Release of final tax bill details

[MBSC]

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Now I have found conflicting info.

That it did eliminate the over age 65 and/or blind extra standard deduction.

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Forbes article also says both the additional standard deduction and exemptions disappear into the "higher" standard deduction... except for a single senior that new deduction is NOT "higher" in 2018. It's $250 less.

Ugh. The additional standard deduction remains.

Conference Agreement
The conference agreement follows the Senate amendment.

Senate Amendment
The additional standard deduction for the elderly and the blind is not changed by the provision.

Joint Explanatory Statement (pages 14-15): http://docs.house.gov/billsthisweek/20171218/Joint Explanatory Statement.pdf

 

[audreyh1]

According to Forbes, the over 65/blindness deduction has been eliminated:



https://www.forbes.com/sites/kellyp...eres-whats-in-the-final-version/#7bcb37514d63

REWahoo my reading is that it is retained. The language is in the above post.

Conference Agreement
The conference agreement follows the Senate amendment.

Senate Amendment
The additional standard deduction for the elderly and the blind is not changed by the provision.

 

[JoeWras]

I am a bit confused on the changes to ROTH IRAs, if any. I have seen mentioned about recharactsrizations, but I am assuming this is different than ROTH conversions. Will backdoor ROTH and ROTH conversions still be allowed under the new plan?

Yes. Do not panic.

What is being taken out is the "recharacterization". Conversions remain.

My source? The released bill, page 639 of the pdf, or page 116 as listed in the human readable section. It is footnote 277, which specifically applies to the final conference bill after discussing the current law and the other two bills:
http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-466.pdf

277
In addition, an individual may still make a contribution to a traditional IRA and convert the traditional
IRA to a Roth IRA, but the provision precludes the individual from later unwinding the conversion through a
recharacterization.

 

[REWahoo]

REWahoo my reading is that it is retained. The language is in the above post.

Maybe Forbes got it wrong - I hope that's the case.

 

[Golden sunsets]

If the bill says it’s your 2017 property taxes, then you are not prepaying. If it said 2018 taxes then maybe there would be a problem.

My local jurisdiction informed me that a number of people prepay their next year's taxes and these taxes sit as a credit on their account. My accountant (who is very conservative) informed me just last week that the current code allows prepaying up to 12 months so I could prepay the first half of 2018 due next November as well as the 2017 taxes not due until next May and claim a deduction this year. He explicitly told me that I could not prepay and claim as a deduction this year, the 2018 taxes due in May of 2019. As far as how to know what the 2018 taxes will be I will use this year's taxes as a guide and perhaps add a minimal inflation factor. My question to my accountant on Monday will be "if this bill passes will his guidance change?"


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[Golden sunsets]

Maybe Forbes got it wrong - I hope that's the case.

++1


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[audreyh1]

I believe you are wrong. It has been eliminated.

Sent from my iPad using Early Retirement Forum

I believe you are wrong. It has been retained.

Only the House version eliminated it, and the conference version follows the Senate version which did not eliminate it as they “did not change” it.

This language can be found in the Joint Explanatory Statement second half of the PDF on page 14.

1. Increase in standard deduction (sec. 1002 of the House bill, sec. 11021 of the Senate amendment, and sec. 63 of the Code)

Present Law
Under present law, an individual who does not elect to itemize deductions may reduce his or her adjusted gross income (“AGI”) by the amount of the applicable standard deduction in arriving at his or her taxable income. The standard deduction is the sum of the basic standard deduction and, if applicable, the additional standard deduction. The basic standard deduction varies depending upon a taxpayer’s filing status. For 2017, the amount of the basic standard deduction is $6,350 for single individuals and married individuals filing separate returns, $9,350 for heads of households, and $12,700 for married individuals filing a joint return and surviving spouses. An additional standard deduction is allowed with respect to any individual who is elderly or blind.13 The amount of the standard deduction is indexed annually for inflation.

In the case of a dependent for whom a deduction for a personal exemption is allowed to another taxpayer, the standard deduction may not exceed the greater of (i) $1,050 (in 2017) or (ii) the sum of $350 (in 2017) plus the individual’s earned income.

House Bill
The House bill increases the standard deduction for individuals across all filing statuses. Under the provision, the amount of the standard deduction is $24,400 for married individuals filing a joint return, $18,300 for head-of-household filers, and $12,200 for all other taxpayers. The amount of the standard deduction is indexed for inflation using the C-CPI-U for taxable years beginning after December 31, 2019.14

The provision eliminates the additional standard deduction for the aged and the blind.

Effective date.−The provision is effective for taxable years beginning after December 31, 2017.

Senate Amendment
The Senate amendment temporarily increases the basic standard deduction for individuals across all filing statuses. Under the provision, the amount of the standard deduction is temporarily increased to $24,000 for married individuals filing a joint return, $18,000 for head- of-household filers, and $12,000 for all other individuals. The amount of the standard deduction is indexed for inflation using the C-CPI-U for taxable years beginning after December 31, 2018.

The additional standard deduction for the elderly and the blind is not changed by the provision.

The increase of the basic standard deduction does not apply to taxable years beginning after December 31, 2025.15

Effective date.−The provision is effective for taxable years beginning after December 31, 2017.

Conference Agreement
The conference agreement follows the Senate amendment.

 

[JoeWras]

Speaking of stuff wrong, my little focused search this morning on Roth Conversions pulled up an "official looking authoritative" blog, dated last night, that I never heard of before in which the author was advising conversions this year because it looks like it may go away next year. ... Wrong.

WWW? Nah, WWM. World Wide Madness.

 

[pb4uski]

If the bill says it’s your 2017 property taxes, then you are not prepaying. If it said 2018 taxes then maybe there would be a problem.

