Proposed tax plan

[audreyh1]

I figure a big hit to home value due to cap on mortgage interest deduction. I only heard about changing the cap gains exemption on sale of principal residence on here so I'll need to take a look at that. Probably wouldn't affect us too much.

This is the language I found on the capital gains exemption on sale of principal residence. Looks like they only increased the time you have to have lived in the residence.

The proposal would also limit capital-gains-tax breaks on home sales. Currently, homeowners can generally exclude from gross income up to $500,000 profit on a home sale if they’ve used the house as a principal residence for two out of the previous five years. The GOP proposal would change that so the exemption would be applied only if people lived in the home as their primary residence for five out of the prior eight years. And they’d be able to use the exemption only once every five years, targeting speculators and home flippers.

 

[audreyh1]

The Wall Street Journal is running a "live coverage" bit as they analyze various aspects of the new bill. Looks like no subscription is needed for the overview.
https://www.wsj.com/livecoverage/tax-bill-2017

 

[audreyh1]

I think the loss of the medical expenses deduction is really going to hit some folks with high medical and/or long term care expenses hard.

The GOP tax bill would wipe out key deduction for nursing home residents

 

[ace8]

here is another little gem I found in here

SEC. 1309. REPEAL OF DEDUCTION FOR ALIMONY PAYMENTS.​

 

[Release The Hounds]

This is the language I found on the capital gains exemption on sale of principal residence. Looks like they only increased the time you have to have lived in the residence.

And the capital gains exclusion phases out for every dollar your average AGI over the 3 years from when you sell it exceeds $250K (double for MFJ).

 

[meierlde]

Here is a link to a Forbes Article on details some more details:https://www.forbes.com/sites/ryanel...e-class-families-and-pro-growth/#448287895562

Note the family tax credit (1600 per child under 17, 300 per parent ) starts a phase out at 115k single 230k married filing jointly.
So most of the 25% bracket is gives the full child and parent tax credit. which is the equivalent of a 6400 exemption for the child and 1200 for each parent.

 

[truenorth418]

Thanks to all who are commenting here and providing more information. So far it has been difficult to locate elsewhere online any comprehensive analysis beyond the basic talking points.

In my case, single, no kids, with current income entirely from investments, it doesn't look like my tax liability will change much. I no longer itemize so the modest increase in the combined exemption/standard deduction would be modestly helpful.

One thing I haven't seen addressed. Will there still be a distinction between "qualified" and "non-qualified" dividends?

 

[jazz4cash]

Can I remind everyone that this is not law yet. Michael outlined the steps it needs to go through... Running through your tax calculations seems premature to me. Who knows what the final version will be. I'd rather do other things than calculate "what if" taxes on something that is several steps away from law.

" Running through your tax calculations seems premature to me."

I disagree. Now is the time taxpayers can determine how they will be affected and contact their reps to express their concerns. That's what the various lobbyist organizations are doing. Once it is proceeds to the voting stage it will be too late.

 

[Release The Hounds]

Thanks to all who are commenting here and providing more information. So far it has been difficult to locate elsewhere online any comprehensive analysis beyond the basic talking points.

In my case, single, no kids, with current income entirely from investments, it doesn't look like my tax liability will change much. I no longer itemize so the modest increase in the combined exemption/standard deduction would be modestly helpful.

One thing I haven't seen addressed. Will there still be a distinction between "qualified" and "non-qualified" dividends?

Pretty sure treatment of dividends won't change.

 

[pb4uski]

Initial analysis suggests not much of a change for us. Would no longer itemize but our itemized deductions and exemptions were ~$27k a year vs $24k under the new plan.

However, the rate change helps and offsets the $3k reduction in deductions... net impact would reduce our taxes by a couple hundred based on 2017 numbers.

The more interesting angle is how will the change in the corporate tax rate from 35% to 20% affect our investment results.... but I suspect that alot is already baked into current valuations.

 

[PatrickA5]

Based on current year income, but 2016 rates, our tax would go down $1,363. On the other hand, my DD and SIL with baby who only make $45K will only get about a $150 break. What did them in is that a decent amount of their taxes were at the 10% rate - now increased to 12%.

