April 10, 2018 — Two tax law experts recently outlined provisions of the 2017 U.S. tax reform in a program that was designed to give tax lawyers and other practitioners a basic understanding of what they need to know in dealing with individual and corporate clients after this significant legislation.
Denney Wright, a UHLC professor of practice, and Todd Schroeder, a partner from the Dallas office of the firm of Norton Rose Fulbright LLP, spoke on the topic, "Tax Reform Basics and Practical Application," in this CLE program at the University of Houston Law Center.
While the Tax Cuts and Jobs Act kept the seven tax brackets for individuals, it "was about broadening the base and reducing the rates," Schroeder said.
The overhaul expanded some exemptions, such as the estate tax which was raised to $11 million for individuals, $22 million for couples, and preserved certain deductions, for example charitable contributions, it suspended others, such as interest on home equity loans when the proceeds are not used for improvements to the property, through 2025.
Schroeder termed placement of a $10,000 cap on deductions for state and local income and property taxes "a big (issue) on the individual side." While the Medicare payroll tax was unaffected, Schroeder said elimination of the penalty for failing to maintain health insurance under the Affordable Care Act has proved "a talking point for the Republican legislative process."
He said the highlight of the tax reform act on the business side is the lowering of the corporate flat rate from 35 percent to 21 percent, which, he added, "from an international perspective is very, very competitive now. In terms of where we are globally, we are right in the middle."
Wright, who teaches Oil and Gas Tax and International Petroleum Transactions after 42 years of service with ExxonMobil, said the tax reform act incorporated few direct changes to the taxation of oil and gas operations, although there are many indirect effects such as lower tax rates and accelerated depreciation.
However, individual U.S. investors in oil and gas development who are taxed at a personal rate of up to 37 percent while the corporate rate is 21 percent, might be considering that the cost and trouble of incorporating is worth the effort to save on taxes. There is also a big caveat to individuals investing in foreign oil and gas development as they will not enjoy the same exemption from U.S. taxation on foreign income as corporations under the "modified territorial" system that has been adopted. Wright said U.S.
taxation of foreign investment for individuals is a significant issue that individuals should seek advice on from their tax advisors as it is complicated and could render unexpected surprises.