Release of final tax bill details

[Curmudgeon]

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.

In my case that income is LTCG, so it gets pushed from 0% to 12%, and thus costs me $480.

 

[SecondCor521]

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...

The easiest place to read about it is in the explanatory part of the document attached to the tax bill.

The tax bill is here:

http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-466.pdf

The $500 dependent credit is described on page 566 of that document, where it states:

"The conference agreement temporarily increases the child tax credit to $2,000 per qualifying child. The credit is further modified to temporarily provide for a $500 nonrefundable credit for qualifying dependents other than qualifying children. The provision generally retains the present-law definition of dependent."

 

[scrabbler1]

In my skeleton income tax spreadsheet, I include the QDLTCG worksheet found in the Form 1040 instruction booklet.. I am able to see how much income of each type is taxed at 0% versus 15% (for QD and LTCG), and 10% versus 15% (for ordinary income). Since I ERed, most of my income is in the lower rates of each income type, rates which won't change under the new law. The implied 0% rate for ordinary income (standard or itemized deduction plus personal exemption, for now) will change slightly for me going forward and will become more predictable (i.e. standard deduction). But it looks like the rate for QDLTCG will be higher (15%) than for ordinary income (12%) at certain income levels, something I have seen mentioned elsewhere in this thread.

 

[pb4uski]

Misalignment is negligible ($200 different) per the kictes blog article:

However, while the new TCJA rules introduce new tax brackets, and slightly re-draw the tax bracket thresholds, preferential rates for long-term capital gains and qualified dividends will continue to use the old thresholds. As a result, preferential capital gains and qualified dividend rates will no longer line up cleanly with the ordinary income tax brackets.

Instead, the 0% capital gains rate will end at $38,600 for individuals (and $77,200 for married couples), even though the bottom two tax brackets end at $38,700 and $77,400 (although it’s possible a future Technical Corrections act will re-align these).

 

[USGrant1962]

But it looks like the rate for QDLTCG will be higher (15%) than for ordinary income (12%) at certain income levels, something I have seen mentioned elsewhere in this thread.

I think that was the case for the House bill, but the final follows the Senate brackets. From Kitces, here's a graphic showing the bracket line-ups:

https://www.kitces.com/wp-content/uploads/2017/12/Graphics_5-2.png

 

[cathy63]

In my case that income is LTCG, so it gets pushed from 0% to 12%, and thus costs me $480.

If they are cap gains, they'll be pushed from 0% to 15%, so it'll cost you $600.

That's our situation too. About $5K of ordinary income at 10% gets changed into $13K of ordinary income at 12% due to reduced deductions and exemptions and $8K of LTCGs goes from 0% to 15%, so overall, it costs us $2260.

 

[Golden sunsets]

My dad is not a Qualifying Widower

Your Dad is claiming the same exemption as MFJ, without being a “qualifying widower”? On what basis? The current tax code does’t allow that after 2 years from date of death of the spouse?

As far as tax brackets, are you also saying your Dad’s tax brackets are also those for married filing jointly?

My Mom’s tax preparer has her neither claiming MFJ for her deduction(Dad passed away in 2010) nor calculating her taxes based on the MFJ.

My interpretation that surviving spouses, under the new code if approved, would enjoy the MFJ deduction and brackets, is based on the language in the joint reconciliation document released Friday night, as it clearly states that the standard deduction and tax brackets for MFJ also include “surviving spouses”, as opposed to “qualified widowers”, a significantly different definition. I realize, that once the final language in the soon to be new code is finalized, that the language could revert to “qualifing widowers”, but for now, it would seem from the proposed language, that surviving spouses will have the same deduction as MFJ, and same tax brackets as MFJ.

 

[gayl]

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.

according to Kitces:

"acquisition indebtedness” is a mortgage used to acquire, build, or substantially improve the primary residence; “home equity indebtedness” is money used for any other purpose (e.g., for personal spending, refinancing credit cards, paying for college, buying a car, etc.). Thus, a HELOC that is used to build an expansion on a house is still treated as acquisition indebtedness (as it was used for a substantial improvement), while a cash-out refinance of a traditional 30-year mortgage used to repay credit cards will be “home equity indebtedness” for the cash-out portion.

leaving most HELOC deductible .... unless I misinterpreted. So am I reading it right / 1095 pgs too confusing for me.

