Special Edition – Tax Law Changes
To all my wise-crackers out there – yes, I realize it is not Monday as I’m sending this out – but it’s in Monday Morning Quarter-Buck style! For those of you that are football fans, it’s common to sit around the preverbal water cooler and discuss what happened during our favorite football game the prior weekend. Discussing where the referee’s missed the mark and made ridiculous calls, how the team played, and the actions of the coaches. Well, that’s how I felt today. Every time I thought I had this Special Edition ready to send out to you all, a new article comes into my email box with additional information, feedback and opinions. So, what I had planned to have out to you this morning is just now finally “ready.”
The bill passed yesterday afternoon at the House level and was sent to the Senate; at 12:47 AM this morning The Washington Post announced, “Senate passes massive GOP tax plan as the House prepares to close the deal Wednesday.” This was followed by an alert from CNN at 12:51 am that stated, “The House must revote, but the bill is expected to pass.” This was due to a “procedural issue;” around 1 pm today Congress passed the bill and it is now on it’s way to President Trump for signature.
For those of you wondering, no, I wasn’t awake when these came in. Back in the late 90’s I likely would have been, funny how age changes that!
Here are some highlights and thoughts that I have about this legislation:
- The standard deduction will be almost double from 2018 – 2025 (then it reverts back to current law). This has been touted as a major increase, but for those of you with kids, it could result in a surprise. This really is the merging of personal exemptions and the standard deduction. So if you have two kids, file MFJ, in 2017 you had personal exemptions of $16,200, plus the standard deduction of $12,700 for a total of $28,900 (as you can see below, you will now only have $24,000). For a couple with no children, you would have had two exemptions ($8,100) plus the standard deduction ($12,700) for a total of $20,800 (as you can see below, you will now have a higher deduction):
Individuals standard deduction would be $12,000
Married Filing Jointly standard deductions would be $24,000
Heads of Households standard deductions would be $18,000
It’s possible this will be made up for by the Child Tax Credit / Qualifying Dependent Credit
For those with children, the amount will now be $2,000 (was $1,000) per qualifying child, and a portion of that maybe refundable (up to a maximum of $1,400).
If you have a qualifying dependent, you could be eligible for a nonrefundable credit of $500.
There are still income phase outs, but they have moved up to $200,000 for individuals and $400,000 for married couples.
There will be 7 tax brackets (not the three originally proposed):
Single taxpayers
|
Taxable income over |
But not over |
Is taxed at |
|
$0 |
$9,525 |
10% |
|
$9,525 |
$38,700 |
12% |
|
$38,700 |
$82,500 |
22% |
|
$82,500 |
$157,500 |
24% |
|
$157,500 |
$200,000 |
32% |
|
$200,000 |
$500,000 |
35% |
|
$500,000 |
37% |
Heads of households
|
Taxable income over |
But not over |
Is taxed at |
|
$0 |
$13,600 |
10% |
|
$13,600 |
$51,800 |
12% |
|
$51,800 |
$82,500 |
22% |
|
$82,500 |
$157,500 |
24% |
|
$157,500 |
$200,000 |
32% |
|
$200,000 |
$500,000 |
35% |
|
$500,000 |
37% |
Married taxpayers filing joint returns and surviving spouses
|
Taxable income over |
But not over |
Is taxed at |
|
$0 |
$19,050 |
10% |
|
$19,050 |
$77,400 |
12% |
|
$77,400 |
$165,000 |
22% |
|
$165,000 |
$315,000 |
24% |
|
$315,000 |
$400,000 |
32% |
|
$400,000 |
$600,000 |
35% |
|
$600,000 |
37% |
Married taxpayers filing separately
|
Taxable income over |
But not over |
Is taxed at |
|
$0 |
$9,525 |
10% |
|
$9,525 |
$38,700 |
12% |
|
$38,700 |
$82,500 |
22% |
|
$82,500 |
$157,500 |
24% |
|
$157,500 |
$200,000 |
32% |
|
$200,000 |
$300,000 |
35% |
|
$300,000 |
37% |
- The bill kept individual AMT (Alternative minimum tax), but with higher exemption levels (interestingly, it eliminated corporate AMT). Although the income limits for those effected were adjusted up significantly, therefore fewer will be subject to AMT. Effective January 1, 2017, AMT Exemption will increase to:
o $109,400 for MFJ
o $54,700 for single
o $70,300 for others
- For those that itemize with Schedule A:
o The medical expense deduction is going down from 10% of AGI to 7.5%; this is effective for the 2017 and 2018, but jumps back up to 10% after that.
o Charitable contribution limits actually increased, but consider increasing your charitable giving this year, especially if it is unlikely that you will be able to itemize next year.
o There will be a $10,000 deduction limit applied to the COMBINED value of property taxes and State and local taxes (so what is now line 5 and 6 of schedule A will have a maximum of $10,000).
- What frustrates me about this “part” of the legislation is that it expressly “forbids” a taxpayer from prepaying part of those expenses this year. Under current law, this is permitted.
- However, it appears it is for income tax prepayment only, not property tax. For those that have their school tax bill split up into two payments, but you could have made one payment, it appears you pay those taxes and deduct it this year. This is only for those that itemize.
o Mortgage Interest deduction was retained and only placed a limitation on deductibility for new mortgages taken out after December 15th of 2017.
o Home Equity Interest Deduction did not have the same fate. After December 31st, 2017, you will no longer be able to deduct your home equity interest on Schedule A.
- There is a caveat to this – if the home equity was used to acquire, build or substantially improve the primary residence, then it will be deductible.
o Miscellaneous Itemized Deductions subject to the 2% floor have been eliminated. This includes unreimbursed employee expenses (job travel, union dues, job education, home office deduction), tax preparer fees, and other expenses such as investment and safe deposit box fees).
- That means you will no longer be able to deduct my expenses.
- Hidden in the bill
o This legislation sunsets after 2025
o A provision that gives favorable tax treatment to real estate income. According to CNBC, roughly four dozen Republican House and Senate members who voted for the bill” will benefit.
o According to USA Today, “Laws designed to prevent deficit spending could kick in as early as next year, forcing cuts to popular programs, including Medicare.
o No one seems to be really talking about the 529 education provision. The bill will allow the use of up to $10,000 per year, per-student, of 529 funds for elementary and/or secondary school. Prior to this bill, 529 funds were for post-secondary education only. These funds can now be used for public, private and religious school expenses.
o Alimony will no longer be deductible by the payor, not claimed as income by the payee if the divorce agreement is executed after December 31, 2018.
o The bill prevents taxpayers from using re-characterization of Roth IRA’s to unwind a Roth Conversion
o Taxpayers will no longer pay a penalty if they do no obtain health insurance