The Impact of State Decoupling from the Provisions of the Tax Cuts and Jobs Act

John Robinson |
Categories
Tax Cuts
Job Act
Financial Planning

The Tax Cuts and Jobs Act (TCJA)bn that was passed in December of 2018 made a number of significant changes to the Federal Internal Revenue Code (IRC). Since states income tax schedules and rules typically mirror or dovetail with the federal, follow the passage of new laws, it is incumbent up on state legislatures to pass legislation updating their old tax codes to conform to the new one.

In this instance, however, Hawaii is a among a number of states that have moved to decouple from key provisions in the TCJA. Here are few key examples –

  1. Estate Tax Exclusion Limits- Hawaii is electing to retain the prior $5.49 million (2017) per person inflation indexed estate tax exclusion instead of conforming to the new federal exclusion limit of $11.18 million.
     
  2. 529 Plan Distributions - Hawaii is electing NOT to adopt the new IRC provision that permits tax-free distributions of up to $10,000 per year to be applied to private school tuition. Hawaii parents or grandparents with keiki at Punahou, Iolani, etc. should be aware that distributions from 529 plans for that purpose may be subject to Hawaii income tax.
     
  3. Investment Advisor Fee Deductions -Hawaii is decoupling from the IRC with respect to the elimination of itemized deductions. Of note, investment advisory fees will remain an allowable deduction on Hawaii tax returns.
     
  4. Mortgage Interest Deduction - Hawaii is not adopting the federal limitations on state and local tax deductions or the restrictions on home mortgage and home equity interest deductions.

As of this writing, the bill, SB2821, has been sent to Governor Ige for his signature. For further information, see the links below. Note: FPH has clients in 20+ states. For specific tax planning guidance, all FPH clients are urged to consult with their CPAs.

Additional Reading:

IRC Conformity Bill Goes to Hawaii Governor (CCH TaxGroup) Lawmakers ask:

What does federal tax reform mean for Massachusetts? (Masslive.com)

The Tax Cuts and Jobs Act: State tax considerations, impacts, and responses (AICPA)

Federal Tax Reform and the States (NCSL)