SUPPLEMENT TO k
TAXATION FOR DECISION MAKERS, 2018 EDITION
k k k k k
Shirley Dennis-Escoffier and Karen A. Fortin
k k k k k
Changes introduced by the Tax Cuts and Jobs Act of 2017
k k k k k k k k k k
INTRODUCTION
OnkDecemberk22,k2017,kPresidentkTrumpksignedkintoklawkthekTaxkCutskandkJobskActk(TCJA)kthatkrepresents
kthekmostkcomprehensivekchangesktokthektaxklawkinkoverk30kyears.kTCJAkimpactskallktaxpayerskbykeliminati
ngkorkchangingkmanyklong-
standingkruleskandkaddingknewkprovisions.kWhilekCongresskmadekmostkcorporatekchangeskpermanent,kth
ekchangesktokthekindividualkrateskandkdeductionskarektemporaryktokcomplykwithkbudgetkruleskunderkrecon
ciliation.kAskakresult,kmostkindividualkchangeskarekeffectivekforktaxkyearskbeginningkafterkDecemberk31,k20
17kandkbeforekJanuaryk1,k2026;keffectivelyksuspendingkexistingklawkwithkthek2017kruleskreinstatedkink2026.
Thisksupplementkupdateskthektextkforkthesekrevisionskaskwellkaskotherkimportantkchangesksincekpublicatio
n.kChangeskmadekretroactivelykaffectingk2017ktaxkreturnskarekdiscussedkfirst;kthenkchangeskaffectingkfutur
ekyearskarekhighlightedkinktheknextksectionkofkthisksupplement.kThesekchangeskarekkeyedktokthek2018keditio
nkbykchapterkandksectionknumber.
RETROACTIVEkCHANGES
Chapter Section BriefkDescriptionkofkChange
5 5.4.1 Thekminimumkamountkofkunreimbursedkmedicalkexpenseskthatkareknotkdeductibl
5.7.2 ekiskreducedkfromk10%ktok7.5%kofkAGIkfork2017kandk2018kforkallktaxpayersk(regardl
esskofkage)kforkregularkincomektaxkandkforkthekalternative
minimumktaxk(AMT).kThek10%kthresholdkiskreinstatedkink2019kforkregularktaxkan
dkAMT.
5k&k9 5.4.5 Thek$100kfloorkforkcasualtyklosseskfromkdisasterskink2016kork2017kiskraisedkto
9.3.1 $500kperkcasualtykandkthek10%-of-
AGIkthresholdkdoesknotkapply.kTaxpayerskwhokdoknotkitemizekcankincreasektheirk
standardkdeductionkbyktheknetkdisaster
losskforkthesektwokyears.
7 7.3.2 BonuskDepreciationkiskincreasedkfromk50kpercentktok100kpercentkforkpurchaseskaf
terkSeptemberk27,k2017.kAkmorekdetailedkdiscussionkofkthiskprovisionkwithkan
examplekfollows.
RetroactivekChangektokBonuskDepreciation
PriorktokthekpassagekofkthekTaxkCutskandkJobskAct,kbonuskdepreciationkonlykappliedktoknewk(notkus
ed)kpropertykatkak50%krate.kTCJAktemporarilykincreasedkbonuskdepreciationktok100%kforkassetskacquiredka
fterkSeptemberk27,k2017kandkextendedkitktokusedkproperty.kThek100%kratekwillkbeginktokphasekoutkafterk2
022kandkexpirekatkthekendkofk2026.
, SupplementktokTaxationkforkDecisionkMakers,k2018kEdition
Propertykpreviouslykusedkbykankunrelatedktaxpayerkmaykqualifykforkbonuskdepreciationkifkpurchas
edkandkplacedkinkservicekafterkSeptemberk27,k2017kandkthektaxpayerkhadknotkusedkthekpropertykatkanyktim
ekbeforekacquisition.kAdditionally,kthekproperty’skbasiskcannotkbekdeterminedkbykreferencektokthekadjuste
dkbasiskofkthektaxpayerkfromkwhomkitkwaskacquiredk(carryoverkbasisktransactions).
