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DETHLOFF & ASOOCIATES BLOG - MOSTLY (BUT NOT ALL) TAX
Tax Reform Summary - Individual Proposals
The largest changes to income tax law since 1986 as proposed are listed below. The stated goal is to have the bill passed by Thanksgiving, so it is important to give feedback to your representatives as soon as possible
While the changes in tax rates listed below and elimination of the Alternative Minimum Tax may reduce your taxes the elimination of deductions and credits could also increase your taxes.
Since most of our clients live in either Oregon or California we think the biggest impact will come from the elimination of the state income tax deduction. The limit on the property tax deduction to $10,000 will also impact many of our clients. The elimination of the gain exclusion on the sale of your residence if your AGI is over $250,000 ($500,000 if married filing seperately) could impact some of our clients.
Summary of proposed changes that would affect individual taxpayers:
1. Individual rates would be compressed from the current 7 brackets to 4 brackets: 12%, 25%, 35%, and 39.6%.
2. Personal exemptions would be eliminated.
3. The child tax credit would be increased from $1,000 to $1,600 for a qualifying child. The refundable portion would remain $1,000. A $300 credit would be added for the taxpayer and spouse and other dependents to 2023. The phase-out for the credits would be increased to $115,000 for single and $230,000 for MFJ (currently $75,000 and $110,000, respectively.)
4. The standard deduction would be increased to $12,2002 single, $18,300 HOH and
$24,400 MFJ. The additional standard deduction for the elderly and the blind would be repealed.
5. The phaseout of itemized deductions would be repealed.
6. AMT would be repealed. AMT credit carryovers would reduce regular tax in 2018, and then become 50% refundable 2019–2021. Any unused AMT credit carryover would be 100% refundable in 2022.
7. For sales and exchanges after Dec. 31, 2017, §121 exclusion of gain on the sale of a personal residence would be modified to require that the home be owned and used for five of the last eight years. Section 121 would be modified to phase-out the exclusion based on AGI above $250,000 ($500,000 MFJ).
8. The credits for adoption and plug-in electric vehicles would be repealed.
9. The exclusions for employee achievement awards, dependent care assistance programs, moving expense reimbursement, and adoption assistance programs would be repealed.
10. Education credits would be consolidated into an enhanced American Opportunity Tax Credit (AOTC). The AOTC would remain the same at 100% of the first $2,000 and 25% of the next $2,000. The AOTC would be available for five years (the fifth year at ½ the rate of the first four years.)
11. The deduction for interest on student loans would be repealed. The exclusion for interest on US savings bonds used for higher education expenses would be repealed. The exclusion for employer provided education assistance programs would be repealed.
12. The special rule permitting a recharacterization of Roth IRA contributions as traditional IRA contributions would be repealed.
13. The moving expense deduction would be repealed.
14. The alimony paid deduction would be repealed for agreements executed after Dec. 31, 2017. There would be a corresponding repeal of the provisions providing inclusion of alimony in gross income.
15. The medical expense deduction and the deduction for state and local taxes would be repealed.
16. The mortgage interest deduction would be reduced from acquisition debt amounts of $1,000,000 to $500,000 for new home purchases on or after Nov. 2, 2017. Interest on home equity borrowing after the effective date of the law would be repealed.
17. Mortgage interest deduction would be limited to one qualified residence.
18. The 50% AGI limitation on cash contributions to public charities and certain private foundations would be increased to 60%.
19. Charity mileage would be indexed for inflation (finally.)
20. Miscellaneous itemized deductions for employee business expenses, personal casualty losses, and tax preparation fees would be repealed.
21. The exclusion for housing provided for the convenience of an employer and for employees of educational institutions would be limited to $50,000 and would phase-out beginning at AGI of $120,000. The exclusion would be limited to one residence.
22. The estate, gift, and generation skipping transfer tax exemption amount would be increased to $10,000,000 for decedents dying after Dec. 31, 2017. Estate taxes would be repealed after Dec. 31, 2023.
Please contact us if you would like to discuss the proposal in more detail.