The text of the bill’s language, as well as the Conference explanation starting at page 507, can be found here.
About Leslie BookProfessor Book is a Professor of Law at the Villanova University Charles Widger School of Law.
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The conferees wanted to make sure in Section 11051 that the alimony deduction was repealed, so they struck it twice. (But in baseball, it takes three strikes to be out.):
(a) IN GENERAL.—Part VII of subchapter B is amended by striking by striking section 215. . .
Meanwhile, in Section 13307, there is an interesting provision regarding attorney fees in sexual harassment and abuse cases, where there is a settlement or payment subject to a nondisclosure agreement. Attorney fees are not deductible. There is no indication that this applies only to defendants, so I assume the purpose is to discourage plaintiffs and their lawyers. Of course, with all miscellaneous deductions repealed, it might not make any difference.
(a) DENIAL OF DEDUCTION.—Section 162 is amended by redesignating subsection (q) as subsection (r) and by inserting after subsection (p) the following new subsection:
‘‘(q) PAYMENTS RELATED TO SEXUAL HARASSMENT AND SEXUAL ABUSE.—No deduction shall be allowed under this chapter for—
‘‘(1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or
‘‘(2) attorney’s fees related to such a settlement or payment.’’.
Page 631 of 1097 the tax bill regarding section 121 exclusion of gain on a sale of principal resident under conference agreement states “No Provision”. Does that mean after December 31, 2017, the gain due to a sale of principal resident is taxable?
Hope to get clarification.
No, that means neither the House modification to the rules (of increasing the time a home was required to be owned before the exclusion was available) nor the Senate modification (which would have changed the dollar limits on the House suggestion) are applicable.
TLDR: Current law remains as is in regard to the home sale exclusion rules.
Two retroactive changes that affect a lot of people to note:
For the 2017 tax year (our current one), the medical expense threshold is lowered to 7.5% of AGI. This also applies to 2018. After 2018, medical expenses are allowed again under the current rules with the 10% of AGI threshold. Sec. 11027.
For the 2017 tax year (as well as future years through 2025), the bill allows $10,000 for aggregate deductions of state and local income, sales, and property taxes. So, the $10,000 limit that was in the House bill that applied only to allow property taxes and disallowed all deductions for other taxes has been made more generous to poor people who don’t pay property taxes, but do pay income or sales taxes. See sec. 11042. However, I had not heard that this new provision was to apply to the current tax year. It does.
Query whether the IRS will have time to fix the Forms 1040 for 2017 to reflect these new rules.
Carl Smith, I was confused by that section on the effective date for the cap on deduction for taxes. The cap goes into effect for 2018 returns. That effective date is somewhere in the middle of the section. At the end of the section it refers to an effective date of tax years beginning after 12/31/16 — but that has to be there because it applies to the subsection not allowing advance payments on 2018 taxes to be made and then deducted in 2017. Whether that could be done, has been a topic for discussion among tax preparers thinking of advising their clients to make early estimated-tax payments for 2018.
Am I correct that the $10,000 cap is the same for single taxpayers, and married couples? So much for family values. Also, the standard deduction for joint returns is only 150% of the allowance for singles.
The final Schedule A for 2017 has been released by IRS.
https://www.irs.gov/pub/irs-pdf/f1040sa.pdf
Software companies can make the revision, and that should be easier than some other retroactive changes that could have been added but were not. I’m surprised that after voting to eliminate medical expenses, the House now thinks it would be a good idea to go out of their way to allow more of them.
Am I correct, that parents of 17-year-olds now get only a $500 tax credit, when previously they got a $4,050 deduction worth more than $1,000 to parents in a 25% bracket? Thinking about that question this morning, the Beatles song that starts with “She was just 17, you know what I mean…” popped into my head. But I suppose this is not a good time to bring up the subject of 17-year-olds.
The $24,000 amount for a joint return standard deduction does not appear anywhere in the bill. That is because current law Section 63(c)(2)(A) simply says that the standard deduction for a joint return is twice the standard deduction for a single return under Section 63(c)(2)(C). The additional standard deduction for persons 65 and older, or blind, is still allowed in Section 63(c)(1)(B). The new standard deduction for HoH is $18,000.
For 2017, the standard deduction on a joint return is $12,700, so the $24,000 represents an increase of $11,300. However, the personal exemptions of $4,050 are eliminated, reducing the decrease in taxable income from the combined amounts to $3,200. That’s a $480 tax savings for a couple in the 15% bracket, many of whom will find a way to spend another $40 a month. The major benefit to IRS will be fewer returns with itemized deductions. It could have been a lot worse. The mainstream media are not covering the elimination of employee business expenses, investment expenses and attorney fees for tax representation. Yet.
Lots of surprises I think that people will eventually realize and complain about.The all but elimination of the casualty loss deduction, with the exception of losses attributable to federal disaster areas, is also somewhat off the radar (for now). Interesting how IRS a few weeks ago in a revenue procedure allowed homeowners in CT and other places in the northeast who had crumbling foundations due to defective concrete to take a casualty loss, despite that many authorities have treated slow-developing conditions such as that as not giving rise to a casualty. see here The IRS in the revenue procedure required, oddly enough, that the homeowner pay to repair the damage, and the IRS would treat the repair payments as the amount that could be deducted under 165(c)(3). With the new legislation, I guess the homeowners have a couple of weeks to go to pay for the repairs and take the suddenly disappearing casualty loss.
Regarding the issue of the changes to section 164, I am an enrolled agent that prepare tax returns for clients and prior to the latest agreement between the House and Senate, both had agreed that no income tax deduction would be allowed after 2017. Therefore, I recommended to my clients that they should pay their 4th quarter state estimates in December rather than their due date of January 15, 2018 since I believed such estimates would not be deductible at all if paid on their due date. Although the above recommendation was a common strategy under prior law, it was just a timing issue of what year the deduction could be taken.
In reading the revised changes to section 11042, paragraph (6) provides in pertinent part “For purposes of subparagraph (B), an amount paid in a taxable year beginning before January 1, 20118, with respect to a State or local income tax imposed for a taxable year beginning after December 31, 2017, shall be treated as paid on the last day of the taxable year for which such tax is so imposed.” Subsection (b) indicates that the above section is effective for tax years after December 31, 2016.
My reading of the above language is that the prepayment in December of 2017 of the 4th quarter estimate due in January of 2018 would be deductible on the 2017 return since the state tax is one imposed for 2017 even though such payment is due in 2018 and I believe the above quotation refers to the prepayment of state taxes imposed in 2018 and prevents deductibility of such prepayments. Do you think my interpretation is correct?
Yes, that is my reading also. If the December payment results in a 2018 overpayment, that refund will be taxed even if applied to 2018 taxes, but perhaps at a lower rate. An extremely high payment in December 2017, resulting in an extremely large refund in 2018, may remind some at IRS of the tax adage, “Pigs get fat, hogs get slaughtered.” Before advising clients to pay more taxes this month, check to make sure that it will not cause an AMT problem.
I’ve heard that you can claim a refund based on the amount of your earnings you spent during 2017 – 2025 under ? section 11042 ?
If so, ….. how do you claim this windfall ….. and how much is it per year?
Excellent, professional (useful) advise..
Say what about state deduction limitations in a state like Texas who has no income tax?
Are theses state taxes treated differently?
Jim