IfktherekwaskakwrittenkbindingkcontractktokacquirekpropertykinkeffectkpriorktokSeptemberk28,k 2017
,kthekpropertykiskdeemedkacquiredkthekdatekthekcontractkwaskenteredkintokandkisknotkeligiblekforkthek100%
kbonuskdepreciationkrate.kInstead,kthek50%kbonuskratekapplieskwithkonlyknewkpropertykeligible.kIfkthekpurc
hasekofkthekpropertykiskcompletedkbeforekSeptemberk28,k2017kbutkitkisknotkplacedkinkservicekuntilk2018,kth
ekbonuskdepreciationkratekisk40%;kifkplacedkinkservicekink2019,kthekbonuskratekiskonlyk30%.
Bonuskdepreciationkapplieskonlyktoktangiblekpersonalty,ksoftware,kandkcertainkimprovements.kAn
ykbasiskremainingkafterkthekreductionkforkthekbonuskdepreciationkiskdeductedkisksubjectktokregularkMACRS
kdepreciation.kRealtykandkotherkassetskwithkrecoverykperiodskgreaterkthank20kyearskareknotkeligiblekforkbo
nuskdepreciation.kBonuskdepreciationkisknotklimitedktoksmallkbusinesses,khowever;ktherekisknokphase-
outkprovisionk(orktaxablekincomeklimitation),kunlikekSectionk179kexpensing.
WhenkelectingkSectionk179kexpensing,kthekexpensedkamountkiskdeductedkfirstkbeforekcomputingkb
onuskdepreciation;kthus,kbonuskdepreciationkisksandwichedkbetweenkthekSectionk179kexpensingkandkregul
arkMACRSkdepreciationkdeductions.
Example:kOnkSeptemberk1,k2017,kMolokaikCorporation,kakcalendar-yearkcorporation,kpurchased
$1,810,000kofk5-
yearkequipmentkandkexpensedk$510,000kunderkSectionk179.kIfkthiskwaskusedkequipment,kthekm
aximumkallowablekfirst-
yearkdepreciationkisk$770,000:k$510,000kSectionk179kexpensingkandk$260,000k*($1,810,000k−k$
510,000)k×k20%+kregularkMACRSkdepreciation.kItsksecond-
yearkdepreciationkisk$416,000k*($1,810,000k−k$510,000)k×k32%+.
IfkMolokaikhadkpurchasedknewkequipment,kitskmaximumkallowablekdepreciationkexpensekd
eductionkfork2017kisk$1,290,000,kconsistingkofk$510,000kSectionk179kexpense,k$650,000k[($1,810,0
00k−k$510,000)k×k50%+kbonuskdepreciationkandk$130,000k*($1,810,000k−k$510,000k−
$650,000)k×k20%]kregularkMACRSkdepreciation.kItsk2018kdepreciationkdeductionkwouldkbe
$208,000k*($1,810,000k−k$510,000k−k$650,000)k×k32%+.
IfkMolokaikhadkinsteadkpurchasedkthekequipmentkafterkSeptemberk27,k2017,kitkcouldkde
ductkthekentirek$1,810,000kinkthekfirstkyearkusingktheknewk100%kbonuskdepreciation.
HIGHLIGHTSkOFkCHANGESkAFFECTINGk2018kTAXkYEARSkANDkLATER
Thekfollowingkchangeskarekeffectivekbeginningkwithk2018ktaxkyearsk(affectingktaxkreturnskfiledkink2019)korkl
ater.kThekdetailskonkthesekchangeskwillkbekincorporatedkinktheknewk2019keditionkofkTaxationkforkDecisionk
MakerskavailablekinkJulyk2018.kHighlightskarekprovidedkherekforkinstructorskwhokwantktokaddresskthesekch
angeskinktheirkcurrentkclasses.
Chapter Section BriefkDescriptionkofkChange
1k&k4 1.1.4
4.1.1
1k&k12 1.1.6 Thekestatekandkgiftktaxkexemptionkiskdoubledkandkafterkitsk2018kinflationkadju
12.1.3 stmentkiskexpectedktokbek$11,200,000kmillionk($22,400,000kforka
marriedkcouple).
1k&k12 1.1.6 Thek2018kgiftktaxkexclusion,kaskadjustedkforkinflation,kincreaseskfrom
12.1.3 $14,000ktok$15,000.
