Release of final tax bill details

[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]

Quote:

Originally Posted by Another Reader 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]

Quote:

Originally Posted by 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.

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]

Quote:

Originally Posted by pb4uski 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.

[Another Reader]

Quote:

Originally Posted by Pilot2013 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).

My first is at 3.125 percent, so a refi does not make sense in my situation. I was going to pay off the remainder of the first HELOC draw anyway, because the interest rate is now floating and it's going over 5 percent with the last bump by the Fed.

[Pilot2013]

Quote:

Originally Posted by Another Reader My first is at 3.125 percent, so a refi does not make sense in my situation. I was going to pay off the remainder of the first HELOC draw anyway, because the interest rate is now floating and it's going over 5 percent with the last bump by the Fed.

I got 3.08% for refinance, and yeah, my HELOC was at 5.5% and probably climbing... My other primary was at 3.75% and still had 19 years. Combining the 2 had a net of about $300 CF per month improvement.

[pb4uski]

Quote:

Originally Posted by Cobra9777 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.

I changed it to make the Roth conversion the same to make it easier to understand the impact of the change in the law (vs post #194). The impacts would be similar as long as the taxable income is in the 12% tax braacket.

The SALT provisions will increase my TI by $3,362 and the loss of those deductions at 12% is $391 more in tax.

OTOH, the change in rates from 15% to 12% will save money. The 12% tax bracket is $58,360 wide ($77,400-$19,050). However, in my case, $53,815 of that uppermost tax bracket is filed with qualified income that gets taxed at 0%, leaving only $4,535 of room for ordinary income. That $4,535 of ordinary income gets taxed at 12% rather than 15%, saving me $136.

So even though the rate is lower, the benefit of those lower rates to me is diluted by the fact that a lot of that lower rate bracket gets filled with 0% qualified income.

If all my income was ordinary income, then I would get a net savings because the rate change savings of $1,751 ($58,360 * 3%) would eclipse the SALT impact of $391.

[zedd]

Quote:

Originally Posted by 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.

!

Oh great. Now DW has one more reason to expedite MY expiration date

[Curmudgeon]

Wow, taking the standard deduction my taxes go up significantly... I have a family of 4 so I lose 4 exemptions, that makes much more of my income taxable. More significantly to me, as I had planned on filling up the 15% (now 12%) tax bracket with cap gains harvesting in order to diversify my holdings, the effective increase in taxable income means several thousand dollars LESS harvesting is now possible.

One note on bunching: I don't think anything in the new law prevents bunching - even of SALT - it just says that you can't bunch in order to stay under the 10K cap. So, say my SALT is 5K/year, I can still bunch that and take it as 10K in one year (presumably to bunch with other stuff to go over the 24K std.) Or, if my SALT is 8K/year, I can bunch it as 10K one year and 6K in the next.

[audreyh1]

Quote:

Originally Posted by Curmudgeon Wow, taking the standard deduction my taxes go up significantly... I have a family of 4 so I lose 4 exemptions, that makes much more of my income taxable. More significantly to me, as I had planned on filling up the 15% (now 12%) tax bracket with cap gains harvesting in order to diversify my holdings, the effective increase in taxable income means several thousand dollars LESS harvesting is now possible. One note on bunching: I don't think anything in the new law prevents bunching - even of SALT - it just says that you can't bunch in order to stay under the 10K cap. So, say my SALT is 5K/year, I can still bunch that and take it as 10K in one year (presumably to bunch with other stuff to go over the 24K std.) Or, if my SALT is 8K/year, I can bunch it as 10K one year and 6K in the next.

It looks like bunching is OK for property taxes, but perhaps not allowed for state and local income taxes - they will be treated as paid in each year regardless of when paid?

Also I don't think you can split two years of 8K into one of 10K and the other of 6K unless you actually paid those amounts in the given year.

[USGrant1962]

Quote:

Originally Posted by 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.

Quote:

Originally Posted by REWahoo 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.