HELOC + mortgage for improvements / acquisitions to 750k deductible. No longer supporting using home as a bank for non-improvement splurges (credit cards, trips, living beyond your income)

 

[Senator]

The HELOC was not a business loan, but was used for rentals. It appears on my taxes.

With interest rates going up, it's probably time to focus on paying it off anyway.

Your business can reimburse you for the HELOC interest and take an interest expense. Add an expense on your rentals for the interest paid on the HELOC. Then do not take it on your personal taxes. It doesn't matter what name the HELOC is in.

Easy peasy.

 

[Free bird]

I guess I should warn you, if what I said sounds particularly clear to you, you've probably misunderstood what I said. Turn down your sensitivity. No whiners.

 

[Gumby]

I guess I should warn you, if what I said sounds particularly clear to you, you've probably misunderstood what I said.

Is that you, Alan?

 

[gayl]

I guess I should warn you, if what I said sounds particularly clear to you, you've probably misunderstood what I said. Turn down your sensitivity. No whiners.

 

[PatrickA5]

Your Dad is claiming the same exemption as MFJ, without being a “qualifying widower”? On what basis? The current tax code does’t allow that after 2 years from date of death of the spouse?

As far as tax brackets, are you also saying your Dad’s tax brackets are also those for married filing jointly?

My Mom’s tax preparer has her neither claiming MFJ for her deduction(Dad passed away in 2010) nor calculating her taxes based on the MFJ.

My interpretation that surviving spouses, under the new code if approved, would enjoy the MFJ deduction and brackets, is based on the language in the joint reconciliation document released Friday night, as it clearly states that the standard deduction and tax brackets for MFJ also include “surviving spouses”, as opposed to “qualified widowers”, a significantly different definition. I realize, that once the final language in the soon to be new code is finalized, that the language could revert to “qualifing widowers”, but for now, it would seem from the proposed language, that surviving spouses will have the same deduction as MFJ, and same tax brackets as MFJ.

Surviving Spouse is not a new term.
A quick google search of the current tax code shows the following:

(a)Definition of surviving spouse
(1)In general For purposes of section 1, the term “surviving spouse” means a taxpayer—
(A)whose spouse died during either of his two taxable years immediately preceding the taxable year, and
(B)who maintains as his home a household which constitutes for the taxable year the principal place of abode (as a member of such household) of a dependent (i) who (within the meaning of section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) is a son, stepson, daughter, or stepdaughter of the taxpayer, and (ii) with respect to whom the taxpayer is entitled to a deduction for the taxable year under section 151.

 

[43210]

Can we put this claim to rest? It seems to have been thoroughly debunked by "PatrickA5".

http://www.early-retirement.org/for...al-tax-bill-details-89791-13.html#post1981174
http://www.early-retirement.org/for...al-tax-bill-details-89791-16.html#post1982092

(My suggested edit: )

[-]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.[/-]

Also, the following response to the above post has caused some confusion, including to me initially, but I since realized that "My Dad who has been a widower for a very long time gets to use the MFJ standard deduction (plus over 65 standard deduction)" is not written as a statement of fact, but rather the "Seriously? ... ?" indicates that it is intended as a(n incredulously asked) question.

Seriously? My Dad who has been a widower for a very long time gets to use the MFJ standard deduction (plus over 65 standard deduction)?

 

[Sunset]

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.

I don't think they will lose any business, as people who hire out their tax prep don't know what is deductible or not, otherwise they would do it themselves and save the $250

 

[audreyh1]

Your Dad is claiming the same exemption as MFJ, without being a “qualifying widower”? On what basis? The current tax code does’t allow that after 2 years from date of death of the spouse?

As far as tax brackets, are you also saying your Dad’s tax brackets are also those for married filing jointly?

