The Tax Cuts and Jobs Act of 2017: Year End Individual Planning
Now that the House and Senate have reconciled their two versions and passed the legislation, it is now waiting for the President’s signature. In general most taxpayers should give strong consideration to accelerating deductions into 2017 and deferring income (where possible) to 2018 and later years.
Taxes – The recently passed bill allows taxpayers to deduct up to $10,000 of taxes on Schedule A. The deduction can be made up of state and local income taxes or real estate (property) taxes.
Mortgage Interest & Home Equity Lines – There are a few changes here:
The recently passed bill allows for new acquisition indebtedness of $750,000 to be used in calculating the deductible mortgage interest on Schedule A. Mortgages up to $1,000,000, incurred before December 15, 2017, will be grandfathered under the old limitation (pending certain restrictions). The deductibility of Home equity indebtedness has been repealed in the final legislation.]Standard Deduction – The new Standard Deduction will increase to the following amounts starting in 2018: Single Filers – $12,000, Married Joint Filers – $24,000, Head of Household Filers – $18,000.
Potential Impact of These Changes
All of the changes mentioned above impact whether a taxpayer itemizes their deductions or claims the standard deduction on their individual tax return. Depending on the final bill that’s passed, it’s possible that many taxpayers will find they no longer benefit from itemizing their deductions, as the standard deduction will give them a greater benefit.
Maximizing Deductions Now
If you are in the position where you will itemize your deductions in 2017, but may fall subject to the standard deduction in 2018, you should consider accelerating itemized deductions into 2017. Some of
“¢ Mortgage interest- Pay your January payment by 12/31/17 to accelerate the interest onto your 2017 tax return.
“¢ Charitable contributions – If possible, accelerate some of your planned 2018 charitable contributions into 2017, in order to take advantage of the deduction in 2017.
“¢ Medical expenses- While there is a 10% limitation/hurdle to consider, for those who have already surpassed this limitation, pay down as many medical bills as possible to accelerate those deductions into 2017.
“¢ State and local taxes- Due to the nature of this being an AMT (Alternative Minimum Tax) preference item, there may or may not be a benefit to accelerating these items. Detailed planning will need to be done with your tax preparer to determine if accelerating this deduction is worthwhile for you.
If you have never considered any type of tax planning before, the end of this year might be an ideal time to contact us to make sure you get the most out of your deductions. You don’t want to lose the tax benefit of deducting items, if all it means is shifting items and paying them a few days early, do you?
Andrew is a Manager at Cover & Rossiter and the focuses on the Tax practice. Cover & Rossiter is one of the first and most respected full-service CPA & advisory firms in the area, providing tax, audit, trust and accounting services to businesses, nonprofits, families and individuals.