Release of final tax bill details

[pb4uski]

That makes sense, but it's not a "small tax increase for us". Your tax is down on the same income under the new law. Correct?

One would think so but it isn't. Below is the same table but with the Roth conversion the amount under the new law in both cases.

	Current				Conference
	Roth Conv	Rate	Tax		Roth Conv	Rate	Tax
0% bracket	5,278	0%	-		1,916	0%	-
10% bracket	19,050	10%	1,905		19,050	10%	1,905
15%/12% bracket	4,535	15%	680		7,897	12%	948
Total	28,863		2,585		28,863		2,853
			9.0%				9.9%

Note the tax is $268 higher, as follows:

Lost deductions due to SALT limitation of $3,362 * 12% marginal rate = $403 increase in tax
Favorable impact in rates............................... $4,535 * (15%-12%) = $136 reduction in tax

Net impact.................................................................................... $268 increase in tax

 

[NW-Bound]

Yes, I believe HELOC interest and interest on a second home mortgage will no longer be deductible under the new bill. I don't think there is any grandfathering either.

I just checked, and it appears that the 2nd home mortgage still qualifies.

Mortgage value is limited to $750K, compared to $1M currently and $500K as proposed earlier. HELOC interest will not be deductible at all, first or 2nd home.

None of the above will affect me, but can be of importance to RE resale value in some markets. Overall, I don't know how the new tax will affect me personally, and there's not a lot I can do about it anyway.

PS. At first look, it appears my Fed tax may vary by a few hundred bucks. Nothing much to worry or rejoice over.

 

[latexman]

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

I don't see where that calculator captures the lower rates on LTCG and Qualified Dividends. This may be the source of your increase.

Yes, I think this calculator is too simple to be of value to me.

 

[audreyh1]

I just checked, and it appears that the 2nd home mortgage still qualifies.

Mortgage value is limited to $750K, compared to $1M currently and $500K as proposed earlier. HELOC interest will not be deductible at all, first or 2nd home.

None of the above will affect me, but can be of importance to RE resale value in some markets. Overall, I don't know how the new tax will affect me personally, and there's not a lot I can do about it anyway.

Sorry - I must have read the House section and thought it was still in the Conference Agreement. The Conference Agreement makes no mention of a second mortgage.

Conference Agreement
The conference agreement provides that, in the case of taxable years beginning after December 31, 2017, and beginning before January 1, 2026, a taxpayer may treat no more than $750,000 as acquisition indebtedness ($375,000 in the case of married taxpayers filing separately). In the case of acquisition indebtedness incurred before December 15, 2017162 this limitation is $1,000,000 ($500,000 in the case of married taxpayers filing separately).163 For taxable years beginning after December 31, 2025, a taxpayer may treat up to $1,000,000 ($500,000 in the case of married taxpayers filing separately) of indebtedness as acquisition indebtedness, regardless of when the indebtedness was incurred.

Additionally, the conference agreement suspends the deduction for interest on home equity indebtedness. Thus, for taxable years beginning after December 31, 2017, a taxpayer may not claim a deduction for interest on home equity indebtedness. The suspension ends for taxable years beginning after December 31, 2025.

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

 

[harley]

Well, I'm sure that I'll be significantly effected no matter what the end result is. I've got no mortgage on my primary res, but a significant mortgage on my second home. I've itemized forever, and we've got rentals, a small business other than the rentals, significant charitable contributions (although I just did a DAF to get out of that business).

But having said that, I'm going with the inimitable Mickey Rivers. "I don't get upset over things I can't control, because if I can't control them, there's no use getting upset. And I don't get upset over things I can control, because if I can control them, what's the use in getting upset?" I'll see how it works out in 2018, then adjust my game and use whatever loopholes I can find. And there will be loopholes, because this is not simplification. And I'll probably learn about most of them here, because y'all are excellent sources. So keep working on it, and I'll check back in a year or so and take advantage of your genius.

 

[GrayHare]

If I'm understanding it correctly, going forward the deduction of State, Local and Property (new acronym: SLAP) taxes are being capped at a combined total of $10,000. Since on Sched A "Foreign Taxes Paid" is grouped with the SLAP taxes, I'm wondering if Foreign will be part of the combined total $10,000 deduction limit...

 

[meierlde]

If I'm understanding it correctly, going forward the deduction of State, Local and Property (new acronym: SLAP) taxes are being capped at a combined total of $10,000. Since on Sched A "Foreign Taxes Paid" is grouped with the SLAP taxes, I'm wondering if Foreign will be part of the combined total $10,000 deduction limit...