My Mom’s tax preparer has her neither claiming MFJ for her deduction(Dad passed away in 2010) nor calculating her taxes based on the MFJ.

My interpretation that surviving spouses, under the new code if approved, would enjoy the MFJ deduction and brackets, is based on the language in the joint reconciliation document released Friday night, as it clearly states that the standard deduction and tax brackets for MFJ also include “surviving spouses”, as opposed to “qualified widowers”, a significantly different definition. I realize, that once the final language in the soon to be new code is finalized, that the language could revert to “qualifing widowers”, but for now, it would seem from the proposed language, that surviving spouses will have the same deduction as MFJ, and same tax brackets as MFJ.

I didn’t say my dad was claiming the MFJ standard deduction nor any other MFJ brackets etc. I was asking a question.

 

[audreyh1]

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.

Did they change anything significant fo US citizens living overseas and paying foreign taxes in a country with reciprocal tax treaty (or whatever they call it)? I’ve been wondering about my ex-pat brother.

 

[Alan]

Did they change anything significant fo US citizens living overseas and paying foreign taxes in a country with reciprocal tax treaty (or whatever they call it)? I’ve been wondering about my ex-pat brother.

Not that I am aware of. A proposal to exempt ex-pats and accidental Americans* who live permanently overseas and have no US income or assets from filing US taxes made it to the Ways and Means Committee but no further.

I was pleased to see that the FIFO proposal did not make it to the final bill because I have been selling stocks this last couple of years and will continue to do so. When calculating the gain or loss you have to use the exchange rate on the day of purchase and sale so I spend more time than most in selecting which lots to sell as the movement in exchange rates can swamp changes in stock prices.


*people who are Americans by birth but have never lived in the US, or left the US when they were children.

 

[audreyh1]

I was wondering if anyone noticed a change in gifting rule. Present law one can gift 14k/per year/per person without having to file a gift tax return. Is there a change to this in the new "potental" law? I did not catch it when I looked.

No change as far as I had seen, and Kitces didn’t mention any.

The annual gift tax exemption in 2018 is increasing to $15K per original inflation adjustment rules.

I guess this remains linked to the CPI-U? Kitces mentions no change other than the doubling of the estate tax exemption, so I assume the current inflation adjustment standard remains.

 

[pb4uski]

Can we put this claim to rest? It seems to have been thoroughly debunked by "PatrickA5".

http://www.early-retirement.org/for...al-tax-bill-details-89791-13.html#post1981174
http://www.early-retirement.org/for...al-tax-bill-details-89791-16.html#post1982092...

OMG, let's hope so... way too much bandwith was expended on that silliness... I have no idea where the notion that there was some change for widow(er)s came from.

Also, people keep asking... did this change or did that change... if it isn't in the bill then it didn't change... also, please at least try to check it yourself before asking... we aren't your research department.

[end of rant]

 

[donheff]

... we aren't your research department.

[end of rant]

This forum has been my research department for a long time. Thank you.

 

[braumeister]

Also, people keep asking... did this change or did that change... if it isn't in the bill then it didn't change... also, please at least try to check it yourself before asking... we aren't your research department.

Nonsense!
All you have to do is make a random, probably erroneous comment about any detail and twelve people will pile on to correct your error and tease out every nuance of the topic.
That's way better than a personal research department!

 

[FANOFJESUS]

How will affect me? What will my tax bill be?

Single no dependents
Here is my income

interest 900
Dividends 18000
Qualified dividends 9000
long term capital gains 26500

In future years my income will go down but that is what it is now.

 

[pb4uski]

... also, please at least try to check it yourself before asking... we aren't your research department. ...

How will affect me? What will my tax bill be?
Single no dependents
Here is my income

interest 900
Dividends 18000
Qualified dividends 9000
long term capital gains 26500

Here we go again.

But the short answer is ... probably a modest decrease in tax.

 

[Golden sunsets]

I didn’t say my dad was claiming the MFJ standard deduction nor any other MFJ brackets etc. I was asking a question.

Ok. I totally missed that Audrey.

And to Patrick- I cry uncle on the concept, dissappointingly


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