Employee Benefits. In the employee benefits context, the TCJA amended Internal Revenue Code (Code) provisions governing business entertainment and meals, qualified transportation benefits, bicycle commuting reimbursements, qualified moving expense reimbursements, and employee achievement awards (see Tax Cuts and Jobs Act (TCJA) Compliance for Fringe Benefits and Health Plans Toolkit). The TCJA also reduced to zero the penalty for violating the individual mandate under the Affordable Care Act (ACA), effective beginning in 2019 (see Practice Note, Affordable Care Act (ACA) Overview). In addition, the TCJA amended the Code to eliminate miscellaneous itemized deductions for tax years beginning after December 31, 2017 and before January 1, 2026 (see Practice Note, Fringe Benefits Under Code Section 132: Transportation and Other Benefits: Impact of Tax Reform Legislation Enacted in December 2017 and Legal Update, Tax Reform Is Enacted, With Significant Implications for Executive Compensation and Employee Benefits).

Executive Compensation. In the executive compensation context, the TCJA made significant changes to Code Section 162(m), including eliminating the popular exceptions for qualified performance-based compensation and commissions and broadening the definition of "covered employee" (26 U.S.C. § 162(m); see Article, Expert Q&A on 162(m) After Tax Reform). The TCJA also imposed a new 21% excise tax on certain excessive executive compensation or separation payments made by tax-exempt organizations to their covered employees (see Article, Expert Q&A: New Excise Tax on Excessive Compensation at Tax-Exempt Organizations). In addition, the TCJA allows qualified employees of private corporations to make an election to defer the recognition of income on illiquid company stock acquired through the exercise of stock options or settlement of restricted stock units (see Section 83(i): Qualified Equity Grants Checklist).

Labor & Employment. Under the TCJA, from a labor and employment perspective, when settling claims of sexual harassment or abuse, employers can no longer take a tax deduction for those settlement payments or attorneys' fees "related to such a settlement" if the agreement contains a confidentiality or nondisclosure provision (26 U.S.C. § 162(q)). This restriction applies to settlement and attorneys' fee payments made after the TCJA's enactment.

Real Estate. The TCJA amended several provisions of the Code affecting commercial real estate investment, including by: (a) removing the separate depreciation recovery period for qualified leasehold improvements placed in service after December 31, 2017, which in many cases will now be depreciable over 39 instead of 15 years (see Practice Note, Taxation of Commercial Real Estate Leases); (b) capping the deduction for interest expense at 30% of adjusted taxable income; taxpayers can opt out of the limitation but then must use a longer depreciation recovery period; (c) reducing the maximum corporate tax rate from 35% to 21%, potentially benefitting REITs by minimizing taxes on investment income from taxable REIT subsidiaries; (d) expanding the bonus depreciation rules for qualified improvement property; (e) requiring a minimum three-year holding period for long-term capital gain treatment of profits interests, such as promotes in real estate joint ventures; and (f) allowing taxpayers to deduct up to 20% of: (i) qualified business income (QBI) earned from pass-through entities; and (ii) qualified REIT dividends. The pass-through deduction is particularly important for commercial real estate owners, which are typically organized as pass-through entities such as partnerships, limited liability companies (LLCs), and REITs. In the residential real estate context, the TCJA: (1) reduced the cap on mortgage interest deductions from $1 million to $750,000 for homes purchased on or after December 15, 2017; and (2) capped the deduction for state and local income and property taxes at $10,000. For more information on the TCJA provisions affecting real estate, see Article, Tax Act Gives Cuts to CRE Owners and Limits Deductions for Homeowners and Legal Update, Proposed Bonus Depreciation Regulations Offer Little Relief to Retailers and Restaurant Owners.

Taxation. The TCJA made sweeping changes to business, international, and individual taxation. Among the significant changes are the permanent 21% income tax rate for corporations, a new limitation on deducting business interest, the 100% dividends received deduction for certain dividends received from foreign corporations, the tax on global intangible low-taxed income (GILTI) earned by controlled foreign corporations, and the 20% deduction for certain qualified business income earned by taxpayers other than corporations through passthroughs (partnerships, S-corporations, and sole proprietorships). For more information on changes made by the TCJA, see Legal Update, Sweeping Tax Overhaul Enacted.