Note that unless there was a change there is always the foreign tax paid credit as an alternative. As a credit dollar for dollar is better than a deduction as the IRS notes here:https://www.irs.gov/individuals/int...x-credit-choosing-to-take-credit-or-deduction It is in general better to take a credit than a deduction for foreign taxes.

 

[Texas Proud]

One would think so but it isn't. Below is the same table but with the Roth conversion the amount under the new law in both cases.

Current Conference

Roth Conv Rate Tax Roth Conv Rate Tax

0% bracket 5,278 0% - 1,916 0% -

10% bracket 19,050 10% 1,905 19,050 10% 1,905

15%/12% bracket 4,535 15% 680 7,897 12% 948

Total 28,863 2,585 28,863 2,853

9.0% 9.9%

Note the tax is $268 higher, as follows:

Lost deductions due to SALT limitation of $3,362 * 12% marginal rate = $403 increase in tax
Favorable impact in rates............................... $4,535 * (15%-12%) = $136 reduction in tax

Net impact.................................................................................... $268 increase in tax

Nice how the table worked... I cannot get them to look like that

BUT, the increase in tax looks to be 100% due to the loss of SALT.... without this limitation the taxes would be lower...

So anything that becomes taxable will have a higher rate only because of loss of SALT which is what has been said by people on TV.... that some will pay a bit more for the loss of a deduction....

 

[teejayevans]

I assume with the higher standard deduction and limits on SLP, mortgages etc, the idea is less people will be itemizing, so that’s the simplicity part, otherwise I don’t see it.
I also assume that if they don’t pass it by next week it won’t affect 2018, you can’t pass a tax bill in the same year it takes affect.

 

[Helena]

.

Useful information in this WSJ article

"What GOP Tax Plan Means for Your Favorite Deductions"


Here's what it says about the over age 65 deduction.


" What about the additional standard deductions for the elderly and blind?

The bill keeps them in place. For 2018, the additional standard deduction for people 65 and older is $1,300 for each partner of a married couple and $1,600 for a single person.

Thus, if each spouse is above 65, the additional standard deduction is $2,600 in 2018. If one spouse is 66 and the other is 60, the additional standard deduction is $1,300.

There’s also an additional standard deduction for taxpayers who are legally blind. For 2018, it is $1,600 for a single person and $1,300 for a married taxpayer. If both spouses are blind, the additional standard deduction would be $2,600.

Taxpayers who are elderly and blind can take both additional standard deductions."


More at link about pre-paying property taxes, etc

https://www.wsj.com/articles/what-gop-tax-plan-means-for-your-favorite-deductions-1513453149

.

 

[Gumby]

I also assume that if they don’t pass it by next week it won’t affect 2018, you can’t pass a tax bill in the same year it takes affect.

Why not? United States v. Carlton, 512 U.S. 26 (1994), seems to suggest otherwise. (https://www.law.cornell.edu/supct/html/92-1941.ZO.html).

 

[audreyh1]

I also assume that if they don’t pass it by next week it won’t affect 2018, you can’t pass a tax bill in the same year it takes affect.

Yes you can. It’s happened before. Since the process is already well underway they can easily do it. Note that at least one provision is in effect from Nov 2 2017 since it was first passed by one chamber. This is not unusual.

 

[Pilot2013]

It appears that I had about $16k in SALT last year, so about a $6k impact. I am assuming that the property tax includes real estate and other (vehicles, etc. that we have here in SC). Will have to create a spreadsheet to see if the bracket % changes offset.

 

[pb4uski]

If I'm understanding it correctly, going forward the deduction of State, Local and Property (new acronym: SLAP) taxes are being capped at a combined total of $10,000. Since on Sched A "Foreign Taxes Paid" is grouped with the SLAP taxes, I'm wondering if Foreign will be part of the combined total $10,000 deduction limit...

Acronym is SALT... state and local taxes.... property tax is also a local tax.

 

[pb4uski]

Nice how the table worked... I cannot get them to look like that

BUT, the increase in tax looks to be 100% due to the loss of SALT.... without this limitation the taxes would be lower...

So anything that becomes taxable will have a higher rate only because of loss of SALT which is what has been said by people on TV.... that some will pay a bit more for the loss of a deduction....

Table was just copied and pasted from Excel.

Yes, absent SALT changes there would have been ta savings due to change in rates from 15% to 12%.

I think the "cost" of SALT will be the lost deductions times the marginal tax rate (12% in my case but higher for many people).

 

[pb4uski]

... I also assume that if they don’t pass it by next week it won’t affect 2018, you can’t pass a tax bill in the same year it takes affect.

There is nothing that says that you can't pass a tax bill in the same year it takes effect.... it has happened many times in the past.

 

[donheff]

Sorry to digress to what has undoubtedly been covered numerous times but I have lost track of what happened to the medical deduction. Is it still out of the final compromise?