2
TAXATION FOR DECISION MAKERS, 2018 EDITION
k k k k k
Shirley Dennis-Escoffier and Karen A. Fortin
k k k k k
Changes introduced by the Tax Cuts and Jobs Act of 2017
k k k k k k k k k k
INTRODUCTION
OnkDecemberk22,k2017,kPresidentkTrumpksignedkintoklawkthekTaxkCutskandkJobskActk(TCJA)kthatkrepresents
kthekmostkcomprehensivekchangesktokthektaxklawkinkoverk30kyears.kTCJAkimpactskallktaxpayerskbykeliminati
ngkorkchangingkmanyklong-
standingkruleskandkaddingknewkprovisions.kWhilekCongresskmadekmostkcorporatekchangeskpermanent,kth
ekchangesktokthekindividualkrateskandkdeductionskarektemporaryktokcomplykwithkbudgetkruleskunderkrecon
ciliation.kAskakresult,kmostkindividualkchangeskarekeffectivekforktaxkyearskbeginningkafterkDecemberk31,k20
17kandkbeforekJanuaryk1,k2026;keffectivelyksuspendingkexistingklawkwithkthek2017kruleskreinstatedkink2026.
Thisksupplementkupdateskthektextkforkthesekrevisionskaskwellkaskotherkimportantkchangesksincekpublicatio
n.kChangeskmadekretroactivelykaffectingk2017ktaxkreturnskarekdiscussedkfirst;kthenkchangeskaffectingkfutur
ekyearskarekhighlightedkinktheknextksectionkofkthisksupplement.kThesekchangeskarekkeyedktokthek2018keditio
nkbykchapterkandksectionknumber.
RETROACTIVEkCHANGES
Chapter Section BriefkDescriptionkofkChange
5 5.4.1 Thekminimumkamountkofkunreimbursedkmedicalkexpenseskthatkareknotkdeductibl
5.7.2 ekiskreducedkfromk10%ktok7.5%kofkAGIkfork2017kandk2018kforkallktaxpayersk(regardl
esskofkage)kforkregularkincomektaxkandkforkthekalternative
minimumktaxk(AMT).kThek10%kthresholdkiskreinstatedkink2019kforkregularktaxkan
dkAMT.
5k&k9 5.4.5 Thek$100kfloorkforkcasualtyklosseskfromkdisasterskink2016kork2017kiskraisedkto
9.3.1 $500kperkcasualtykandkthek10%-of-
AGIkthresholdkdoesknotkapply.kTaxpayerskwhokdoknotkitemizekcankincreasektheirk
standardkdeductionkbyktheknetkdisaster
losskforkthesektwokyears.
7 7.3.2 BonuskDepreciationkiskincreasedkfromk50kpercentktok100kpercentkforkpurchaseskaf
terkSeptemberk27,k2017.kAkmorekdetailedkdiscussionkofkthiskprovisionkwithkan
examplekfollows.
RetroactivekChangektokBonuskDepreciation
PriorktokthekpassagekofkthekTaxkCutskandkJobskAct,kbonuskdepreciationkonlykappliedktoknewk(notkus
ed)kpropertykatkak50%krate.kTCJAktemporarilykincreasedkbonuskdepreciationktok100%kforkassetskacquiredka
fterkSeptemberk27,k2017kandkextendedkitktokusedkproperty.kThek100%kratekwillkbeginktokphasekoutkafterk2
022kandkexpirekatkthekendkofk2026.
, SupplementktokTaxationkforkDecisionkMakers,k2018kEdition
Propertykpreviouslykusedkbykankunrelatedktaxpayerkmaykqualifykforkbonuskdepreciationkifkpurchas
edkandkplacedkinkservicekafterkSeptemberk27,k2017kandkthektaxpayerkhadknotkusedkthekpropertykatkanyktim
ekbeforekacquisition.kAdditionally,kthekproperty’skbasiskcannotkbekdeterminedkbykreferencektokthekadjuste
dkbasiskofkthektaxpayerkfromkwhomkitkwaskacquiredk(carryoverkbasisktransactions).
