Friday, November 3, 2017


I haven’t done deep research on the Tax Cuts and Jobs Act – but based on what I have read here is how it would affect individual taxpayers.

There would be 4 tax rates – 12%, 25%, 35%, and 39.6% - with increased brackets.

Adjustments to Income:

The educator expenses up to $250 per taxpayer, moving expenses, alimony, student loan interest, tuition and fees, and domestic production activities costs would no longer be deductible.

Schedule A:

Medical Expenses – No longer deductible.

Taxes – Up to $10,000 (hey, like the NJ-1040) of real estate (aka property) taxes only.  No deduction for state and local income or sales tax or, presumably, personal property tax or foreign income tax.

Interest – Rules remain unchanged for existing mortgage debt.  For debt incurred after November 2, 2017, only interest on acquisition debt of up to $500,000 in principal is deductible.  Interest on new home equity debt incurred after November 2, 2017 is no longer deductible.

Charity – Rules remain unchanged for the most part (some minor changes appear to be made to more obscure charitable deduction rules).  The standard mileage allowance rate for mileage in the course of providing volunteer services to a qualifying organization would be indexed for inflation.

Casualty and Theft Losses – No longer deductible.

Job Expenses and Certain Miscellaneous Deductions – Unreimbursed employee business expenses and tax preparation fees and costs no longer deductible.  All other miscellaneous deductions subject to the 2% of AGI exclusion are also probably no longer deductible.

Gambling Losses – Losses would still be deductible to the extent of winnings.  It appears that non-loss deduction for “professional gamblers” no longer allowed. 

There would be no more “Pease” reduction of itemized deductions based on AGI.

The standard deduction would be $12,000 for Single filers, $18,000 for Head of Household (so it appears the Head of Household filing status remains), and $24,000 for Married filing jointly.  There would be no additional standard deduction amount for blind or age 65 or older. 

There is no personal exemption.  The Child Tax Credit would be increased from $1,000 to $1,600 per dependent child, with the first $1,000 being refundable, and the phase-out threshold would be increased to $115,000 for single filers and $230,000 for joint filers.  A non-refundable $300 credit would be allowed for the taxpayer, his spouse, and all “non-child” dependents.  The same phase-out threshold would apply to this new $300 credit. 

The Lifetime Learning Credit is gone.  The American Opportunity Credit remains as it is under current law, but would be available for a 5th year of post-secondary education at half the rate that applied for the first 4 years, with up to $500 being refundable.

The exclusion of up to $250,000 ($500,000 on joint return) of gain on the sale of a personal residence remains, but the “2 out of 5” year rule is changed to “5 out of 8”.  You must own and live in a personal residence for at least 5 of the 8 years prior to sale to qualify for the exclusion.

The determination of the tax on “pass-through” business income, including the income of “sole-proprietorships” reported on Schedule C, becomes a convoluted “mucking fess”.  However, a “personal service” business – “businesses involving the performance of services in the fields of law, accounting, consulting, engineering, financial services, or performing arts” – would not necessarily benefit from the lower 25% maximum tax rate.   

The dreaded Alternative Minimum Tax is repealed (hurray!).

It appears that there is no change to the special lower tax rates for qualified dividends and long term capital gains - other than new bracket thresholds for the specific rates.  And the 3.8% Obamacare NIIT apparently remains.

The estate tax exemption is increased to $10 Million, indexed annually for inflation.  The tax is totally repealed after 6 years.  However, it appears a beneficiary’s stepped-up basis in estate property will remain even after the repeal.

It looks like just about everything, except the mortgage deduction for new debt after November 2nd, will take affect beginning with tax year 2018.  So there should be no changes for the 2017 Form 1040.

Speaking of the new mortgage interest rules, limiting the deduction for new debt to acquisition debt – unless 1098 reporting is substantially enhanced this makes the need for taxpayers to keep separate track of acquisition and home equity debt even more important.

There is some good news in the details revealed.  I am pleased that -

* the standard mileage rate for charitable travel is finally indexed for inflation,

* the lower maximum pass-through tax rate rules are not as ridiculous and inequitable as they could have been, although they create much new complexity and I still think the concept is stupid, and

* the step-up in basis for inherited assets remains intact even after total repeal of the Estate tax.

Unfortunately, the Earned Income Credit, including refundability, remains intact.

I am disappointed that the Act does not do away with the Obamacare "individual mandate" and the "shared responsibility" penalty for taxpayers without adequate coverage.

And, in my opinion, the total repeal of the deduction for state and local income or sales tax and limitation of the property tax deduction amount, and the total repeal of the deduction for employee business expenses creates inequities in the tax system.  And the repeal of the casualty loss deduction means that every time there is an excessive natural disaster, like Katrina, Sandy, and the recent hurricanes, Congress will have to pass temporary tax benefits for victims.

I expect more information will be made available in the days to come.  And then the debate will begin and we will see if a law can be passed – despite the ineptitude of arrogant idiot Donald T Rump.


1 comment:

George said...

I liked this analysis. Changes appear to be less positive than what was offered during the speeches when you place them under this light.