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Old 12-04-2017, 07:20 AM   #161
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Originally Posted by bingybear View Post
how does the increased standard deduction cover it. Remember the standard deduction does go up, but you loosed the individual exemption. For MFJ the old standard deduction+2 exemptions is just a bit less than the new standard deduction.
But each taxpayer and dependent gets a $500 tax credit as I understand it.
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Old 12-04-2017, 08:24 AM   #162
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But each taxpayer and dependent gets a $500 tax credit as I understand it.
The post I comment on (and quoted) did not include tax credits in his reasoning, just the larger standard deduction.

I knew of child tax credits, but not of tax payer credits. That may or may not be enough to offset the deductions that poster lost. But remember he did not include that in his rational.
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Old 12-04-2017, 08:26 AM   #163
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OK - the PBS summary had the actual new AMT thresholds. The only place I found them. But I could see something was wrong with their numbers.
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Alternative Minimum Tax – Senate Republicans initially repealed the AMT, but have brought it back now in order to pay for some other additions (see below). The AMT is intended to be a minimum tax on the wealthy. In this version, the GOP raises the income levels where it hits so it will affect fewer people. For individuals, the minimum threshold goes from $50,600 to $70,600. For those filing jointly, the threshold rises from $78,750 to $109,400. (Pg. 95)
That PBS information on current thresholds is incorrect - those are from years ago. The current 2018 thresholds are $55,400 for single filers and $86,200 for joint filers.

So it's a $23K increase in AGI threshold for MFJ before being subject to AMT (not $30K as the PBS paragraph indicates).
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Old 12-04-2017, 08:27 AM   #164
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Don't forget that you are losing your personal exemptions as well, which is a big deal. For MFJ over 65, the current standard deduction plus exemptions is 23.8K, so the effective increase is only $200 for these folks.

This is a point I'd like clarification on. In my local newspaper (I live in Susan Collins home state), there was a reference to the fact that Collins managed to save the additional deductions currently available to filers who don't itemize, for those over 65. I looked at the standard deduction language in the links provided to try to find this language re over 65 standard deduction and found nothing. However I am also inclined to think that by not striking the current code language that provides that additional standard deduction, that the addition is thereby preserved. It's relatively small potatoes ($1,250 per person), so if I am correct?, then the standard deduction for a couple over 65 is $26,500.

I'd also like to clarify whether the $500 credit per dependent in the Senate bill includes both individuals for a couple filing MFJ, for a reduction to total taxes of $1,000.

One final thought. Is it my imagination or do the standard deductions and more importantly tax brackets for widows, which will be the same under both house and senate versions, be equal to those applied to MFJ? I think this is a big change and benefit to widows, and is not currently the case.


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Old 12-04-2017, 08:34 AM   #165
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This is a point I'd like clarification on. In my local newspaper (I live in Susan Collins home state), there was a reference to the fact that Collins managed to save the additional deductions currently available to filers who don't itemize, for those over 65. I looked at the standard deduction language in the links provided to try to find this language re over 65 standard deduction and found nothing. However I am also inclined to think that by not striking the current code language that provides that additional standard deduction, that the addition is thereby preserved. It's relatively small potatoes ($1,250 per person), so if I am correct?, then the standard deduction for a couple over 65 is $26,500.

I'd also like to clarify whether the $500 credit per dependent in the Senate bill includes both individuals for a couple filing MFJ, for a reduction to total taxes of $1,000.

One final thought. Is it my imagination or do the standard deductions and more importantly tax brackets for widows, which will be the same under both house and senate versions, be equal to those applied to MFJ? I think this is a big change and benefit to widows, and is not currently the case.


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Maybe they were talking about the medical expense deduction which lowers the deductible medical expense threshold to 7.5% of AGI for two more years. This was attributed to Collins.
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Old 12-04-2017, 08:48 AM   #166
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I was thinking some more about the change in Roth rechacterizations.

Since the bills provisions are effective for tax years beginning after December 31, 2017, I'm interpreting that in 2018 we can do recharaterizations of Roth conversions done in 2017 since those recharaterizations reduce 2017 taxable income. However, it is not particularly clear from the language in the bill.

