TAX BULLETIN 2018-1: TAX REFORM SIGNED INTO LAW living in a state that imposes a state income tax (and $10,000 of charitable deductions) would pay a federal tax of about $143,690. Two single taxpayers would pay a total of twice that, or $287,380. However, if these two taxpayers were married, their joint tax liability would jump to $298,280, an increase of $10,900. It appears that state of residence, type of income (wages versus new “qualified business income”), and mortgage interest will be among the most important factors for determining whether one is better or worse off under the Act. Capital Gains. Although income tax rates and tax brackets will significantly change in 2018, the long- term capital gains rate will remain the same. The income limits for imposing the 15% and 20% capital gain rates will also remain the same; the 20% rate will apply when taxable income exceeds $479,000 (for married filing jointly). However, the Act’s combination of lower rates and fewer deductions could mean that a taxpayer’s “taxable income” could rise in 2018, meaning the taxpayer would expose more capital gain to the 20% bracket. 3.8% Surtax. The Act does not directly change the 3.8% surtax imposed on “net investment income.” However, it indirectly changes it. When calculating a taxpayer’s net investment income, a taxpayer can deduct investment expenses (after. application of the 2% floor) and deductible state income taxes, to the extent those are properly allocable to net investment income. The deductibility of those two expenses changes in 2018 -- investment expenses are nondeductible, and state income taxes (with other state taxes) are limited to $10,000. Those expenses might not reduce net investment income in 2018, and as a result the 3.8% surtax might increase. WEALTH TRANSFER TAXES 2017 Law 2018 Law 40% rate, $5,490,000 exemption (indexed for Commencing 2018, exemption for estate, gift Estate / inflation) and GST tax doubled from $5.6 million to $11.2 Gift / GST Tax million