Week of December 18, 2017Individual Changes in TCJA

Edward K. Zollars, CPA

Images copyright 123RF.comPresentation © 2017 Loscalzo Institute, a Kaplan Company 1

Conference Bill Produced

• Tax Cuts and Jobs Act, HR1 Conference Report, 12/15/17

• Final version posted at 5:30 pm EST

• Based mainly on the Senate version of the bill, with some

items taken from the House bill

• Currently appears to have sufficient votes to pass both

chambers and be signed into law this week.

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Conference Bill Produced

• Tax Cuts and Jobs Act, HR1 Conference Report, 12/15/17

• Generally need to “start from scratch” when looking at this

bill (get conference report)

• But some big things that aren’t in the final bill

• Removal of exclusion for employer provided tuition

reduction (big deal for grad teaching assistants)

• No change in exclusion for sale of residence despite

being in both bills3

Individual Provisions

• Individual tax rates

• 7 brackets, with top bracket at 37%

• Capital gain brackets remain the same

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Individual Rates

• Rates revert to old rates in 2026

• No change in capital gain rates or brackets

• However, will have additional preparer penalty for failure to

exercise due diligence in determining if taxpayer eligible for

head of household status

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Standard Deduction/Exemptions

• Increase in standard deduction

• $24,000 for MFJ

• $18,000 for HoH

• $12,000 for all other filers

• No personal or dependent exemptions

• Retain additional standard deduction for elderly and blind

• Expires after 2025

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Qualified Business Income Deduction

• It looks simple, but…• Taxpayer gets a 20% deduction for “qualified business

income”

• In general, qualified business income is income from other

than certain service passthrough businesses

• But the actual definition of qualified business income has

many quirks and special cases

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Qualified Business Income Deduction

• Qualified Business Income - Specified Service Trade or

Business

• Deduction for “specified service trade or businesses” phases

out based on taxable income

• $157,500 to $207,500 for single, HOH and MFS

• $315,000 to $415,000 for MFJ

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Qualified Business Income Deduction

• Qualified Business Income - Specified Service Trade or

Business

• Such businesses are in health, law, consulting, athletics,

financial services, brokerage services,

• Also “reputation business” (borrowed from §1202)

• Conference report removed architecture and engineering

from the list

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Qualified Business Income Deduction

• W-2 wage and capital limit

• Deduction limited to ½ of W-2 wages (or alternative test) for

those above threshold limit that was used for service

businesses (but obviously applies to nonservice businesses)

• Limited to greater of

• 50% of W-2 wages or

• 25% of wages and 2.5% of unadjusted basis of property

(but none acquired more than 10 years ago)15

Qualified Business Income Deduction

• Special rules for computing deduction for flow through

income from

• REITs

• Cooperatives

• Publicly traded partnerships

• Deducted from taxable income, not used in computing

adjusted gross income, nor is it an itemized deduction

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Qualified Business Income Deduction

• Conference bill also allows trusts and estates to be able to

claim this deduction (the Senate bill did not)

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Enhanced Child Tax Credit and Family Tax Credit

• Child Tax Credit

• Temporarily increased to $2,000 per year through 2025, with

$500 nonrefundable credit for other dependents

• Maximum refundable amount is $1,400 per child

• Age of child remains unchanged from current law

• Phases out for AGIs in excess of $400,000 (MFJ), $200,000 (all

others)

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Enhanced Child Tax Credit and Family Tax Credit

• Excess Loss Denial

• Taxpayers that has “excess loss” will have excess denied,

added to NOL in subsequent year

• Excess loss is $500,000 (MFJ), $250,000 (all others)

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529 Plans

• Up to $10,000 per beneficiary (not per account) may be

used for elementary or secondary school

• Allowed for certain homeschool expenses:

• Curriculum and curriculum materials

• Books or other instructional materials

• Online education materials

• Tuition for tutoring (but only to unrelated party)

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529 Plans

• Allowed for certain homeschool expenses:

• Dual enrollment in institution of higher education

• Education therapies for students with disabilities

• Rollover to ABLE Plan (through 2025)

• Rollover must come a 529 the owner is a beneficiary of, or a

member of the family

• Will count against annual contribution limits

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Itemized Deductions

• Overall limit on itemized deductions repealed (through

2025)

• Home acquisition indebtedness limited to $750,000 of debt,

no deduction for home equity debt (through 2025)

• Limit to a maximum deduction of $10,000 for aggregate of

state & local

• Income taxes

• Property taxes22

Itemized Deductions

• Amounts paid before end of 2017 on 2018 state income

taxes are treated as paid in 2018 (anti-abuse rule)

• Personal casualty losses are only deductible if attributable

to a federally declared disaster (through 2025)

• Limit on wagering losses expanded to cover expenses other

than just the wager (through 2025)

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Itemized Deductions

• Charitable contributions

• Increase limit for donation of cash to public charities to 60%

• No deduction for payments made in exchange for college

athletic seating rights

• Repeal option for organization to document contributions via

Form 990

• Through 2025, no 2% miscellaneous itemized deductions

may be claimed (including tax preparation fees)24

Itemized Deductions

• Medical expenses

• For 2016 and 2017, the limit will return to 7.5% of AGI for all

taxpayers

• Also, AMT limit will be set at 7.5% of AGI

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Alimony

• For any instrument executed after December 31, 2018

• No deduction will be allowed for alimony paid

• No amount of alimony received will be included in income

• Date was pushed back due to concern about impact on

divorces in progress

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Moving Expenses

• Generally no deduction for moving expenses paid (through

2025)

• Also no exclusion for employer paid moving expenses

• However, special rules apply to certain moves of members

of the Armed Services

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Roth IRA Rollover - No More Recharactizations

• Removes the ability of a taxpayer to recharacterize a Roth

rollover back to being treated as being rolled to a regular

IRA by the extended due date of the return

• Can still recharacterize contributions from a Roth IRA to a

regular IRA

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Rollovers Related to Qualified Plan Loans

• Extends the due date for rolling over a deemed distribution

due to a plan loan offset when leaving service beyond 60

days

• Must be done by due date for filing the tax return for the

year of the deemed distribution

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Estate and Gift Tax

• Does not repeal the estate tax, nor the GST tax

• Doubles the exclusion for those dying beginning in 2018

(though 2025)

• Would go to $11,200,000 for 2018

• The inflation adjustment continues

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Alternative Minimum Tax

• Individual AMT continues under the bill, though corporate

AMT does go away

• Increase AMT exemptions to $109,400 for MFJ $54,700 for

MFS, $70,300 for all others (except estates and trusts)

• Phaseout of exemption begins at $1,000,000 for MFJ,

$500,000 for all others (except estates and trusts)

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Elimination of Shared Responsibility Payment

• Shared responsibility payment for individuals (but not for

applicable large employers) is set to zero

• Effective for months beginning after December 31, 2018.

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Check out CPE from your State Society of CPAs

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Week of December 18, 2017Catch the daily updates at

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Send questions and comments to:

edzollars@currentfederaltaxdevelopments.com

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