I have a question into my Vanguard rep as to whether Vanguard will allow recharterizations of 2017 Roth conversions in 2018 or not. Not sure if I will get an answer, but if I do I'll post it.
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Old 12-04-2017, 08:50 AM   #167
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Re: AMT

House majority leader McCarthy was on CNBC this morning and was confident that AMT is high on the list of things that will change in conference. Stay tuned.
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Old 12-04-2017, 09:14 AM   #168
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Maybe they were talking about the medical expense deduction which lowers the deductible medical expense threshold to 7.5% of AGI for two more years. This was attributed to Collins.
I'm still not sure. This exerpt from an AARP article dated 11-29 would imply otherwise. What I don't know is, if that language was further revised after the final draft was approved.

In some important aspects the two bills diverge. For example, under the SFC bill, a large number of individual tax relief provisions expire after 2025 to comply with a technical Senate rule. In addition, the SFC bill would retain two current-law provisions important to taxpayers 65+: the extra standard deduction for the blind and older taxpayers and the medical expense tax deduction.
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Old 12-04-2017, 09:39 AM   #169
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The big deal is that it might raise someoneís taxable income big time because they may be forced to realize the highest gains. Usually the oldest shares have the highest gains.

For folks who are using the 0% LTCG tax rates, you could be filling up that range much faster with smaller after tax proceeds.

And the realized gain increase shows up in your MAGI for folks who qualify for ACA subsidies or having more of their SS income subject to taxation.

For folks subject to IRMAA on Medicare, higher taxable capital gains income can cause higher Medicare premiums.

I donít think itís nearly as innocuous as you suggest.
Who is forcing you to sell? Isn't it a choice?
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Old 12-04-2017, 09:40 AM   #170
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I agree that it might be a big deal for long time buy-and-holders. If one has to pull a certain sum out of oneís portfolio to cover living expenses, a larger portion of it might be subject to income tax if forced to liquidate the oldest shares first.
No one is forcing you to sell that I can see. It's a lifestyle choice as I see it.
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Old 12-04-2017, 09:43 AM   #171
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Who is forcing you to sell? Isn't it a choice?
Not always. Some of us "total return" people liquidate at times for living expenses, or big ticket items. There may be other choices, but they may not be as good. It's really handy to be able to control how much gains you take when you need to raise cash.
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Old 12-04-2017, 09:45 AM   #172
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Portfolio rebalancing to keep your AA in range would be another non-lifestyle reason. Ideally you do that in an IRA but that's not always possible.
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Old 12-04-2017, 09:46 AM   #173
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This is a point I'd like clarification on. In my local newspaper (I live in Susan Collins home state), there was a reference to the fact that Collins managed to save the additional deductions currently available to filers who don't itemize, for those over 65. I looked at the standard deduction language in the links provided to try to find this language re over 65 standard deduction and found nothing. However I am also inclined to think that by not striking the current code language that provides that additional standard deduction, that the addition is thereby preserved. It's relatively small potatoes ($1,250 per person), so if I am correct?, then the standard deduction for a couple over 65 is $26,500.
The local newspaper is the last place I'd rely on for correct financial reporting. They are hired for their journalistic talents, not their math/finances understanding.
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Old 12-04-2017, 10:10 AM   #174
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Who is forcing you to sell? Isn't it a choice?
I didn't say anyone was forcing you to sell. Rather they are forcing you to sell the oldest shares when you sell. Big difference.
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Old 12-04-2017, 10:22 AM   #175
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I was thinking some more about the change in Roth rechacterizations.

Since the bills provisions are effective for tax years beginning after December 31, 2017, I'm interpreting that in 2018 we can do recharaterizations of Roth conversions done in 2017 since those recharaterizations reduce 2017 taxable income. However, it is not particularly clear from the language in the bill.