+1 and if your locality has a fiscal year that is not the calendar year (say, july 1, 2017 to June 30, 2018) and you have been billed but the taxes are not yet due because the payments are in installments, then IMO you could make those installment payments dues in 2018 in 2017 and still claim the deduction.

 

[JoeWras]

When you scan that document for keywords, be careful. Audrey's context above is excellent. The human readable section has old-senate-house-final sections. Taken out of context, you can accidentally get bad information because you may land on a paragraph that isn't the final bill.

 

[Golden sunsets]

I believe you are wrong. It has been retained.

Only the House version eliminated it, and the conference version follows the Senate version which did not eliminate it as they “did not change” it.

This language can be found in the Joint Explanatory Statement second half of the PDF on page 14.

Excellent.


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[audreyh1]

According to Forbes, the over 65/blindness deduction has been eliminated:



https://www.forbes.com/sites/kellyp...eres-whats-in-the-final-version/#7bcb37514d63

I think the confusion may be that the exemptions have been eliminated and the standard deduction expanded to compensate - and that is the language you quoted. But the over 65/blind is not covered by the eliminated exemptions as it was an additional standard deduction, not an exemption.

 

[latexman]

I entered my actual 2016 1040 numbers into the Max Lott Tax Calculator, and the new tax rules would have cost me $1094 more!


Not a good sign!

 

[audreyh1]

I’m wondering also about this language. It seems to disallow future bunching in general? Although it does specify State and local income tax and NOT property taxes.

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.

 

[Pilot2013]

I entered my actual 2016 1040 numbers into the Max Lott Tax Calculator, and the new tax rules would have cost me $1094 more!


Not a good sign!

I think, while premature (who knows if it is correct for the plan), there will be winners and losers no matter what.

 

[Another Reader]

+1 and if your locality has a fiscal year that is not the calendar year (say, july 1, 2017 to June 30, 2018) and you have been billed but the taxes are not yet due because the payments are in installments, then IMO you could make those installment payments dues in 2018 in 2017 and still claim the deduction.

I think a strong argument can be made for that interpretation in California.

The taxes are a lien on January 1st.

They are due when the bill is issued at the beginning of October.

They are payable in installments.

 

[friar1610]

Does anyone know if QCDs (qualified charitable distributions) will receive the same tax treatment under the new rules?

 

[latexman]

I think, while premature (who knows if it is correct for the plan), there will be winners and losers no matter what.

True, but still, not a good sign (for me)!

 

[pb4uski]

I entered my actual 2016 1040 numbers into the Max Lott Tax Calculator, and the new tax rules would have cost me $1094 more!


Not a good sign!

Not sure I woudl rely on those calculators... modeling your taxes in a worksheet will give you a more reliable result.

 

[USGrant1962]

Forest - Trees

This discussion of the puts and takes regarding deductions, tax credits, and exemptions is interesting and useful for tax planning. But some seem to be implying that "losing" X, Y or Z "favorite tax break" will be a tax increase. Other than high income people in SALTy states and a few special situations, that is unlikely to be true. Why?

Because the actual tax rates are cut - substantially. This article on NPR's site is the best side-by-side I could find in a quick search https://www.npr.org/2017/12/15/5712...n-of-the-republican-tax-bill-would-affect-you .

The brackets don't line up precisely, but for MFJ the bracket math is something like:

• 15% bracket becomes 12%, a 20% reduction
• 25% bracket becomes 22%, a 12% reduction
• 28% bracket becomes 24%, a 14% reduction
• half of 33% becomes 24%, a 27% reduction

The old 33% bracket is likely to include many of the people hit hardest with the SALT limitation, but when taxable income between $233K and $315K is taxed at 24% instead of 33% those folks could save up to $5,700 in actual tax due just on that marginal portion of their income (ignoring all the savings up to $233K). That buys a lot of SALT.

There is an oddity that single filers see higher marginal rates between $157K and $416K, so that is unfortunate.

Anyway, my point is that applying deductions and exemptions and calculating taxable income (the trees) are just intermediate procedural steps between a) your gross income, and B) your tax due (the forest). The procedure is changing and those steps have been jumbled, but your tax due is all that really matters.

 

[Camellia]

And that was actually for 2018? They tell you on Dec 1 of 2017 what your 2018 property taxes will be?

Philadelphia property taxes are due in full March 31, with a 1% discount if paid by the last day of Feb. The bill and website both list the 2018 tax amount.

Grateful that you noted the language refers specifically to income taxes. I skimmed the document but it was after my spiked eggnog. I will have to call my accountant on Monday.

 

[Pilot2013]

True, but still, not a good sign (for me)!

Yeah, my quick calc says not to good for me either! My daughter, on the other hand, makes out MUCH better.

 

[Scuba]

For all who are thinking of prepaying property taxes not due until 2018, hopefully you aren't subject to AMT. My CPA said we wouldn't benefit from prepayment as our AMT would increase, negating any benefit of prepayment.

 

[MichaelB]

Property tax collectors around the country are providing early billing for 2017 taxes normally billed and due in 2018.

My understanding of property tax prepayment, one can only prepay property taxes when the county allows and accepts that specific prepayment. That is, it's not just a credit balance on the account. The country usually does that with a prepayment invoice or similar document.

 

[JoeWras]

The forest for us is overall positive, by slight amounts.

We ER in 2018 so I picked a good year. We'd be limited by the SALT provision with our old income, but with part year in 2018, and low ER income beyond, it is not a factor.

The funny thing is according to the Lott calculator, we'd win some and lose some in the old bills depending on this partial ER year or future ER years. For the conference bill, it is all green.