Tax Law Changes

Pursuant to the Act, for tax years beginning after December 31, 2017 and before January 1, 2026, a deduction will only be allowed for interest on a debt that qualifies as Acquisition Indebtedness. No deduction will be allowed for Home Equity debt.

In addition, the Act reduces the amount of eligible Acquisition Indebtedness borrowing to $750,000 for any debt incurred on or after December 15, 2017.

A taxpayer who entered into a binding contract before December 15, 2017 to close on the purchase of a residence before January 1, 2018, and who actually closes on the acquisition before April 1, 2018, shall be considered to have incurred the Acquisition Indebtedness before December 15, 2017.

ii. The old Acquisition Indebtedness limits continue to apply to taxpayers who refinance existing Acquisition Indebtedness as long as the indebtedness resulting from the refinancing does not exceed the amount of the original debt.

For 2017, the deduction for Qualified Residence Interest was limited to interest paid on up to $1,000,000 of borrowing that qualified as “Acquisition Indebtedness” and up to $100,000 of borrowing that qualifies as “Home Equity Indebtedness”.
Acquisition Indebtedness being defined as debt incurred to acquire, construct or substantially improve a principal residence or a second home, with no restriction on the use of Home Equity Indebtedness.

For 2018, all taxpayers must use Form 1040.
Forms 1040A and 1040EZ have been eliminated.
Form 1040 has been reformatted and redesigned and is supplemented by new Schedules 1 through 6.

The IRS has taken Form 1040, which was a 2 page form, and cut it into 6 pieces,
If you do not have amounts for pieces 2 through 6, then those schedules will not print.

For tax years beginning January 1, 2019, medical expenses, for all taxpayers, are deductible to the extent that they exceed 10% of youir AGI. It was 7.5% of AGI in 2018.

In addition, the AMT preference related to medical expenses is eliminated.

For 2018, the contribution limit for traditional IRAs and Roth IRAs is unchanged at $5,500, or $6,500 for those age 50 or older.

The deduction limit for 2018 contributions to a traditional IRA is phased out for active plan participants with modified AGI (MAGI) between $63,000 and $73,000 for a single person or head of household, or between $101,000 and $121,000 for married persons filing jointly and qualifying widows/widowers.

The phaseout range is MAGI between $189,000 and $199,000 for a spouse who is not an active plan participant and who files jointly with a spouse who is an active plan participant.

The 2018 Roth IRA contribution limit is phased out for a single person or head of household with MAGI between $120,000 and $135,000, and for married persons filing jointly and qualifying widows/widowers with MAGI between $189,000 and $199,000.

If you converted your traditional IRA to a Roth IRA in 2018, you cannot undo it; the conversion is permanent.

The combination of residential property taxes and Income or sales taxes continues to be capped at $10,000.

Property taxes remain fully deductible for taxpayers in a business or for-profit activity, so taxes paid on rental realty can be taken in full on Schedule E.

For tax years beginning after December 31, 2017 and before January 1, 2026 all miscellaneous itemized deductions that were previously subject to a 2% AGI limitation are suspended.

Among the items included in this elimination are:
All unreimbursed employee business expenses;
Union dues
Brokerage fees
All expenses related to tax return preparation;
Appraisal fees for charitable contributions;
Investment expenses.

For tax years beginning after December 31, 2017 and before January 1, 2026, seven brackets will apply to individuals: 10%, 12%, 22%, 24%, 32%, 35% and 37%.

No change has been made to the filing statuses that apply to individuals.
In 2017 all taxpayers (other than those filing Married Filing Separately) became subject to the 35% bracket at the same level of taxable income ($416,700). For tax years beginning after December 31, 2017 and before January 1, 2026, the 2nd highest bracket will now apply based upon filing status.

1 Unmarried taxpayers will have the 35% bracket apply once taxable income exceeds $200,000.

2. Joint filers will have the 35% bracket apply once taxable income exceeds $400,000.

3. Separate filers will have the 35% bracket apply once taxable income exceeds $200,000.

4. For unmarried taxpayers (both Single and Head of Household filing statuses), the top bracket applies to taxable income in excess of $500,000.

5. Married taxpayers filing jointly will have the 37% rate apply once taxable income exceeds $600,000, with one-half that amount ($300,000) being the threshold for married taxpayers filing separate return.

100% additional first-year bonus depreciation is allowed for qualified property acquired and placed into service after September 27, 2017 and before January 1, 2023.

The new rules eliminate the requirement that the original use of the property commence with the taxpayer. As such, bonus depreciation is available for new or used property.

Taxpayers have a right to elect 50% bonus depreciation for property placed into service after September 27, 2017 during the first tax year that ends after September 27, 2017.
In the years that follow the bonus depreciation percentage will diminish. i. For property placed into service after December 31, 2022 and before January 1, 2024 bonus depreciation is 80%.
ii. For property placed into service after December 31, 2023 and before January 1, 2025 bonus depreciation is 60%.
iii. For property placed into service after December 31, 2024 and before January 1, 2026 bonus depreciation is 40%.
iv. For property placed into service after December 31, 2025 and before January 1, 2027 bonus depreciation is 20%.

The PATH Act permanently extended the enhanced $500,000 maximum amount of expensing available (along with the $2,000,000 phase-out threshold) under §179.

Under the new law, for property placed into service in tax years beginning after December 31, 2017, the maximum amount of expensing is increased to $1,000,000, and the phase-out threshold amount is increased to $2,500,000.

For tax years after 2018 these amounts will be indexed for inflation.