Tax Law Updates
As the effects of the Tax Cuts & Jobs Act are analyzed, I will try to share those portions that may impact you.Keep in mind that most of these provisions are temporary. As of 31 December 2025, many of the tax changes will expire and revert to 2017 levels. Here we go:
- the standard deduction will basically double for all taxpayers.$24,000 MFJ; $12,000 S&MFS; $18,000 HOH.Adjustments will remain for those 65 and over. However, the personal exemption ($4,050) is no suspended through 2025.
- through 2025, married couples filing jointly will be exempt from the alternative minimum tax starting at $109,400. Exemption starts at $70,300 for all other taxpayers (other than estates and trusts). The exemption phase-out thresholds will rise to $1,000,000 for married couples filing jointly, and $500,000 for all other taxpayers.
- through 2025, the child tax credit doubles to $2,000 per qualifying child. Up to $1,400 of the child tax credit can be received as refundable credit (meaning it can go toward a tax refund). The new rule also includes a $500 nonrefundable credit per dependent other than a qualifying child. The credit begins to phase out at an AGI over $200,000 — for married couples, the phase-out starts at an AGI over $400,000.
- through 2025 taxpayers may not claim tax-preparation expenses as an itemized deduction.
- through 2025 the bill suspends work-related expenses (unreimbursed business expenses) as an itemized deduction.
- through 2025 the investment fee (brokerage fee) deduction is suspended.
- through 2025, new homeowners can include mortgage interest paid on up to $750,000 of principal value on a new home in their itemized deductions. The old, $1 million caps continues to apply to current homeowners (those who took out their mortgages on or before Dec. 15, 2017), as well as refinancing on mortgages taken out on or before Dec. 15, 2017, as long as new mortgage amount does not exceed the amount of debt being refinanced.
CAN deduct interest paid on a home equity line of credit or home equity
loan, ONLY if the loan was used to buy, build or substantially improve
your home. If you use your HELOC to purchase other items (cars,
vacations, etc.) the interest will not be deductible. We are still
awaiting guidance as to how mixed-use borrowings will be treated. If
past experience is any indication, the IRS may disallow all HELOC interest if any of it was used for non-home items.We’ll wait and see.
- through 2025 taxpayers are limited to claiming an itemized deduction of $10,000 in combined state and local income, sales and property taxes.
Taxpayers cannot get around these limits by prepaying 2018 state and local income taxes while it is still 2017. The IRS has also stated that prepaying 2018 property taxes will not be allowed. Their stance is that there must be an “assessment” for the taxes in place prior to any payment being made.
Some states are considering legislation that would allow taxpayers to deduct state and local taxes above the $10,000 limit by recharacterizing them as charitable contributions. Since this would probably be view as a “quid pro quo” transaction, don’t expect this to fly.
Things of interest to businesses:
- The 2 year carryback
provision for NOLs is repealed. Losses
can now be carried forward indefinitely.
The downside is that the NOL deduction is now limited to a maximum of
80% of taxable income. You cannot wipe
out your entire tax liability in any given year using the NOL.
- Section 179 deduction is increase to $1 million.
- Client Entertainment is no longer a deduction. No deduction an activity generally considered to be entertainment, amusement or recreation.No deduction for membership dues with respect to any club organized for business, pleasure, recreation or other social purposes.No deduction for a facility or portion thereof used in connection with any of the above items. Paying a client’s admission to a sport’s event, or giving away tickets, is no longer deductible.
- Partnerships will have to make a decision how to be treated now that TEFRA has been replaced with the Bipartisan Budget Act of 2015.This primarily deals with audits. The rules are complicated, but partnerships issuing less than 100 K-1s and having the permitted partners, are able to “opt out” of this new treatment. You may want to discuss your partnership agreement with your attorney to consider adding language that would determine how a “partnership representative” would be designated if the entity comes under audit.