Release of final tax bill details

[Ronstar]

I haven't analyzed this totally yet, but I wonder if it would make more sense to sell inherited stock in 2017 or 2018.

 

[DEC-1982]

effect on stock portolio

For me this bill is mildly beneficial from the tax perspective. Indirectly, it has produced a large increase in my portfolio which is very good for me.

 

[retiredunder50]

Well, DW does sub teaching so we do get earned income... not much...

Last year, and I think this year, you do have a $1,000 refundable credit for kid going to college... I guess that is going away....


Does anybody know if they got rid of the EE interest not being taxable for college? I have some and I might cash them in if that goes away...

Thankfully, the EE and I bond interest provision in the House plan did NOT go forward in the final. You can still use them for qualified education expenses. I was worried about that too.

 

[pb4uski]

For me this bill is mildly beneficial from the tax perspective. Indirectly, it has produced a large increase in my portfolio which is very good for me.

Mildly detrimental to us but you're right, the beneficial indirect impacts of the corporate tax changes will overwhelm the mildly detrimental direct impact.

 

[retiredunder50]

Last year, and I think this year, you do have a $1,000 refundable credit for kid going to college... I guess that is going away....

The suggested changes to the American Opportunity credit (with the $1000 refundable credit) did not carry through. I was hoping for the additional 5th year provision as students typically are in school during portions of 5 calendar years.

 

[Alan]

Due to a business K-1 that comes in March, I wait until the bitter end also.

Now that we reside overseas we get an automatic extension through June, which we need since the UK tax year ends April 5th so we don’t know until then how much UK tax we paid to claim as FTCs on our US return.

 

[donheff]

Mildly detrimental to us but you're right, the beneficial indirect impacts of the corporate tax changes will overwhelm the mildly detrimental direct impact.

I am likely in the same boat. As long as the current market continues to bubble up my portfolio growth will dwarf the negative impact of the net tax changes. But I am not buying that as a long term trend. This bubble will pop. That leaves the underlying issue of whether the corporate reduction will drive long term growth but that is speculative and political so needs to be addressed at the holiday dining table.

 

[pb4uski]

I am likely in the same boat. As long as the current market continues to bubble up my portfolio growth will dwarf the negative impact of the net tax changes. But I am not buying that as a long term trend. This bubble will pop. That leaves the underlying issue of whether the corporate reduction will drive long term growth but that is speculative and political so needs to be addressed at the holiday dining table.

I'm also skeptical about the long-term impact on growth but I figure that just the drop in the corporate tax rate will result in a permanent increase in orofits and stock values that will far exceed any direct detrimental impacts of the SALT deduction limitations.

 

[donheff]

I'm also skeptical about the long-term impact on growth but I figure that just the drop in the corporate tax rate will result in a permanent increase in orofits and stock values that will far exceed any direct detrimental impacts of the SALT deduction limitations.

You may be right. If that works out, many of us will be in great shape. Even if it works out just over the short to medium term lots of us will dodge early sequence of returns risk. I'm still planning for a big shock to this gravy train, probably coming from some black swan completely unrelated to tax policy. The antarctic ice shelf collapsing; armageddon in the Korean peninsula. I think I read too many dystopian novels.

 

[USGrant1962]

Well, DW does sub teaching so we do get earned income... not much...

Last year, and I think this year, you do have a $1,000 refundable credit for kid going to college... I guess that is going away....

The American Opportunity tax credit is essentially unchanged (I understand that they rolled two lesser-used credits into it as a simplification). Everything else being equal you should still get that credit. Unless you mean he/she is graduating - then congrats!

 

[joeea]

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.

You are correct. What is in the bill has already been "signed". It must now be voted upon by the House and Senate.

Nothing can be changed now.

Of course, a brand new bill could always be introduced at a later date.

 

[gerntz]

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.

I hope widowers are treated equally.

 

[USGrant1962]

Michael Kitces just posted his analysis, https://www.kitces.com/blog/final-g...ividual-tax-brackets-pass-through-strategies/
Lots of interesting stuff in there that I have not seen discussed here:

• The Pease limitation and marriage penalty were eliminated
• Charitable contribution limit was expanded from 50% to 60% of AGI
• Miscellaneous itemized deductions exceeding 2% of AGI were repealed
• Moving expense deduction repealed
• Sexual harassment settlements not deductible (for the business) if subject to an NDA

This is Kitces usual thorough analysis. He ends with a few thoughts on year-end tax planning.

 

[Texas Proud]

The American Opportunity tax credit is essentially unchanged (I understand that they rolled two lesser-used credits into it as a simplification). Everything else being equal you should still get that credit. Unless you mean he/she is graduating - then congrats!

Thanks for the info.... nope, he is in his second year.... and DD will be going in 5 years...

 

[EveryLady]

The American Opportunity tax credit is essentially unchanged (I understand that they rolled two lesser-used credits into it as a simplification). Everything else being equal you should still get that credit. Unless you mean he/she is graduating - then congrats!

Yes, unchanged.

Wasn't it the House proposal to roll the other two credits into the AOTC then provide for a fifth-year credit of $1000 only (not the full $2000)? It looks like all three credits remain in place ... with no new fifth-year AOTC credit of $1000.