 

[PatrickA5]

It appears that there is a 5th year on the American Opportunity Credit - at a reduced rate. Maybe around half of the $2,500 you can get for the first 4 years. This might come in handy since I have a kid in college who might end up with a 5th year.

 

[JustCurious]

I haven't looked at the bill yet. I believe early discussions of repealing the death tax also eliminated the step up in basis.

I believe the correct term is estate tax.

 

[PatrickA5]

Based on current year income, but 2016 rates, our tax would go down $1,363. On the other hand, my DD and SIL with baby who only make $45K will only get about a $150 break. What did them in is that a decent amount of their taxes were at the 10% rate - now increased to 12%.

Just found another $300. Seems there is a $300 dependent credit for kids over 17, that are still a dependent - as my 19 YO college student is.

Of course, the final bill - if there is one, will be much different.

 

[audreyh1]

I haven't looked at the bill yet. I believe early discussions of repealing the death tax also eliminated the step up in basis. Anyone know if that is in there?

I've read several places now that state stepped-up basis remains in place even when the estate tax is repealed.

 

[Sunset]

The loss of the state and local tax deduction is going to hit a big chunk of the upper-middle class/lower-upper class in high income tax states with a big tax increase.

I don't see this going anywhere as is.

IL has the highest property taxes, and a flat 4.95% State tax, so we itemize when it's worth it, and take the standard deduction the rest of the time.
Our itemizing is lower than some folks due to no mortgage.
This new tax plan will mean we always will take the standard deduction which will be worth more.

 

[foxfirev5]

" Running through your tax calculations seems premature to me."

I disagree. Now is the time taxpayers can determine how they will be affected and contact their reps to express their concerns. That's what the various lobbyist organizations are doing. Once it is proceeds to the voting stage it will be too late.

Exactly.

 

[Danmar]

Eliminating the estate tax while keeping the step up in basis seems like a huge benefit for very wealthy people?

[Mod Edit]

 

[DrRoy]

The higher standard deduction and 0% cap gains bracket would help. I had planned to do some recharacterization of the IRA's so that would not help if it is disallowed.

 

[Freedom56]

I did a quick calculation using my 2016 returns. I used itemized deductions which included state taxes, property taxes, charitable donations. We have no mortgage. Our taxes will increase slightly with the proposed tax tables and the loss of the personal exemption. With this tax bill, I have no incentive to donate to charities. Many people who file jointly and who's taxable income is $60K to $300K will actually see an increase in Federal taxes. I don't see this as a tax cut for the middle class.

 

[bingybear]

I believe the correct term is estate tax.

yes, I know. It seems that it is well known and is typically understood.

 

[Senator]

From what I read, I need to have kids to pay less in taxes... $1,600 tax credit for each.

Overall, I think it will be a very good plan. I am not sure if I pay less, or more. It appears to be better for lower income people which should help.

 

[gayl]

most of the 25% bracket is gives the full child and parent tax credit. which is the equivalent of a 6400 exemption for the child and 1200 for each parent.

but you currently get $1000 tax credit per child under 17 so the bump up us only $600 -- not as good on math as the rest of you bc I still think not everyone benefits. But hey someone has to pay the 1.5T bill

 

[gayl]

Yesterday I mailed off my 88 page tax return. Hopefully that'll get shorter if not smaller

 

[JoeWras]

I did a quick calculation using my 2016 returns. I used itemized deductions which included state taxes, property taxes, charitable donations. We have no mortgage. Our taxes will increase slightly with the proposed tax tables and the loss of the personal exemption. With this tax bill, I have no incentive to donate to charities. Many people who file jointly and who's taxable income is $60K to $300K will actually see an increase in Federal taxes. I don't see this as a tax cut for the middle class.

For us, that's the biggest hit. We give anywhere from 10k to 50k, depending on the year, while working. In ER, our plan was about 15k per year. With a 24k exemption, it gets lost in the weeds.

That's one area the Donor Advised Fund may come in handy. We can stack donations in one year and dole them out over a few years. This will probably be what we resort to.