New Legislation - Individuals Chapter 1 pp. 1-21 2018 National Income TAX Workbook™

Tax Cuts and Jobs Act of 2017 (TCJA) pp. 2-4 IRS dedicated page for new law www.irs.gov/newsroom/tax-reform 2018 Tax Rate Schedules (pp. 2-3) After 2018, adjusted for inflation Marriage penalty eliminated through 32% bracket Remains for 35% and 37% brackets

p. 4 Children with Unearned Income For tax years 2018 to 2025 Parents’ rates no longer a concern Apply ordinary & capital gains rates of trusts/estates to net unearned income Earned income taxed @ single rate

p. 4 Capital Gains Tax Rates 25% & 28% rates remain (1250, coll.) Rates for adjusted net capital gain: Filing Status 0% 15% 20% MFJ/SS 77,200 479,000 > 479,000 MFS 38,600 239,500 > 239,500 H of H 51,700 452,400 > 452,400 Single 425,800 > 425,800 Estate/trust 2,600 12,700 > 12,700

p. 4 Inflation Adjustments Based on chained CPI-U (C-CPI-U) Measure of average price changes Accounts for buyer’s ability to change consumption due to price changes Slower growing method than CPI-U

p. 5 Child Tax Credit (2018-2025) $2,000 per qualifying child with SSN issued prior to due date of return Refundable to extent of lesser of: $1,400 or 15% earned inc. > $2,500 Phase out start (not indexed): $400,000 AGI (MFJ) $200,000 AGI (MFS, HoH, Single)

p. 5 Child Tax Credit (2018-2025) Partial Credit - $500 Dependent as defined in § 152 other than a qualifying child Not refundable No credit if dependent is resident of Canada/Mexico & not US citizen/nat’l

pp. 5-6 Other TCJA Changes 2018-2025 Saver’s credit for ABLE contributions By designated beneficiary (chap. 5) AMT for Individuals Exemption: $70,300 ($109,400 MFJ) Phaseout: $500,000 ($1M MFJ) No changes for estates or trusts

p. 6 Other TCJA changes Medical – 2017 & 2018: 7.5% AGI limit AMT and regular tax Alimony - No deduction, no income Agreements executed > 2018 Agreemts modified > 2018 if states so Child support rules unchanged

p. 6 Other TCJA Changes 2018-2025 Standard deductions doubled MFJ & Surviving Spouse $24,000 Head of Household $18,000 Single & MFS $12,000 Additional for elderly or blind: $1,300 MFJ (each), $1,600 others

pp. 6-7 Other TCJA Changes 2018-2025 2% miscellaneous suspended 2106 employee business expenses Tax prep fees Investment expenses § 183 hobby expenses If not subject to 2%, deductions remain

p. 7 Relief for 2016 Disaster Areas Qualified 2016 disaster distribution Eligible retirement plan After 1/1/16 and before 1/1/18 Principal place of abode in disaster TP sustained economic loss No 10% penalty Distributions up to $100,000

pp. 7-8 Relief for 2016 Disaster Areas May repay distribution within 3 years to a plan to which rollover allowed Treated as eligible rollover Income reported ratably over 3 years TP may elect out If repay w/in 3 years, amend for $ taxed or not report remaining $

pp. 8-9 Other TCJA Changes Itemized limitation suspended (2018-25) Insurance transfers after 2017 Reportable policy sale Direct or indirect acquisition No family, business, or financial relationship to insured Reporting required: purchase/death

p. 9 Student Loan Provisions 2018-2025 Discharge not taxable if Discharged because of death or disability of student and Discharged by qualified entity (p. 9)

pp. 9-10 TCJA Suspensions 2018-2025 Exclusion for qualified bicycle commuting reimbursement Exclusion for qualified moving reimbursemt Exception: US Armed Forces - military order & permanent station change Deduction for personal exemption Dependent determination still applicable for other tax law provisions

pp. 10-12 Effect of Exemption Deduction Change Withholding allowances changed W/h’g tables updated for use by 2/15/18 Designed to work with existing W-4’s IRS withholding tax calculator for EE’s https://apps.irs.gov/app/withholdingcalculator/ Levy exemption $4,150/dependent No info from TP => MFS with no dep. Filing requirement based on standard ded.

