Tax Reform: General Business Changes

After much speculation and anticipation, the “Tax Cuts and Jobs Act” was passed into law on December 22nd, 2017. This law will affect your 2018 return, which will be filed in 2019.

One change that will really affect our local business owners and farmers is the elimination of like-kind exchanges. Real estate transactions are still eligible for like-kind exchanges, but all other property is no longer eligible. This means that farmers and business owners will no longer be able to trade in equipment or any other type of asset to defer gain recognition.

Some other general changes to business income:

  • Net operating loss carry backs are eliminated. Farmers are exempt from this change, and will still be able to carryback net operating losses two years.

  • Net operating loss carry forwards are limited to 80% of taxable income.

  • Businesses with up to $25 million in average annual gross receipts may now use the cash method of accounting for tax purposes. This is an increase from $5 million in the previous tax code.

  • Section 179’s limits are raised from $1 million to $2.5 million.

  • Bonus depreciation is extended to used property in addition to new property, and the deduction is increased from 50% to 100%.

  • Estate tax exemption increased from $5,600,000 to $12,000,0000.

  • Domestic production activities deduction eliminated.

Our articles are not intended to be tax advice. To seek tax advice regarding your specific tax situation, it is best practice to consult with a Certified Public Accountant.