The Tax Cuts and Jobs Act introduced by the house on November 2nd have been receiving a great deal of coverage because of the extensive changes proposed. Gone would be many of the provisions individuals rely on (credits, personal exemptions, deduction of state taxes, et cetera). Other changes would drastically lower the tax burden of businesses (reduced tax rates, bonus depreciation, increased section 179 limits, et al). However, buried amongst the well discussed provisions in the 429 page bill are several provisions that constitute landmines for the unwary.
- The home sale exclusion (IRC 121) would only be available for a home that was the primary residence for 5 of the last 8 years, increased from 2 out of 5. It is also phased out for high income earners.
- The education deduction would be repealed, as part of the consolidation of education credits.
- The student loan deduction would be repealed, as part of the consolidation of education credits.
- Mortgage interest, to the reduced extent allowed, would also be limited to one qualified residence, down from two.
- Qualified moving expenses would no longer be deductible, and employer reimbursements taxable as income to the employee.
- Medical savings account contributions would no longer be deductible. However, HSA contributions would still be available.
- Employer contributions to health savings accounts would no longer be a fringe benefit exempt from tax.
- Deductions for unreimbursed employee expenses would no longer be deductible.
- Qualified employer provided housing would be limited to no more than $50K excluded from income.
- Employee achievement awards would no longer be excluded from income.
- Dependent care assistance programs would no longer be excluded from income.
- Roth IRA contributions would no longer be available to re-characterize as traditional contributions.
- Business interest deductions would be limited to no more than business interest income, plus 30% of adjusted taxable income, with an exception for certain small businesses ($25M or less in gross receipts.)
As an initial bill, many of these proposed changes will likely be adjusted, added to or removed before the tax law is made into law (or isn’t).
If you would like to discuss how these proposed changes could affect your tax situation please feel free to contact us for a consultation.
Written by Damien Falato, CPA, MST, CGMA, Tax Director