Release of final tax bill details

[donheff]

Here we go again.

But the short answer is ... probably a modest decrease in tax.

You answered it anyway. It’s because of helpful folks like you that we all keep coming back.

 

[FANOFJESUS]

Here we go again.

But the short answer is ... probably a modest decrease in tax.

Right now I pay $0 to the fed's but the state hits me hard.

 

[mrfeh]

I saw this on another site regarding the $10k limit on state and local taxes:

Page 88 of Tax Bill…

“(b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable years beginning after December 31, 2016.”

Could somebody please confirm this? Every other source I've seen say the new SALT limits begin in tax year 2018.

Thanks.

 

[pb4uski]

I agree with you... the 2016 date related to a different provision (looks like an anti-abuse provision):

Under the provision a
taxpayer may claim an itemized deduction of up to $10,000 ($5,000 for married taxpayer filing a
separate return) for the aggregate of (i) State and local property taxes not paid or accrued in
carrying on a trade or business, or an activity described in section 212, and (ii) State and local
income, war profits, and excess profits taxes (or sales taxes in lieu of income, etc. taxes) paid or
accrued in the taxable year. Foreign real property taxes may not be deducted under this
exception.

The above rules apply to taxable years beginning after December 31, 2017, and
beginning before January 1, 2026.

The conference agreement also provides that, in the case of an amount paid in a taxable
year beginning before January 1, 2018, with respect to a State or local income tax imposed for a
taxable year beginning after December 31, 2017, the payment shall be treated as paid on the last
day of the taxable year for which such tax is so imposed for purposes of applying the provision
limiting the dollar amount of the deduction. Thus, under the provision, an individual may not
claim an itemized deduction in 2017 on a pre-payment of income tax for a future taxable year in
order to avoid the dollar limitation applicable for taxable years beginning after 2017.

Effective date.−The provision is effective for taxable years beginning after December 31,
2016.

 

[audreyh1]

Could somebody please confirm this? Every other source I've seen say the new SALT limits begin in tax year 2018.

Thanks.

Yes, that it correct. But it applies specifically to the disallow of prepaying 2018 State or local income taxes. The new SALT limits go into effect 2018.

 

[Throwdownmyaceinthehole]

I've tried to look thru all the posts to see if this has been addressed, apologies if this is just basic sense but I was looking at this year end tax fiddling. I have about $10k that I was planning on moving from Roth. But if I delay until next year, I will only pay 12% tax so that's a 3% increase. Then if I also fill my HSA bucket for this year, I'll get a tax credit at 15% rather than waiting til next year. So that's 3% too. Overall its not much, but it's worth doing.

 

[pb4uski]

I've tried to look thru all the posts to see if this has been addressed, apologies if this is just basic sense but I was looking at this year end tax fiddling. I have about $10k that I was planning on moving from Roth. But if I delay until next year, I will only pay 12% tax so that's a 3% increase. Then if I also fill my HSA bucket for this year, I'll get a tax credit at 15% rather than waiting til next year. So that's 3% too. Overall its not much, but it's worth doing.

While it is true that you'll get a benefit from the 12% rates vs 15%, if your SALT deductions are limited, that could be a detriment.

In my case, the negative impact of the SALT limitations exceed the benefit of the rate change such that my effective tax rate on Roth conversions is higher under the new law than under existing law.

In my case, I have lots in my IRA so will do Roth conversions to the top of the 15%/12% tax bracket under either law... but if I only had $10k left to convert I would do it this year rather than next year. YMMV because your situation may be different.

 

[Texas Proud]

I will admit that I have not read any of the many lists of things changing as a number of them do not affect me... I am just curious at times...


SOOO, here is my latest.... did they change the EV tax credits? Is Tesla going to be getting those billions they were expecting or not?

 

[Joylush]

No change as far as I had seen, and Kitces didn’t mention any.

The annual gift tax exemption in 2018 is increasing to $15K per original inflation adjustment rules.

I guess this remains linked to the CPI-U? Kitces mentions no change other than the doubling of the estate tax exemption, so I assume the current inflation adjustment standard remains.

But doesn't the doubling of the estate tax exemption expire in 2025 so if you live beyond that you're back to square one? Or rather your heirs will be. I don't understand it to be permanent.

 

[JoeWras]

SOOO, here is my latest.... did they change the EV tax credits? Is Tesla going to be getting those billions they were expecting or not?

Assuming Kitces is correct -- and he usually is -- NO CHANGE for EV credits.

https://www.kitces.com/blog/final-g...ividual-tax-brackets-pass-through-strategies/

Other notable – and at times, controversial – loophole closers that did not make the final cut (and therefore all remain intact) include:

– Elderly and Dependent Care credit

– Tax credit for plug-in electric vehicle

– $250 schoolteacher deduction

– Adoption Assistance tax credit

– Tax preferences for private activity bonds

 

[audreyh1]

I will admit that I have not read any of the many lists of things changing as a number of them do not affect me... I am just curious at times...


SOOO, here is my latest.... did they change the EV tax credits? Is Tesla going to be getting those billions they were expecting or not?

I think that ended up unchanged according to the Kitces article. All proposed changes were dropped.

Oh. I see - already answered.