 

[audreyh1]

Page 373 through 375 of the Joint Explanatory Statement covers the present law and the Senate proposal on Cost Basis of Securities. And thankfully concludes that the Senate proposal is not included in the conference agreement.

Conference Agreement
The conference agreement does not include the Senate amendment provision.

 

[audreyh1]

Sorry to digress to what has undoubtedly been covered numerous times but I have lost track of what happened to the medical deduction. Is it still out of the final compromise?

No, it's there. The AGI requirements have been reduced to 7.5% for 2017 and 2018, and go back to 10% thereafter. No additional restrictions.

 

[audreyh1]

Nice how the table worked... I cannot get them to look like that

You need tabs to get things to space in columns. Copying and pasting from a spreadsheet or another html table usually works.

 

[Another Reader]

It ain't over til it's over, and my guess is some arm twisting and horse trading over the weekend might result in some adjustments to the final bill. Unless things change dramatically, it looks like my "to do" list consists of two items. First, pay the second installment of the property taxes on the personal residence as soon as the ink is dry. Second, throw a lot of cash at the HELOC until it's gone.

I still think the bank lobbyists have to be after Congress on the HELOC interest issue. The loss of the interest deduction is going to put a huge dent in that business.

 

[Pilot2013]

Second, throw a lot of cash at the HELOC until it's gone.

I still think the bank lobbyists have to be after Congress on the HELOC interest issue. The loss of the interest deduction is going to put a huge dent in that business.

I am SO GLAD now that I just refinanced to 15 years, rolling my HELOC into the loan. Started that without this in mind, just got lucky i guess (assuming stays as is).

 

[REWahoo]

It ain't over til it's over, and my guess is some arm twisting and horse trading over the weekend might result in some adjustments to the final bill.

I can't find it now, but I though I read something on Friday that said the agreed on compromise tax bill could not be changed again without going back to both the full Senate and House for approval - something highly unlikely due to the upcoming recess.

 

[Cobra9777]

One would think so but it isn't. Below is the same table but with the Roth conversion the amount under the new law in both cases.

	Current				Conference
	Roth Conv	Rate	Tax		Roth Conv	Rate	Tax
0% bracket	5,278	0%	-		1,916	0%	-
10% bracket	19,050	10%	1,905		19,050	10%	1,905
15%/12% bracket	4,535	15%	680		7,897	12%	948
Total	28,863		2,585		28,863		2,853
			9.0%				9.9%

Note the tax is $268 higher, as follows:

Lost deductions due to SALT limitation of $3,362 * 12% marginal rate = $403 increase in tax
Favorable impact in rates............................... $4,535 * (15%-12%) = $136 reduction in tax

Net impact.................................................................................... $268 increase in tax

I understand. But I'm sure you realize you changed the analysis so it's not the same income in both calculations as you posted previously. It's $3,362 less in the current-law scenario. So of course the tax will be higher in the new-law scenario. For taxable income of $77,400 old-vs-new, tax will be lower under the new law. It has to be... every nominal rate is either down or flat.

Again, I understand the analytical logic for holding the Roth conversion equal. No question there is a negative impact from the lower deductions+exemptions that gets masked when you lower the Roth conversion. I'm in the same boat as I posted earlier. In my mind, that negative impact occurs in the future at RMD time, as result of lower conversions today. Your analysis quantifies it now, which is fine. I sort-of implied the same in my original post, where I netted the two impacts.

As a practical matter, most of us with reduced SALT deductions will reduce Roth conversions accordingly to stay at the top of the 12% bracket. The lower rates will drive lower taxes vs current law. But the lower conversions mean higher RMDs and higher taxes in the future, a direct result of reduced SALT deductions today. In the grand scheme, these are pretty small numbers though. The original House version had the 12% bracket topping out at something like $92K, which would have been much better for us converters.

 

[Golden sunsets]

One other change that I have not seen mentioned here that I think is pretty significant and straightforward and potentially important for all of us is the change in standard deduction and the income brackets for widows. Under the current law a widow drops back to the standard deduction, I think after the second year of death and to my knowledge gets no special breaks on tax brackets and is taxed at the singles rate.

Under the law to be voted on the widow keeps the same deduction and tax brackets as when he/she was filing MFJ(although losing one component of the over 65 extra deduction). So where a couple in the new plan will claim a standard deduction of 26,600, upon death that deduction only drops to 25,300 and continues to be taxed on the table for MFJ.

If my interpretation is correct, this is a huge benefit to widows. Yet another reason why making these changes permanent would be a benefit. In our modeling we were always aware that when one of us passes, the other inherits the entire estate, with a corresponding increase in tax burden.