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Just the facts, ma'am

The Tax Reform Bill

Depending on which channel you turn to (we actually click now), the esteemed reporter or panel will confidently give you their opinion on why the tax reform bill will be great for America, or why it will be a disaster.

The former New York Senator Daniel Patrick Moynihan once famously said “Everyone is entitled to their own opinion, but not their own facts.” So instead of watching cable news, we flipped channels until we found an old episode of Dragnet to inspire us. For those of us old enough to remember the popular TV show and Detective Joe Friday, his famous catchphrase was “just the facts ma’am.” He would say this to help the emotional witness focus on what just happened. By investigating “just the facts,” and eliminating opinion, we get a much clearer picture of the tax bill’s impact to our clients.

Another great quality of Joe was his brevity. He said little, but what he said mattered. Inspired by Joe, we put together a brief summary of the new tax law that specifically focuses on the impact to our clients. While each client has a unique tax profile, we have generalized what the tax code changes mean for a Massachusetts resident.


The bill will not be retroactive. It will not affect your 2017 tax return; it will be applied to your 2018 taxes. There are material changes to the individual tax code, but at its core this is primarily a corporate tax reform bill. The general theme of both the corporate and individual tax plans is to simplify the code by dropping the statutory rate and offsetting the lower tax rates by eliminating deductions.

Changes to Individual Taxes

For most, we think the best way to fulfill our promise of brevity and impact is to focus on the individual component and not the corporate component of the plan. (The term individual in tax parlance refers to everyone that is not a business. Married couples and families are individuals.) The main changes for individuals in Massachusetts are slightly lower statutory tax rates but more limited state and local tax (SALT) deductions. There are also limits to mortgage interest deductions. These issues are the most likely to have the largest impact on your taxes. Issues like the child tax credit, student loan interest, etc. are most likely of lesser importance.

The new bill keeps the seven marginal tax brackets and reduces the rates in five of them. The brackets range from 10% to 37%. The 37% rate kicks in for individuals at $500,000 and for families at $600,000. The maximum allowable deduction for SALT is now $10,000. The deductions for mortgage interest is now eligible on the first $750,000 of a loan, down from $1,000,000.

The Massachusetts’s state income tax rate is 5.10%. For most middle and high-income earners this is their largest write-off. Depending on the size of your mortgage or home, interest expense or property tax may also compete for that honor, but those deductions are likely your second highest write-off. The table below is a simple guide to what this bill means for you. It ignores everything other than how much you made as a resident of Massachusetts. Our assumptions are that you are filing jointly, are not subject to AMT, and itemize your deductions.

We are desperately trying to keep this simple, but we think it’s important to complicate things just a bit. Most of us pay property taxes and excise taxes that will no longer be deductible. If you would like to get an idea of what this means: multiply your property taxes by your 2017 marginal tax rate. That will be an additional amount of tax you will pay in 2018.

While each individual has countless variables that impact their taxes, the simple takeaway is this: when isolated, the tradeoff between the lower tax rate and the reduction of state income tax deduction is beneficial unless you make over $800,000. On a percentage basis, most of the benefit is focused on people making less than $500,000.

Lastly, although our investment process is not driven by tax policy, we do strive to manage accounts in the most efficient manner.

Happy Holidays,

The Greenport Team


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