 

[audreyh1]

But doesn't the doubling of the estate tax exemption expire in 2025 so if you live beyond that you're back to square one? Or rather your heirs will be. I don't understand it to be permanent.

I think most changes expire in 2025 per house rules which allow changes like this to be voted in by a simple majority.

Back to square one? What is different? Nothing is really permanent.

Sunset provisions have been made permanent before. The fact is no one knows what tax law changes may happen within the next 10 years let alone before any of us pass away.

 

[MichaelB]

I think most changes expire in 2025 per house rules which allow changes like this to be voted in by a simple majority.

Back to square one? What is different? Nothing is really permanent.

Sunset provisions have been made permanent before. The fact is no one knows what tax law changes may happen within the next 10 years let alone before any of us pass away.

Senate reconciliation rules?

 

[audreyh1]

Senate reconciliation rules?

Yeah, sorry I don’t know the exact terminology but the Kitces article explains some of it.

Of course I don’t understand why some provisions are permanent and others temporary. Perhaps a scoring system was used. I have no idea.

 

[braumeister]

There are very good reasons why Senate rules have always been described as "arcane".

 

[travelover]

...........Of course I don’t understand why some provisions are permanent and others temporary. Perhaps a scoring system was used. I have no idea.

I believe that the temporary provisions are to keep the total cost of the bill within the limits that allow for a simple majority in the Senate to pass it.

 

[foxfirev5]

Everything always changes. Deal with it. We all make our best choices on what we know and expect to change in the future.
Save your money and invest to the best of your abilities

 

[W2R]

[ADMIN HAT ON]

In the interest of keeping this thread open and available for a continuation of our interesting discussion of the tax bill, the moderator team is asking everyone to be careful not to drift into posts about future legislation and elections.

Please re-read your posts before you post them. Thank you!

[/ADMIN]

 

[Another Reader]

[ADMIN HAT ON]

In the interest of keeping this thread open and available for a continuation of our interesting discussion of the tax bill, the moderator team is asking everyone to be careful not to drift into posts about future legislation and elections.

Please re-read your posts before you post them. Thank you!

[/ADMIN]

I agree to an extent, but it's important to point out that this legislation is in part subject to sunset provisions and those should be considered in anyone's planning for the future.

 

[MichaelB]

I agree to an extent, but it's important to point out that this legislation is in part subject to sunset provisions and those should be considered in anyone's planning for the future.

Sunset provisions are part of the tax bill, and have been clearly noted in the thread. W2R's request is (once again) to please limit discussion to the contents of the current bill.

 

[43210]

Another summary/analysis
https://taxfoundation.org/final-tax-cuts-and-jobs-act-details-analysis/

One thing I haven't seen mentioned here is this:
"Changes to Business Taxes: ... Limits the deductibility of net interest expense to 30 percent of earnings before interest, taxes, depreciation, and amortization (EBITDA) for four years, and 30 percent of earnings before interest and taxes (EBIT) thereafter."

(Apparently this is part of the revenue impact balancing act.)

It doesn't affect our individual tax directly, but it affects investments. One thing I've been seeing on the web is discussion that this adversely affects junk bonds (the junkier, the worse) since junky issuers have high interest to income ratios.

 

[audreyh1]

I believe that the temporary provisions are to keep the total cost of the bill within the limits that allow for a simple majority in the Senate to pass it.

Sure, but they had to decide between which to sunset and which to make permanent.

 

[Katsmeow]

Two things:

Whether to itemize for 2017

The primary issue for me is going to whether this causes me to itemize for 2017. We had not been going to be able to itemize for this year or it was going to be only a small amount. So I had plan to bunch my 2017 property taxes into 2018 (they are about $4900 per year). And, under current law we would have been able to itemize in 2018.

But, with the new larger standard deduction with elimination of the exemptions - no amount of bunching will help us in 2018. So we definitely can't itemize for 2018.

So - I have looked again at 2017 now that the medical expense deduction is about 7.5% instead of 10%. That may make us eligible. At first I thought we wouldn't be as the biggest part of the deduction is for health insurance paid for a policy that covers me and our now non-dependent adult children. Ordinarily I couldn't deduct the premium that covers non-dependents.

But, I found something that says you can deduct it if the child would have been a dependent but for earning too much money. That applies to DD. We paid more than half of her expenses but she just barely has earned enough money (I think) to not allow us to claim her as a dependent. But, if we can deduct for her insurance premiums then we should be able to itemize in 2017 for the last time if we pay the property taxes before the end of this year.

Expiration of provisions

I have a question as to what the bill provides. My understanding is that the new brackets will expire in 2025 (or 2026 - not sure). Then the brackets and tax rates for each bracket go back to where they are now.

What about the increase of the standard deduction and getting rid of the exemptions? I assume that does not expire. Is that correct?

 

[Winemaker]

I believe that the temporary provisions are to keep the total cost of the bill within the limits that allow for a simple majority in the Senate to pass it.

Same thing occurred a few years ago when the "Bush" tax cuts had to be voted on again, because of expiration.

 

[RunningBum]

My understanding is that you cannot prepay 2018 state and local income taxes in 2017, but you can prepay 2018 property taxes and deduct them in 2017 if you pay them this year. Do I have that correct?