect state tax bases.

The table below provides highlights of specified provisions included in the Tax Act, and compares the new tax provisions with the law in place prior to the passage of 2017 tax reform. There are many nuanced changes, which should be reviewed carefully based on each taxpayer's specific facts and circumstances. In addition, there are no IRS regulations or guidance at this point, and there have been no comprehensive state tax analyses done to compute what the state corporate and individual income tax implications will be. We recommend that taxpayers consult with experienced tax counsel regarding both federal and state tax planning considerations as certain actions may need to be taken quickly to maximize the benefits available from this historic reform. Please contact any member of our Varnum Tax Team for guidance.

*With certain exceptions, the individual tax provisions generally expire for tax years after December 31, 2025. One permanent change affecting tax liabilities of individuals is a change in the manner in which indexing for inflation is done. The new indexing uses what is called "chained CPI-U" rather than the standard "CPI-U" measure that had been used previously. Economic measures indicate the likely result of this change will be that indexed increases in tax brackets and phase-out thresholds will be slowed, which will result in increased tax liabilities for individuals as time passes. The corporate tax provisions included in the new law generally are permanent.


Current Law

Tax Cuts & Jobs Act Provision*

Individual Tax and Rates

Top marginal rate



Number of tax brackets



Alternative minimum tax

Complex alternative tax with exemption amounts:

  • Joint returns - $84,500
  • Single - $54,300
  • Married filing separately - $42,250
  • Phased out single $120,700; joint $160,900

Retains AMT with increased exemption amounts:

  • Joint returns - $109,400
  • Single - $70,300
  • Married filing separately - $54,700
  • Exemption amounts reduced by 25% of alternative taxable income exceeds $1m for joint returns and $500,000 for single taxpayers

Tax Rate Schedule: Single

$0 to $9,325:
10% of taxable income

Over $9,325 but not over $37,950:
$932.50 plus 15% of the excess over $9,325

Over $37,950 but not over $91,900:
$5,226.25 plus 25% of the excess over $37,950

Over $91,900 but not over $191,650:
$18,713.75 plus 28% of the excess over $91,900

Over $191,650 but not over $416,700:
$46,643.75 plus 33% of the excess over $191,650

Over $416,700 but not over $418,400:
$120,910.25 plus 35% of the excess over $416,700

Over $418,400:
$121,505.25 plus 39.6% of the excess over $418,400

$0 to $9,525:
10% of the taxable income

Over $9,525 but not over $38,700:
$952.50 plus 12% of the excess over $38,700

Over $38,700 but not over $82,500:
$4,453.50 plus 22% of the excess over $38,700

Over $82,500 but not over $157,500:
$14,089.50 plus 24% of the excess over $82,500

Over $157,500 but not over $200,000:
$32,089.50 plus 32% of the excess over $157,500

Over $200,000 but not over $500,000:
$45,689.50 plus 35% of the excess over $200,000

Over $500,000:
$150,689.50 plus 37% of the excess over $500,000

Tax Rate Schedule: Married Filing Jointly

$0 to $18,650
10% of taxable income

Over $18,650 but not over $75,900
$1,865 plus 15% of the excess over $18,650

Over $75,900 but not over $153,100
$10,452.50 plus 25% of the excess over $75,900

Over $153,100 but not over $233,350
$29,752.50 plus 28% of the excess over $153,100

Over $233,350 but not over $416,700
$52,222.50 plus 33% of the excess over $233,350

Over $416,700 but not over $470,700
$112,728 plus 35% of the excess over $416,700

Over $470,000
$131,628 plus 39.6% of the excess over $470,700

Not over $19,050
10% of the taxable income

Over $19,050 but not over $77,400
$1,905 plus 12% of the excess over $19,050

Over $77,400 but not over $165,000
$8,907 plus 22% of the excess over $77,400

Over $165,000 but not over $315,000
$28,179 plus 24% of the excess over $165,000

Over $315,000 but not over $400,000
$64,179 plus 32% of the excess over $315,000

Over $400,000 but not over $600,000
$91,379 plus 35% of the excess over $400,000

Over $600,000
$161,379 plus 37% of the excess over $600,000

Individual Deductions and Credits

State and local tax deduction

Income or sales tax, plus property tax deductible

Limits deduction for total of state income and property tax to $10,000

Mortgage interest deduction

Deduction for interest on loans up to $1m for principal residence plus one additional residence

Deduction for interest on loans up to $750,000; eliminates deduction for home equity debt

Moving expenses, and miscellaneous itemized deductions

Deductible subject to limits


Personal and dependency exemptions

$4,150 per individual and dependents


Standard deduction

  • $6,500 single
  • $13,000 married filing jointly
  • $12,200 single
  • $24,400 married filing jointly

Itemized deduction phase out

Itemized deductions phased out for income of:

  • Single $261,000
  • Married/Joint $318,800


Alimony deduction/ income

Alimony generally is deductible to payor and taxable to recipient 

For divorce or separation agreement entered (or modified if the new law is expressly incorporated) after December 31, 2018, alimony is not deductible to the payor and is not taxable to the recipien

Individual Tax Credits

Child Tax Credit


$2,000: up to $1,400 refundable

  • Credit phased out for married filing joint taxpayers at $400,000 of income, and single taxpayers at $200,000 of income

Basis/Carried Interest Provisions

Basis determination for sales of stock

Specific identification available for basis determinations for stock sales

No change in law – proposal to require first in first out (FIFO) basis determinations eliminated in final bill

Carried interest holding period

One year holding period

New three year holding period required to qualify for long term capital gain

Estate Tax

Estate tax base/ threshold

Top rate 40% on estates valued at more than $5.6m/$11.2m

Rates unchanged

  • Increased threshold to tax only estates valued at more than $11.2m /$22.4m

Business Provisions

Highest pass-through rate


Tax determined with a 20% deduction of pass-through income

  • Limited to greater of 50% of wages paid, or 25% of wages plus 2.5% of cost of depreciable tangible property

Highest corporate rate



Corporate alternative minimum tax ("AMT")

Complex alternative tax for corporations


Business interest deduction

Deductible in full (generally)

Limits deduction to 30% of net income before interest, taxes, depreciation, and amortization (EBITDA)

Section 179 expensing

Small business can expense up to $500,000 of property in first year

Limit increased to $1m of property

Phase out threshold increased to $2.5m

Bonus Depreciation

Prior bonus depreciation rules applied

100% immediate expensing of the cost of (new and used) qualified property placed in service after September 27, 2017 and before January 1, 2023

Phased down to:

  • 80% for property placed in service after December 31, 2022
  • 60% for property placed in service after December 31, 2023
  • 40% for property placed in service after December 31, 2024
  • 20% for property placed in service after December 31, 2025

Like Kind Exchange

Deferral of gain on exchange of like-kind property (tangible and real)

Like-kind exchange limited to real property

Dividends received deduction

80%/70% deduction for intercorporate dividends

80% deduction reduced to 65%

70% deduction reduced to 50%

Tax on multinational companies

Tax using worldwide system with credits and deferrals

Modified territorial system

One-time repatriation of assets tax


8% tax on non-cash assets
(15.5% for cash)


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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