Wednesday, October 3, 2018


We have already seen the IRS draft of the stupid new 2018 Form 1040 “postcard” andits 6 new supplemental statements.  The IRS has now also issued draft copies of the 2018 Schedule A and Form K-1s for partnerships and S-corps and the instructions for the 2018 Form 1040.

The 2018 Schedule A section for “Taxes You Paid” begins with “State and local taxes”.  There are lines for income taxes or general sales taxes, real estate taxes and personal property taxes.  The wording and format for indicating if you are claiming state and local sales tax instead of state and local income tax has changed, but the option still exists.  After entering amounts for these three items and coming up with a total there is a line that says “Enter the smaller of line 5d {total taxes claimed – rdf} and $10,000 ($5,000 if married filing separately).”  Here is where the new limitation is applied.   

This section also contains a line for “Other taxes” that is after the application of the $10,000 limit, which indicates that these taxes are deductible in addition to the $10,000.  I am curious to read the instructions to find out what “other taxes” they are talking about.   In the past I have put employee withholding for state unemployment, disability and family leave contributions, but these taxes are really part of state and local income taxes and are included in the $10,000 limit.

The “Interest You Paid” section includes a new box to check under the line for “Home mortgage interest and points” if “you didn’t use all of your home mortgage loan(s) to buy, build, or improve your home”, referring the taxpayer to the instructions.  Here is where you must indicate if you have any home equity debt.  I cannot stress enough how the elimination of the deduction for home equity interest affects the preparation of the Schedule A. 

There is also a line identified as “Reserved”, which has been suggested exists because the IRS thinks the idiots in Congress may reinstate the inappropriate deduction for mortgage insurance premiums for 2018 before the end of the year.

The “Casualty and Theft Losses” category line identifies the new limitation of the deduction to “casualty and theft loss(es) from a federally declared disaster”.

The entire “Job Expenses and Certain Miscellaneous Deductions” section is gone, as these items are no longer deductible.  And the “Total Itemized Deductions” section no longer asks if your AGI is over the former Pease threshold, as the phase-out of itemized deductions no longer exists.

I am truly eager to see the draft of the instructions for Schedule A for many reasons, including the explanation of what is deductible as gambling losses.  There has been conflicting advice and information provided by tax preparation CPE providers.

All the discussions of the unnecessary new Section 199a deduction mention that the K-1s from partnerships and sub-S corporations will be reporting important information related to this deduction.  But the draft K-1s for 2018 do not look any different than those of past years.  Perhaps the information will be included in “See attached statement for additional information”.  I certainly hoped, and had assumed from what I had been taught at GOP Tax Act CPE sessions, that the front page of the K-1 would specifically address the Section 199a deduction requirements.

I have very briefly skimmed the 1040 instructions, but have not reviewed it in any detail yet.  I did, however, check to see and found that it does include a "Simplified Worksheet" for calculating the Section 199a deduction.  

I will let you know as more draft forms with GOP Tax Act changes are released.


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