Tax rate. The Act provides a permanent 21% flat income tax rate for corporations, effective for tax years beginning after December 31, 2017.

100% capital expensing. Bonus depreciation is modified to allow taxpayers to fully expense qualified property acquired and placed into service after September 27, 2017 and before January 1, 2023, with the expensing percentage phased down for property placed in service from 2023-2026. Full expensing applies generally to both new and used property acquired by the taxpayer. Corporations that acquire and place into service property after September 27, 2017 and before 2018 can claim an immediate deduction against a 35% tax rate.

Corporate AMT. The corporate AMT is repealed, effective for tax years beginning after December 31, 2017.

Dividends received deduction (DRD). The Act reduces the DRD for dividends received from US corporations, to 65% (from 80%) for dividends received from a 20% or more owned corporation, and to 50% (from 70%) for dividends received from a less than 20% owned corporation.

Limitations on deducting business interest. The amount of business interest that can be deducted under the Act is limited to business interest income, plus 30% of adjusted taxable income (ATI), plus floor plan financing interest. For taxable years beginning after December 31, 2017 and before January 1, 2022, ATI is determined without regard to depreciation, amortization, or depletion (approximating EBITDA). For tax years beginning on or after January 1, 2022, ATI is computed with depreciation, amortization, and depletion. Any interest deductions disallowed can be carried forward indefinitely. Small businesses are exempt. This provision applies to related and third party debt, and there is no grandfathering for existing debt.

Manufacturing deduction. The deduction for qualified production activities is repealed for taxable years beginning after December 31, 2017.

Net operating losses (NOLs). The two-year NOL carryback period is eliminated. For NOLs arising in taxable years ending after December 31, 2017:

Executive compensation. The Act removes the performance-based pay exception to the $1 million limitation on deducting compensation paid to certain top executives of a publicly-traded corporation. The Act also adds CFOs to the list of executives whose pay is subject to the $1 million limitation.

Small business expensing. The Act increases the maximum amount that can be currently deducted by small businesses for eligible property to $1 million, and increases the phase-out threshold to $2.5 million.

Cash method of accounting. The cash method of accounting is made available to more small businesses by allowing C-corporations and partnerships with a C-corporation partner to use this accounting method if its average annual gross receipts for the prior three years do not exceed $25 million (compared to $5 million under pre-2018 law).

Like-kind exchanges. The exception from gain or loss recognition from like-kind exchanges is limited to real property not held primarily for sale, for exchanges completed after December 31, 2017.

Research and experimentation (R&E) expenditures. R&E expenditures subject to IRC Section 174 and paid or incurred in taxable years beginning after December 31, 2021 are subject to capitalization and amortization over 5 years (for research conducted within the US) or 15 years (for research conducted outside the US). Current IRC Section 174 allows either an immediate deduction or an election to amortize R&E expenses over 5 years.

Deduction for qualified passthrough business income. Qualified business income earned by taxpayers other than corporations through passthroughs (partnerships, S-corporations, and sole proprietorships) is eligible for a 20% deduction, subject to limitation after a specified income threshold is reached. Business income from specified services (including health, law, accounting, consulting, athletics, financial services, brokerage services, and certain other services) is not eligible for the deduction, except for taxpayers with income below certain thresholds. For partnerships and S-corporations, the provision applies at the partner or shareholder level. As with other individual income tax provisions in the Act, this provision sunsets on December 31, 2025.

Limitations on deducting business interest. For partnerships and S-corporations, the new limitations on deducting business interest apply at the entity level. Special rules apply to partners with their own separate business interest expense, to prevent double counting of income earned through a partnership.

Repeal of technical terminations of partnerships. The Act repeals the rule causing a technical termination of a partnership when there is a sale or exchange of 50% or more of the interests in the partnership during a twelve-month period. When a technical termination occurs, the partnership must restart depreciation on its property. The repeal applies to partnership taxable years beginning after December 31, 2017.

Gain from the sale of a partnership interest taxed on a look-through basis. Gain or loss from the sale of a partnership interest by a non-US person is treated as effectively connected income (ECI) to the extent the transferor would have ECI if the partnership had sold all of its assets for their fair market value at the time of the sale or exchange. Transferees are required to withhold 10% of the amount realized unless the transferor certifies that it is not a nonresident alien individual or foreign corporation. The look-through rule is effective for sales, exchanges, and dispositions on or after November 27, 2017. The withholding tax provision is effective for sales, exchanges, and dispositions after December 31, 2017. This provision effectively overturns the decision in Grecian Magnesite Mining v. Commissioner, 149 T.C. No. 3 (July 13, 2017).

Carried interest. For applicable partnership interests received by taxpayers in connection with the performance of services in certain businesses (generally investing or developing assets on behalf of investors), gain allocable to the partner is treated as short-term capital gain and taxed at ordinary income rates unless a three-year holding period is met. Given the investment timeline for private equity funds, this provision is not likely to have much impact on private equity fund managers.

Territorial regime; participation exemption. The Act introduces a participation exemption for dividends from certain foreign corporations as part of the movement from a worldwide system of taxation with foreign tax credits to a territorial system. A US corporation with a 10% or greater ownership interest in a foreign corporation is allowed a 100% dividends received deduction for the foreign-source portion of dividends received from the foreign corporation (subject to a holding period requirement). A corporation claiming the 100% DRD cannot claim any foreign tax credits relating to the dividend. However, US corporations are still subject to tax on:

One-time deemed repatriation tax. As part of the move towards a territorial tax system, a US shareholder of a CFC (meaning a US person owning a 10% or greater interest in a CFC) and US shareholders of certain other foreign corporations are subject to a one-time deemed repatriation tax (in the last taxable year beginning before 2018) if the earnings have not been repatriated to the US (and therefore not yet subject to US tax). Earnings held in cash and cash equivalents are subject to a 15.5% rate; earnings held in non-cash assets are subject to an 8% rate. Taxpayers must use the greater of earnings determined on either November 2, 2017 or December 31, 2017 in determining their tax liability. US shareholders can elect to pay the tax over 8 years.

Foreign tax credits. The Act repeals the deemed-paid foreign tax credit under IRC Section 902 for dividends received from a foreign corporation, but retains the deemed-paid foreign tax credit for Subpart F inclusions.

Tax on global intangible low taxed income (GILTI). This is a new provision that requires a US shareholder of a CFC to include its share of GILTI in income. This provision is meant to capture the excess return (considered attributable to intangibles) earned by CFCs above a 10% return on certain tangible investments, if the foreign income is subject to a low foreign tax rate.

Base erosion minimum tax and related party payments. The Act imposes a 10% (5% in 2018, 12.5% for taxable years beginning after December 31, 2025) minimum tax (1% higher rate for banks and registered securities dealers) on certain taxpayers making deductible payments to related foreign persons. The tax is calculated based on the excess of 10% of the modified taxable income (including addbacks of certain deductible payments made to related foreign persons) over the regular tax liability (reduced by specified credits). This provision only applies to US corporations (not including S-corporations) with average annual gross receipts of at least $500 million and with deductible payments to foreign affiliates representing 3% or more (2% or more for banks and registered securities dealers) of total deductions.