IfktherekwaskakwrittenkbindingkcontractktokacquirekpropertykinkeffectkpriorktokSeptemberk28,k 2017
,kthekpropertykiskdeemedkacquiredkthekdatekthekcontractkwaskenteredkintokandkisknotkeligiblekforkthek100%
kbonuskdepreciationkrate.kInstead,kthek50%kbonuskratekapplieskwithkonlyknewkpropertykeligible.kIfkthekpurc
hasekofkthekpropertykiskcompletedkbeforekSeptemberk28,k2017kbutkitkisknotkplacedkinkservicekuntilk2018,kth
ekbonuskdepreciationkratekisk40%;kifkplacedkinkservicekink2019,kthekbonuskratekiskonlyk30%.
Bonuskdepreciationkapplieskonlyktoktangiblekpersonalty,ksoftware,kandkcertainkimprovements.kAn
ykbasiskremainingkafterkthekreductionkforkthekbonuskdepreciationkiskdeductedkisksubjectktokregularkMACRS
kdepreciation.kRealtykandkotherkassetskwithkrecoverykperiodskgreaterkthank20kyearskareknotkeligiblekforkbo
nuskdepreciation.kBonuskdepreciationkisknotklimitedktoksmallkbusinesses,khowever;ktherekisknokphase-
outkprovisionk(orktaxablekincomeklimitation),kunlikekSectionk179kexpensing.
WhenkelectingkSectionk179kexpensing,kthekexpensedkamountkiskdeductedkfirstkbeforekcomputingkb
onuskdepreciation;kthus,kbonuskdepreciationkisksandwichedkbetweenkthekSectionk179kexpensingkandkregul
arkMACRSkdepreciationkdeductions.
Example:kOnkSeptemberk1,k2017,kMolokaikCorporation,kakcalendar-yearkcorporation,kpurchased
$1,810,000kofk5-
yearkequipmentkandkexpensedk$510,000kunderkSectionk179.kIfkthiskwaskusedkequipment,kthekm
aximumkallowablekfirst-
yearkdepreciationkisk$770,000:k$510,000kSectionk179kexpensingkandk$260,000k*($1,810,000k−k$
510,000)k×k20%+kregularkMACRSkdepreciation.kItsksecond-
yearkdepreciationkisk$416,000k*($1,810,000k−k$510,000)k×k32%+.
IfkMolokaikhadkpurchasedknewkequipment,kitskmaximumkallowablekdepreciationkexpensekd
eductionkfork2017kisk$1,290,000,kconsistingkofk$510,000kSectionk179kexpense,k$650,000k[($1,810,0
00k−k$510,000)k×k50%+kbonuskdepreciationkandk$130,000k*($1,810,000k−k$510,000k−
$650,000)k×k20%]kregularkMACRSkdepreciation.kItsk2018kdepreciationkdeductionkwouldkbe
$208,000k*($1,810,000k−k$510,000k−k$650,000)k×k32%+.
IfkMolokaikhadkinsteadkpurchasedkthekequipmentkafterkSeptemberk27,k2017,kitkcouldkde
ductkthekentirek$1,810,000kinkthekfirstkyearkusingktheknewk100%kbonuskdepreciation.
HIGHLIGHTSkOFkCHANGESkAFFECTINGk2018kTAXkYEARSkANDkLATER
Thekfollowingkchangeskarekeffectivekbeginningkwithk2018ktaxkyearsk(affectingktaxkreturnskfiledkink2019)korkl
ater.kThekdetailskonkthesekchangeskwillkbekincorporatedkinktheknewk2019keditionkofkTaxationkforkDecisionk
MakerskavailablekinkJulyk2018.kHighlightskarekprovidedkherekforkinstructorskwhokwantktokaddresskthesekch
angeskinktheirkcurrentkclasses.
Chapter Section BriefkDescriptionkofkChange
1k&k4 1.1.4
4.1.1
1k&k12 1.1.6 Thekestatekandkgiftktaxkexemptionkiskdoubledkandkafterkitsk2018kinflationkadju
12.1.3 stmentkiskexpectedktokbek$11,200,000kmillionk($22,400,000kforka
marriedkcouple).
1k&k12 1.1.6 Thek2018kgiftktaxkexclusion,kaskadjustedkforkinflation,kincreaseskfrom
12.1.3 $14,000ktok$15,000.
2
