We’re continuing our list of tax changes from the ‘Act’, passed in December 2017.
10 That Went Away
1. Personal and dependency exemptions suspended. The Act suspended personal and dependency exemptions. However, the increased standard deduction, enhanced child tax credit, and overall tax rate changes may offset or minimize the impact of this suspension on many taxpayers.
2. State and local tax deduction capped. The deduction for individual state and local income taxes, state and local property taxes and sales taxes is capped at $10,000. Experts indicate the cap will have the greatest negative impact on high-income earners in high-tax states like California and New York (and Maryland too).
3. Modified mortgage interest deduction. The mortgage interest deduction will be avilalbe to fewer taxpayers if total applicable debt is less than $750,000, down from the previous limit of $1 million. Older debt may be ‘grandfathered’.
4. Restricted interest deduction for HELOCs. Under the Act, taxpayers may not deduct interest on a home equity line of credit (HELOC) unless the funds are used for certain limited purposes and qualify as “acquisition indebtedness,” subject to limitations.
5. Certain alimony payments no lnger deductible. For divorce or separation agreements entered into (and in some cases, modified) afterDecember 31, 2018, taxpayers are no longer able to deduct allimony payments. This provision is permanent.
6. Repeal of sporting event ticket deduction. Under prior law, taxpayers who made a charitable contribution to a college or university in exchange for the opportunity to purchase tickets at certain sporting events could still deduct 80 percent of the donated value. The Act eliminates this deduction.
7. Pease limitation suspended. This previously reduced certain itemized deductions – such as the state and local tax deduction and the home mortgage interest deduction – for individual taxpayers with income levels above certain thresholds.
8. Roth conversions cannot be undone. Under previous law, taxpayers could reverse or ‘unwind’ a Roth conversion within a certain period of time, an attractive option after a significant market decline. The Act eliminates this possibility.
9. Deduction for tax preparation fees eliminated. A number of miscellaneous itemized deductions – including the deduction for tax preparation fees – have been suspended.
10. “Kiddie” tax calculation modified. The ‘kiddie’ tax applicable to the net unearned income of young children is no longer calculated with reference to the parent’s tax rates, but with reference to the tax rates for trusts and estates. These can be high so seek assistance if you’re considering leaving monies in a trust. Check out the rates click here
As always, carving out some time with your advisor to talk over strategies for all those pesky money decisions is important. Laws, rules, and regulations keep changing (congress has to have something to do after all), so making sure your plan isn’t busted by those changes is important!