Ask a CPA

The rules relating to the exclusion of gain on the sale of a principal residence remained unchanged. $500,000 for married couples and $250,000 for the other filing status.

For any divorce or separation agreement executed after December 31, 2018, or executed before that date but modified after, alimony payments are not deductible by the payor spouse.

If a pre-existing agreement is modified after December 31, 2018, the new rules will only apply if the modification expressly provides that the new law should be applicable.

Correspondingly, the recipient spouse will not have to include the alimony payments received as income.

Pursuant to the Act, the child tax credit is increased to $2,000 per eligible child for 2018 through 2025.

The income level at which the credit phase-out begins is increased to $400,000 for taxpayers filing married filing jointly and $200,000 for all others. The credit continues to phase out at a rate of $50 for every $1,000 that AGI exceeds the threshold amounts.

The refundability of the credit was also modified so that the earned income threshold is reduced to $2,500.

The maximum amount of age-based long-term care premiums that can be included as deductible medical expenses for 2018 (subject to the AGI floor is $420.

If you are age 40 or younger at the end of 2018; $780 for those age 41 through 50; $1,560 for those age 51 through 60; $4,160 for those age 61 through 70; and $5,200 for those over age 70.

For 2018, you are required to have minimum essential health coverage through an employer plan, a government program, or other plan, or pay a penalty. The mandate does not apply after 2018.

To help those of modest means pay premiums for coverage obtained from a government exchange (Marketplace), there’s a premium tax credit . Eligibility for this advanceable, refundable tax credit depends on your household income and other factors.

The credit continues to be available even though the individual mandate ends after 2018.

For 2018, the limit on the adoption credit as well as the exclusion for employer-paid adoption assistance is $13,810. The benefit phaseout range is modified adjusted gross income between $207,140 to $247,140.

Gambling losses remain deductible as a miscellaneous itemized deduction (not subject to the 2% limitation) to the extent of gambling winnings.
,br> The Act provides that all deductions for expenses incurred in carrying out wagering transactions, and not just gambling losses, are limited to the extent of gambling winnings.

One of the changes imposed by the Tax Cuts and Jobs Act is the creation of new Section 199A, “Qualified Business Income”.
This new code section, non-corporate taxpayers (including trusts and estates) that have Qualified Business Income (“QBI”) from a partnership, S Corporation or sole proprietorship can take a deduction of up to 20% of the QBI.

QBI is generally defined as the net amount of income, gain, deduction and loss relating to a qualified trade or business and effectively connected to the conduct of the trade or business within the United States.

If the net amount is less than zero, the amount is treated as a loss from a qualified trade or business in the succeeding tax year.

Certain types of income are specifically excluded from being treated as QBI, and thus not eligible for the deduction. Investment income along with reasonable compensation payments, guaranteed payment to a partner for services rendered and payments for services to partners not acting in their capacity as partners are not included.

The deduction is a deduction from AGI in arriving at Taxable Income. It is not an or above the line deduction.

A limitation is imposed on income from certain specified service businesses, including businesses that perform services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, investing and investment management, trading or dealing with securities and any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners.

Specifically exempt from the definition of service business are engineering and architectural services.

For pass-through income from a service business, a limitation phases in when the owner’s taxable income (from all sources) exceeds $157,500 for single taxpayers and $315,000 for married taxpayers filing joint returns and is completely phased-out when taxable income exceeds $207,500 and $415,000 respectively.

A second limitation applies based upon W-2 wages and capital of a trade or business. In general, the deduction cannot exceed the greater of 50% of the W-2 wages of the business; or the sum of 25% of the W-2 wages paid plus 2.5% of the unadjusted basis, immediately after acquisition, of all “qualified property”.

Qualified property is defined as all tangible, depreciable property held by and used by the business at the close of the year.

The limitation based on W-2 wages and capital does not apply to any passthru entity owner with taxable income that does not exceed the $157,500/$315,000 threshold. Once income exceeds this amount, the W2/Capital limitation phases in and applies fully once the taxpayer’s taxable income exceeds the $207,500/$415,000 threshold

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%.

Long-Term Capital Gains (and Qualified Dividends) have been subject to special maximum tax rates. The Act generally retains the maximum tax rate structure.
For 2018 the 15% rate applies once the following income limits are met: a. Joint returns - $77,200
b. Head of Household returns - $51,700
c. Single returns - $38,600
d. Married Separate returns - $38,600
e. Trusts and Estates - $2,600

For 2018 the 20% rate will apply to long-term capital gains and qualified dividends above these income levels:
a. Joint returns - $479,000
b. Head of Household returns - $452,400
d. Married Separate returns - $239,500
e. Trusts and Estates - $12,700

Prior to the Act, a 0% capital gain rate applied to capital gains where the taxpayer is paying in the 10% or 15% rate on ordinary income; a 15% capital gain rate applied to any taxpayer paying any other rate below 39.6%; and a 20% rate applied to the high-income taxpayers paying 39.6% on ordinary income.