Further, to put deduction of HELOC back in they would have to take away something else. I would guess that was all already horse traded with keeping a second home mortgage and $750K instead of $500K mortgage limits.

[Curmudgeon]

Quote:

Originally Posted by audreyh1 It looks like bunching is OK for property taxes, but perhaps not allowed for state and local income taxes - they will be treated as paid in each year regardless of when paid?

But the language I saw (posted by you earlier in this thread) says taxes "paid or accrued in the taxable year" are deductible. So if I pay them in 2018 they're deductible in 2018, right?

Quote:

Originally Posted by audreyh1 Also I don't think you can split two years of 8K into one of 10K and the other of 6K unless you actually paid those amounts in the given year.

Yes, that's what I meant.

[EveryLady]

Starting out, I should end up with taxes about $2000 less annually but I haven't yet seen pertinent details on the definition of head of household that may well be in future rules rather than in the bill itself.

For non-child dependents, the Maxim Lott calculator keeps it simple at "student" under age 24. My college-student daughter just quit her job to go full time year round and pile on some unpaid internships. By the time she does post-graduate work, college will stretch out to beyond age 24 for her.

Under the current rules, I was expecting to be able to continue to claim HOH as long as she didn't earn more than the amount of the personal exemption once she turns 24.

But now there's no more personal exemption so I've no idea how this will play out. The potentially higher taxes are much more than the amount I will initially "save" with the lower brackets.

So I appear to join those in the "who knows" category.

[spncity]

1. I don't think I understand the impact on small sole proprietorships.

2. I've read that half of self-employment taxes are deductible. Does that automatically happen in TurboTax and on what form could I see that it was done?

3. So what does the corporate 35% reduced to 21% do for my sole proprietorship (guessing we would be in a 12% income tax bracket)...?

Thanks in advance or answers, or for somewhere to read up on these basics.

[scrabbler1]

It is not likely to happen any more with the SD being increased, but if I pay 4th quarter estimated state income taxes in January of the following year, before the mid-January deadline, they will be deductible in the calendar year I paid them, as under current law, right? And if I pay the 4th quarter of that same calendar year's estimated state income taxes that December, I can "bunch" both state income tax payments within the same calendar year for federal income tax purposes. This is how I sometimes "bunched" my SALT deductions into a single calendar year.

[43210]

Quote:

Originally Posted by 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.

Where did you see this. Do you have a specific reference?

[LOL!]

Quote:

Originally Posted by spncity 1. I don't think I understand the impact on small sole proprietorships. 2. I've read that half of self-employment taxes are deductible. Does that automatically happen in TurboTax and on what form could I see that it was done? 3. So what does the corporate 35% reduced to 21% do for my sole proprietorship (guessing we would be in a 12% income tax bracket)...? Thanks in advance or answers, or for somewhere to read up on these basics.

A2. Form 1040 Line 27.

Yes, that automatically happens in tax software like TurboTax.

It's funny how TurboTax removes one from reading the easy to read tax forms. And Form 1040 is only a front-and-back form, so quite easy to read.

A3: Nothing. A sole proprietorship is not taxed as a corporation.

[Texas Proud]

So I want to make sure I understand the standard deduction and exemption...

I think that the new standard deduction for married filing joint is $24,000... but exemptions are cut....

So, last year my standard deduction was $12,600 and exemptions of $16,200 totaling $28,800.... but next year standard is $24,000 and exemptions is zero for a total of $24,000...

I guess to offset this they increased the child tax credit by $1,000 and the refundable portion by $400....

Is my thinking correct?

[43210]

Quote:

Originally Posted by Texas Proud So I want to make sure I understand the standard deduction and exemption... I think that the new standard deduction for married filing joint is $24,000... but exemptions are cut.... So, last year my standard deduction was $12,600 and exemptions of $16,200 totaling $28,800.... but next year standard is $24,000 and exemptions is zero for a total of $24,000... I guess to offset this they increased the child tax credit by $1,000 and the refundable portion by $400.... Is my thinking correct?

Yes.