I have a question into my Vanguard rep as to whether Vanguard will allow recharterizations of 2017 Roth conversions in 2018 or not. Not sure if I will get an answer, but if I do I'll post it.
I asked this question of Wells Fargo Advisors a couple of weeks ago and their legal dept said they would have to wait for the final law before they would be able to respond. I had a chat with my broker where we speculated about the likely outcome, and he said their lawyers typically use the most conservative interpretation of the tax code, so if there's any ambiguity whatsoever, they would probably disallow recharacterizations of 2017 conversions; and given the timeline, they will not make that decision until the new year when it's already too late. Therefore, I am proceeding as if recharacterizations of any prior conversion will not be possible after January 1.
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Old 12-04-2017, 10:39 AM   #176
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I didn't say anyone was forcing you to sell. Rather they are forcing you to sell the oldest shares when you sell. Big difference.
You don't ever have to sell. Basis cost steps up at death. Net, zero taxes.
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Old 12-04-2017, 10:47 AM   #177
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I asked this question of Wells Fargo Advisors a couple of weeks ago and their legal dept said they would have to wait for the final law before they would be able to respond. I had a chat with my broker where we speculated about the likely outcome, and he said their lawyers typically use the most conservative interpretation of the tax code, so if there's any ambiguity whatsoever, they would probably disallow recharacterizations of 2017 conversions; and given the timeline, they will not make that decision until the new year when it's already too late. Therefore, I am proceeding as if recharacterizations of any prior conversion will not be possible after January 1.
Good info... it may well go that way... I'm sure that the Vanguard, Fidelity and the like are on top of it but who knows when we will get an answer. While I normally overconvert a little knowing that I can recharacterize I'll probably dial it in more finely this year and live with the 30% tax on the small excess if it ends up that I can't recharacterize.

I guess my followup question with them would be ... assume that the final law is the same as the senate bill....then what is the answer?... but I would fully expect more weaseling by legal.... that is just what they do.
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Old 12-04-2017, 10:52 AM   #178
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About the comparison of this with the wash sale rule, the wash sale rule applies if you sell and buy the same stocks in a tax-deferred account and a taxable account.

This FIFO rule will most likely be applicable across tax-deferred and taxable accounts the same way.

If you have both types within a brokerage, the broker's computer can easily look for this. It is tough to check across brokerages, and the IRS does not have the computer, nor the info or manpower to do this.
I don't think "they" are planning to remove the tax-deferred properties of IRA's or ROTH's , meaning if you sell within one of those, and there is an older basis in a taxable account, it would be silly to look outside to a taxable account for the basis (from a tax revenue point of view).

I was thinking, one way to prepare for this possible tax change, would be to sell and buy back all stocks/etfs/funds within a tax-deferred account before the end of the year.

This would make all the older basis for stocks in the taxable account only. This might solve 1/2 the problem for some folks, if you have very great gains in tax-deferred accounts.
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Old 12-04-2017, 10:53 AM   #179
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This is a point I'd like clarification on. In my local newspaper (I live in Susan Collins home state), there was a reference to the fact that Collins managed to save the additional deductions currently available to filers who don't itemize, for those over 65. I looked at the standard deduction language in the links provided to try to find this language re over 65 standard deduction and found nothing. However I am also inclined to think that by not striking the current code language that provides that additional standard deduction, that the addition is thereby preserved. It's relatively small potatoes ($1,250 per person), so if I am correct?, then the standard deduction for a couple over 65 is $26,500.

I'd also like to clarify whether the $500 credit per dependent in the Senate bill includes both individuals for a couple filing MFJ, for a reduction to total taxes of $1,000.

One final thought. Is it my imagination or do the standard deductions and more importantly tax brackets for widows, which will be the same under both house and senate versions, be equal to those applied to MFJ? I think this is a big change and benefit to widows, and is not currently the case.


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I think I'm correct on the additional standard deduction for over 65, not being touched. If you insert the new standard deduction language from the Senate Bill on pages 44 and 45 into the current code, which can be viewed here: https://www.law.cornell.edu/uscode/text/26/63, only Par (c), (2) (B) and (C) are changed toreflect the new standard deduction rate. Paragraph(3) Additional Standard Deduction for Aged and Blind is not touched(and further outlined in f), nor is it deleted.

It also seems pretty clear to me on page 46 of the Senate bill, that the $500 credit applies to each tax filer and not just a dependent, so for two people MFJ there will be a $1,000 reduction in federal taxes.
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Old 12-04-2017, 10:54 AM   #180
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.... I was thinking, one way to prepare for this possible tax change, would be to sell and buy back all stocks/etfs/funds within a tax-deferred account before the end of the year. ...
Interesting idea... if only funds would relax their frequent trading restrictions in such cases.... though I guess I could sell the fund and buy the ETF.

I suspect that they will not look through taxable and tax-deferred accounts combined for this FIFO think like they do for wash sales.... but it seem quite possible that they will looks across different brokerage accounts and across individual and joint accounts for MFJ taxpayers.
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