Over at https://www.kitces.com taxation expert Michael Kitces has posted yet another of his stellar analyses; this time of the The Tax Cuts And Jobs Act Of 2017. Although his article’s encyclopedic, it’s invaluable information and I encourage you to at least scan it. Link here.
A few highlights that pertain specifically to the long-term planning required to achieve FIRE:
“[The Act] includes a “sunset” provision that all of the individual tax law changes will lapse after the year 2025…[but] whether the legislation actually sunsets after 2025 or not remains anyone’s guess at this point.”
“[T]he introduction of a 20% deduction for pass-through businesses arguably makes our tax future more complex than the past, as employees will be incentivized to shift to becoming independent contractor service businesses…”
“[P]referential rates for long-term capital gains and qualified dividends will continue to use the old thresholds.”
“[T]he 0% capital gains rate will end at $38,600 for individuals (and $77,200 for married couples), even though the bottom two tax brackets end at $38,700 and $77,400…”
“…[W]hen the more limited itemized deductions are combined with the expanded standard deduction, it’s anticipated that only a very small percentage of households will itemize deductions at all in the future.”
“[It places] a new cap on mortgage interest deductibility on the first $750,000 of debt principal…[n]otably, though, the limitation only applies to new mortgages taken out after December 15th of 2017; any existing mortgages retain their deductibility of interest on the first $1,000,000 of debt principal, and a refinance of such mortgages in the future will retain their $1,000,000 debt limit… ”
“…GOPTaxPlan has fully repealed the deduction for investment advisory fees, even above 2% of AGI!” — ERD’s note: one more reason for the FIRE crowd to use low-cost funds.
“[T]he final TCJA legislation does repeal the individual mandate for health insurance.”
“[T]he Tax Cuts and Jobs Act repeals the rules permitting recharacterizations of Roth conversions, effective starting in 2018. Notably, though, the rule only limits recharacterizations of Roth conversions (and not of Roth contributions)…”
“For those of more ‘modest’ means, one of the biggest strategies that may emerge in the future will be “lumping”, where deductions are collapsed together into a single year (to get over the new higher standard deduction), and then minimized in the off years.”
And in summary:
“[T]he reality is that most individual tax deductions (still remain), along with 7 tax brackets, the alternative minimum tax, and new complexities introduced by the pass-through business rules. Though ironically on the plus side, this means there will continue to be substantial value in proactive tax planning advice!”
To repeat myself, Kitces has once again hit it out of the park. I strongly strongly strongly encourage you to read his entire article.