The Congressional Tax Plans & 2017 Year End Individual Planning Considerations

The Congressional Tax Plans & 2017 Year End Individual Planning Considerations

“To Accelerate or Not to Accelerate, That is the Question.”

In recent weeks, the headlines have been dominated by articles discussing what the potential new tax plan may look like as Congress looks to pass legislation by year end.  While the House and Senate have passed their own versions, they now have to reconcile the two bills and pass one common bill to send it off for the President’s signature.  While it is unclear what the final bill will actually be, in general most taxpayers should give strong consideration to accelerating deductions into 2017 and deferring income (where possible) to 2018 and later years.

 

Pending Changes

  • Deduction for State and Local Taxes – Both plans call for the elimination of this itemized deduction on the Schedule A.
  • Real Estate Taxes – Both plans propose a limitation to this deduction on Schedule A. The maximum annual deduction will probably be capped at $10,000.
  • Mortgage Interest & Home Equity Lines – There are a few differences here, which will need to be reconciled in whatever final bill is passed. Currently the plans call for:
    • House Plan – Current mortgages would be grandfathered and not affected by the new bill. However, for new mortgages the interest deduction would only be available on the first $500,000 of debt.  Additionally, the deduction would only apply to your primary residence (not a second residence).  Finally, the deduction for a $100,000 Home Equity line would be eliminated.
    • Senate Plan – The $100,000 Home Equity line deduction would be eliminated (similar to the House plan). But the Senate plan appears to retain the $1,000,000 limitation, as well as the deduction for second homes, in place in their new plan.
  • Standard Deduction – The standard deduction is slated to approximately double in size for taxpayers of all filing statuses [i.e., Joint Filers – $12,700 (2017) to $24,400 (House Plan) or $24,000 (Senate Plan)].

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 these are:

  • 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.

Conclusion

If you have never considered any type of tax planning before, the end of this year might be an ideal time to contact a trusted tax advisor to make sure you get the most out of your deductions.  Here at Cover & Rossiter, we look forward to becoming your trusted tax advisor and we will help you navigate the murky waters as this new legislation takes shape.  Contact us today!

Stay tuned as we will look to pass along the proposed changes for the Corporate and Pass-Through entities in another write-up.

Andrew Johnson, CPA

Manager

AJohnson@CoverRossiter.com

(302) 656-6632

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