Much of the tax reform won’t take effect until January 2018 and likely will not affect 2017 filing season. However, there are some planning factors that may affect what is done during this final month of 2017.
The common deduction (the bill is over 1000 pages long, so there may be others) that is retroactively affected by the tax reform is medical expenses.
- State and Local Tax Deductions
This itemized deduction has been a hot topic over the last few weeks. The elimination of this deduction has caused concern. States have attempted to accommodate prepayment of 2018 income and property taxes. However, it appears that under the conference bill, prepayment of state and local income taxes will not circumvent the new $10,000 cap.
- Mortgage Interest Deduction
This itemized deduction was put in place to encourage home ownership. Caps are already placed on the mortgage and equity debt amounts. The concern was for the elimination or reduction of one of the deductions.
The conference bill, will (temporarily) reduce the mortgage cap for loans taken after yesterday, December 15, 2017 (also known as grandfathered in). Any home equity debt deduction will be eliminated starting in 2018.
Both of those deductions and respective reductions are slated to return in 2026.
- Alternative Minimum Tax (AMT)
Alternative Minimum Tax exemptions are increased for individuals; therefore it applies to fewer taxpayers.
The ObamaCare minimum coverage mandate penalty for individuals that do not have minimum health care coverage has been eliminated. I’m not clear if this is for 2017 or applies beginning 2018.
- Standard Deduction/Personal Exemptions
The standard deduction is applied when taxpayers opt to not itemize their deductions. Many of the itemized deductions are eliminated or reduced in the new bill. The increased standard deduction will be more beneficial for those taxpayers affected by the new rules for itemized deductions. However, the personal exemptions will affect those with multiple dependents on their returns. Although the personal exemptions have been considered ‘consolidated’ with the higher standard deduction rates – single parents (claiming Head of Household) will lose out if they have more than 1.1 children. This is also the case if married individuals (claiming Married Filing Jointly) have more than 1 child.
This is not a complete summary of the proposed changes. Check out this article to learn more. It also has the complete PDF of the conference bill at the end of the article.