 

[cathy63]

Michael Kitces just posted his analysis, https://www.kitces.com/blog/final-g...ividual-tax-brackets-pass-through-strategies/
Lots of interesting stuff in there that I have not seen discussed here:

• The Pease limitation and marriage penalty were eliminated
• Charitable contribution limit was expanded from 50% to 60% of AGI
• Miscellaneous itemized deductions exceeding 2% of AGI were repealed
• Moving expense deduction repealed
• Sexual harassment settlements not deductible (for the business) if subject to an NDA

This is Kitces usual thorough analysis. He ends with a few thoughts on year-end tax planning.

Wow, he specifically says that the investment expense deduction is gone! I thought it was just the job expenses and tax prep fees that were eliminated from the 2% section. I'm shocked that the major investment firms let that happen without any publicity.

 

[EveryLady]

Pretty much. The standard deduction for married filing joint was going to be $13,000 in 2018. The 2018 personal exemptions are $4150 each. I believe the refundable portion is only for those who have earned income. I would guess many in this forum no longer have earned income. When the child turns 17 (and up to 24) and is still in college and still qualifies as your dependent, then you can get a nonrefundable $500. (These credits are temporary though.) The discomfort really starts when the kids are over 17 and you lose the bigger child tax credits AND you simultaneously factor in the lost personal exemptions.

Personal exemptions are gone but, oddly, what used to be personal exemption tests remain? For example, I'm single but will qualify for HOH and a larger standard deduction since DD is under 24 and in college.

Not sure what the language will be for "dependents" age 24 or over (or not a full-time student).

But, yes, this impacts singles (who can qualify for HOH) but not couples.

 

[PatrickA5]

Personal exemptions are gone but, oddly, what used to be personal exemption tests remain? For example, I'm single but will qualify for HOH and a larger standard deduction since DD is under 24 and in college.

Not sure what the language will be for "dependents" age 24 or over (or not a full-time student).

But, yes, this impacts singles (who can qualify for HOH) but not couples.

The rules of who qualifies as a dependent remain. You just don't get an exemption for them. Dependents that don't qualify for the Child Tax Credit get a $500 credit. This would apply to older dependents as well as the under 24 college kids. It does not apply to the taxpayers themselves as they have never been considered "dependents". My 19YO DS will still get me a $500 credit since he's a full time student. In my tax bracket I'm actually a little better off with the new credit instead of the old exemption.

 

[Sunset]

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).

Anyone can roll a HELOC into a mortgage after this tax bill passes, assuming that doing so is allowed by the lending companies, and it fits your plans.

Folks who are renting, it seems to me, that HELOC interest is simply an expense of renting, I have not read the tax plan, but am a landlord and I cannot off the top of my head think of expenses that are not allowed simply by the nature of the expense.

Of course landlords would have to declare their income, in order to expense things, vs renting out and then using the old mortgage deduction on a 2nd home without declaring income.

 

[Helen]

Wow, he specifically says that the investment expense deduction is gone! I thought it was just the job expenses and tax prep fees that were eliminated from the 2% section. I'm shocked that the major investment firms let that happen without any publicity.

I was wondering about this when I saw you could no longer deduct tax prep fees. This will hit anyone paying a lot in AUM fees.

I think some financial planners are going to lose business.

 

[jimandthom]

I did a quickee review based on 2017 expenses that can be deducted etc, and adjusted charitable downward as we moved up a few contributions to this year and used the 7.5% rate on medical.

It looks like our normal itemized deductions would be approx., 20000k for the year-- and reasonable to see where the figure is close for the future. We do have a mortgage and that is probably the kicker. We are in Michigan so a middle of the road SALT state.

My math suggests, that the 20K plus 2 exemptions equals about 28,000. We will take a modest hit on approx. 4000 of additional taxed income on approx. 75K income total.

Not happy but what can you do= except vote your convictions.

 

[FIRE'd@51]

My math suggests, that the 20K plus 2 exemptions equals about 28,000. We will take a modest hit on approx. 4000 of additional taxed income on approx. 75K income total.

Not happy......................

Don't forget you will be saving 3% on any taxable income that falls between 19K and 165K, which will more than offset the extra $480 in tax that you will pay on that $4,000; so if your taxable income is 75K, my math says you will save $1,680 on that 56K for a net saving of $1,200.

Be happy!

 

[jimandthom]

Don't forget you will be saving 3% on any taxable income that falls between 19K and 165K, which will more than offset the extra $480 in tax that you will pay on that $4,000; so if your taxable income is 75K, my math says you will save $1,680 on that 56K for a net saving of $1,200.

Be happy!

Duh --- I forgot about that part of the equation.

Thanks

 

[pb4uski]

But there is more to it than that because the benefit of the 3% rate doesn't apply to qualified dividends and LTCG included in the $75k... in our case our income is a tad higher than that but the benefit of the 3% diffeence in rates is muted because a lot of the $75k is qualified dividends and LTCG. In our case the unfavorable impact of SALT exceeds the favorable impact of the difference in rates.

The only way to really know is break our a spreadsheet and do the work because there are to many moving parts to intuit a result.

 

[Curmudgeon]

My 19YO DS will still get me a $500 credit since he's a full time student. In my tax bracket I'm actually a little better off with the new credit instead of the old exemption.

What is this credit, where is it described? I'm losing four exemptions and not getting any CTC, since my kids are over 16. I need to know more about this credit...