pp. 12-13 Home Mortgage Interest 2018-2025 Home equity loan interest not deductible Except: loan used to buy, build, or substantially improve qualifying residence securing the loan Acquisition debt $750,000 limit (MFS $375,000) Loan ≤ 12/15/17 - $1M limit ($500,000) Reduces limit for post 2017 debt

p. 13 Home Mortgage Interest 2018-2025 Ex 1.1 Interest Deductible $500,000 to buy, $250,000 equity to improve – both secured by home Ex. 1.2 Interest Deductible $500,000 to buy main home, $250,000 to buy vacation home – secured by homes If equity loan on main home to buy vacation home, interest not deductible

pp. 13-14 Home Mortgage Interest 2018-2025 Ex 1.3 $500,000 to purchase, secured by home $500,000 to purchase 2nd home – secured by home Interest deductible only on loan total of $750,000

p. 14 Limit on State and Local Taxes No deduction for foreign real property tax $10,000 ($5,000 MFS) limit to total of: State & local property taxes State, local and foreign income tax, war profits tax, excess profits tax General sales tax Limit N/A if tax is T or B or §212 expense

p. 14 2017 Prepayment of Taxes Income tax: Not deductible Property tax: Deductible if assessed Ex 1.4 Assessed 7/1/17, billed 9/30/17 payable in 2 installments – prepayment deductible Ex. 1.5 Assessment to be 7/1/2018 Payment in 2017 not deductible in 2017

p. 15 Personal Casualty Loss 2016 & 2017 Net disaster loss subject - $500/casualty floor & no 10% AGI reduction Can claim in addition to standard ded. Net disaster loss = excess of qualified disaster-related personal casualty losses over personal casualty gains Qualified disaster loss = loss due to events in federally declared disaster area

p. 15 Personal Casualty Loss 2018-2025 Casualty loss deduction only to extent attributable to federally declared disaster Other personal casualty losses reduce personal casualty gains (but only to -0-) Net other casualty losses/gains before applying federally declared disaster loss Subject to $100 floor and 10% of AGI

p. 16 Wagering Losses 2018-2025 Losses remain limited to winnings Losses from wagering = Cost of wagers + Other expenses incurred in connection with gambling activity (e.g. traveling to/from casino)

p. 16 Charitable Deductions 2018-2025 Cash to 50% organizations Subject to 60% of AGI limit 5-year carryover for excess over 60% Cash under 60% limit not considered in determining allowable 50% contributions 30% & 50% limits reduced by cash allow’d

p. 17 Charitable Deductions – After 12/31/17 Contributions for rights to athletic tickets Nondeductible Repeal of exception to substantiation Return filed by recipient no longer can satisfy contemporaneous written acknowledgment for $250 or more

Itemized Deductions – Draft Sch A Medical and Taxes

Itemized Deductions – Draft Sch A Interest and Charitable Contributions

Itemized Deductions – Draft Sch A Casualty and Other Deductions

p. 17 Other TCJA Changes Moving Exp. Ded. Suspended (2018-25) Exception for US Armed Forces: Military order & permanent station change Plan Loan Offset Rollover Period (> 2017) Offset = distribution if plan terminated or loan repayment failure due to severance From 60 days to due date + extension

pp. 17-18 Recharacterizations - IRA IRA conversion to Roth IRA 2017 – recharacterize by 10/15/18 After 2017 – cannot recharacterize No change to basic conversion rules Recharacterization of other contributions still allowed by due date of return

pp. 18-19 ABLE and Section 529 Accounts Contributions to ABLE (2018-2015) Amount equal to gift tax exclusion + Contribution by beneficiary = lesser of: Beneficiary’s compensation or Federal poverty line for H/H of one for preceding year #2 only if no contribution by beneficiary to 403(b), 457(b), or defined contribution plan

p. 19 Rollovers – 529 to ABLE Account Distributions > 12/22/17 & < 1/1/2026 Can be rolled from 529 to ABLE ABLE must be owned by designated beneficiary or member of family (p. 19) Complete within 60 days of distribution Rolled amounts count towards ABLE limit Amount > limit taxed as in § 72

p. 19 Section 529 Accounts For distributions after 2017, qualified higher education expenses include K-12 tuition Public, private, religious schools Cannot exceed $10,000/year/individual Excess distributions subject to tax

p. 19 Other TCJA Changes Estate and Gift Tax Exemption (2018-2025) Increased to $11,180,000 for 2018 No ACA Individual Penalty after 2018 (Penalty for employers > 50 not affected) Time Extension to Contest Wrongful Levy 9 months to 2 years Applies to those w/in 9 mos @ 12/22/17

p. 20 Other TCJA Changes Due Diligence for determining HoH Status Tax years beginning after 12/31/2017 Extension of § 6695(g) Penalty of $500 for each failure Indexed: $520 for 2018

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