How will tax reform affect you?

Your finances

Will your tax rate increase or decrease? Will you be able to take the same deductions? Here are five areas to look at.


On Dec. 22, 2017 President Trump signed the Tax Cuts and Jobs Act into law, setting into motion some of the most significant tax changes for individuals and corporations since 1986.

While the legislation was touted as groundbreaking in terms of the big picture, what really matters is how the changes will affect you and your family. We highlight some of the biggest changes here.

Will your tax rate increase or decrease? Will you be able to take the same deductions you have been taking over the years – or even add new ones?

The impact on individual taxpayers will depend on a number of factors including income levels and deductions previously taken, says Bill Ringham, vice president and director of private wealth strategies at RBC Wealth Management-U.S.

“It’s a good idea to set up regular meetings with your tax advisor to stay posted on the ramifications of this act and how the developments will impact you,” said Paul DeLauro, senior vice president of wealth planning at City National Bank.

As you watch and learn more about the tax law, be on the lookout for changes to these five areas, which could potentially make a difference in your tax liability.

Income taxes

The tax act makes several changes to individual income taxes. While earlier versions of the bill reduced the number of tax brackets to four, this final act retains the seven tax brackets we’ve all become accustomed to. However the income tax rate and thresholds for most brackets have changed. Details on those seven brackets can be found in our overview sheet.

“High-net-worth individuals may expect to see a slight reduction in their income taxes under the new tax law,” Ringham notes.

The biggest change may be for business owners, Ringham says. The act lowers the effective rate on pass-through income for partnerships, S corporations, LLCs and sole proprietorships by allowing a 20 percent deduction on certain specified income.

Equities and fixed income

The U.S. equity market is expected to respond favorably to the new corporate tax environment, according to RBC Wealth Management’s Portfolio Advisory Group. The Portfolio Advisory Group expects the S&P 500 and other major indexes to see a meaningful boost in earnings growth, particularly for domestic focused industries.

“The general feeling is that the tax cut will be good for those who own equities,” said Paul Single, managing director and senior portfolio manager at City National Rochdale. “Financial stocks, retailers and small cap stocks should all do well, and we’ll probably see a nice rally in stocks next year.”

For fixed income investors, the Fed’s three forecasted rate hikes for 2018 incorporate policy-maker’s expectations for potentially stronger growth from tax reform. Should the stimulus not materialize, three rate hikes could become just two, notes Craig Bishop, vice president and lead strategist for U.S. fixed income strategies at RBC Wealth Management-U.S.

Changes to deductions

The new tax act sharply increases the standard tax deduction to $24,000 for a married couple, $18,000 for head of household, or $12,000 for a single. That’s good news for those who have historically taken the standard deduction.

But along with the increased standard deduction, many itemized deductions have changed or been eliminated.

One of the biggest changes, Ringham notes, is the provision that caps state and local income, sales and property taxes at $10,000 for a married couple filing jointly or $5,000 for a married taxpayer filing separately.

Under the current tax law, if your property taxes are $7,000 and your state and local income taxes are $20,000, you combine the two and deduct the full $27,000 – and that was above and beyond the standard deduction. Now, under the new act, you would be limited to $10,000, Ringham explains.

“Our clients are typically high tax-paying individuals,” Ringham says. “Limiting these deductions will impact most people who itemize their taxes, but will disproportionately affect individuals living in high-tax states such as California and New York, as they may no longer get the full deduction of that tax anymore.”

Taxpayers may be able to offset the loss of some deductions with increased charitable giving. That’s because currently, taxpayers can only deduct up to 50 percent of their adjusted gross income for cash gifts made to public charities. The new act would increase that amount to 60 percent.

“Say you’re retired and living off investments – and your adjusted gross income is $100,000. If you make a $100,000 cash gift to a public charity, currently you’d only be able to deduct $50,000 of that gift,” Ringham explained. “Under the new tax law, you could deduct $60,000.” 

Carry over of unused deductions is still allowed under the new act.

Mortgage interest

Homeowners can now deduct the interest on the first $1 million of mortgage debt on their homes. The new law reduces that deduction to the first $750,000 of mortgage debt.

If you live in an area with high-priced real estate, such as California or New York, and you move to a new home, you may be facing higher tax liability under the new rules. They apply to mortgages on property purchased after Dec. 15; current home mortgages would not be affected.

Interest on home-equity loans or lines of credit is currently deductible up to $100,000; that deduction does not exist in the new legislation.

Estate taxes

The new tax act also offers slight relief from hefty estate taxes.

Under current law, property in an estate (valued at more than $5.49 million per person and $10.98 million per couple) is generally subject to a tax rate of 40 percent before passing to the estate’s non-spousal beneficiaries. While that tax rate remains intact, the new rules double personal exemptions for individuals for tax years 2018-2025.

The new law has no bearing, however, on estate taxes imposed at the state level.

“Those with significant wealth still face the possibility of a 40 percent estate tax, but increasing the exemption amount to $22 million per couple, does take some sting out of it,” Ringham notes.

Important disclosures

RBC Wealth Management and City National Bank, their managed affiliates and subsidiaries, as a matter of policy, do not give tax, accounting, regulatory or legal advice. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations. You should consult with your other advisers on the tax, accounting and legal implications of any proposed strategies based on your particular circumstances.

City National Bank provides investment management services in conjunction with City National Rochdale, its wholly-owned subsidiary. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this document and are subject to change. All investing is subject to risk, including the possible loss of the money you invest. Past performance is no guarantee of future results.





RBC Wealth Management, a division of RBC Capital Markets, LLC, registered investment adviser and Member NYSE/FINRA/SIPC.

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