Gambling Losses Deductions 2021
2021年7月25日Register here: http://gg.gg/vi36p
*Gambling Losses Deduction 2018 Form
*Gambling Losses Deduction 2017
*Gambling Losses Deduction 2016
The Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law by President Donald Trump on December 22, 2017. The Act changes many provisions of the Internal Revenue Code, from individual and business provisions, to matters affecting pass-through and tax-exempt organizations. The Act is generally effective starting in 2018. In this summary, we address the major issues that will affect our clients and their industries in the years to come. If you have any questions regarding the Act, please contact a Schwabe attorney.
SUMMARY OF THE TAX CUTS AND JOBS ACT
However, deductions for certain other miscellaneous expenses have been spared. For instance, you can continue to deduct gambling losses, up to the amount of winnings, on 2017 returns and beyond. The TCJA did, however, modify the gambling loss deduction, beginning in 2018. Recent tax law changes turned a bad situation worse. The higher standard deduction means fewer people will benefit from deducting gambling losses since you need enough itemized deductions to exceed the standard deduction before the gambling losses reduce your tax liability. Then we have issues with state tax returns. As an example, let’s say that in a given year you went gambling twice, winning $6,000 in one instance, but losing $8,000 in another. In this case, you can only deduct $6,000 from that $8,000 loss. Casualty and theft losses from a federally declared disaster; There is also space to write in and deduct miscellaneous losses and payments. These are less common, with examples including gambling losses, any federal estate tax you paid on another person’s income, and casualty or theft losses from an income-producing property.
I. INDIVIDUAL TAX CHANGES
Tax rates and brackets for individuals and trusts and estates have been updated. Before the Act, individuals were subject to the following tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% and estates and trusts were subject to five different tax brackets: 15%, 25%, 28%, 33%, and 39.6%. Individuals are now subject to the following tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Estates and trusts are now subject to four tax brackets: 10%, 24%, 35%, and 37%. Corresponding tax rates have been replaced with new rate tables. These changes come into effect after December 31, 2017. Barring further legislation, these changes will expire after 2025, and the previous brackets and rates for individuals, trusts, and estates will once again be in effect.
Temporary increase of the basic standard deduction for individuals across all filing statuses. The basic standard deduction varies depending on the taxpayer’s filing status. For 2017, the basic standard deduction dollar amounts were $12,700 for joint filers and surviving spouses, $9,350 for heads of household, and $6,350 for singles and marrieds filing separately.
Under the Act, the standard deduction is increased to $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other taxpayers, adjusted for inflation in tax years beginning after 2018. No changes are made to the additional standard deduction for the elderly and blind. These changes come into effect after December 31, 2017. Barring further legislation, these changes will expire after 2025.
Personal exemptions suspended. For 2017, the (inflation-adjusted) amount deductible for each personal exemption was $4,050. Under the Act, the deduction for personal exemptions is effectively suspended by reducing the exemption amount to zero. This change is effective beginning after Dec. 31, 2017. Barring further legislation, these changes will expire after 2025.
Chained CPI-U (’C-CPI-U’) replaces CPI-U in inflation adjustments. Various tax parameters under the Code are adjusted annually for inflation. Previously, inflation was indexed by reference to the Consumer Price Index for all urban consumers (’CPI-U’). Under the Act, C-CPI-U is required instead of CPI-U.
The C-CPI-U, like the CPI-U, is a measure of the average change over time in prices paid by urban consumers. But the C-CPI-U reflects people’s ability to lessen the impact of inflation by buying fewer goods or services that have risen in price and buying more goods and services whose prices have risen less, or not at all. Thus, C-CPI-U is a slower-growing method of calculating cost of living adjustments. Using a slower rate of inflation to calculate tax brackets means taxpayers will more quickly slip into the next higher tax bracket, and may pay more in taxes over time. This change is effective beginning after Dec. 31, 2017. This change, unlike many provisions in the Act, is permanent.
Kiddie tax modified to apply estates’ and trusts’ ordinary and capital gains rates to child’s net unearned income. Before the Act, children with unearned income (investment income) were taxed at their parents’ tax rate on any unearned income over $2,100 for 2017. Children with earned income are taxed under the rates for unmarried taxpayers. The Act only modifies the treatment of a child’s unearned income.
Under the Act, the child’s tax will no longer be affected by the tax situation of the child’s parent or the unearned income of any siblings. Children with unearned income are taxed at rates for estate and trust ordinary and capital gains. Applying the estate and trust tax rates under the kiddie tax rules will produce a higher tax bill because the income ranges under the new kiddie tax schedule are much smaller than those for individuals. For example, the top 37% income tax rate applies to married joint filers at $600,000, but it applies to a child’s unearned income at $12,500. This change is effective beginning after Dec. 31, 2017. Barring further legislation, these changes will expire after 2025.
Modifications to capital gain provisions. The Act generally retains present-law maximum rates on net capital gains and qualified dividends. The adjusted net capital gain of an individual, estate, or trust is taxed at maximum rates of 0%, 15%, or 20%. It retains the breakpoints that exist under pre-Act law, but indexes them for inflation using C-CPI-U. The change is effective after Dec. 31, 2017. Barring further legislation, these changes will expire after 2025.
Certain gains from partnership profits interests held in connection with performance of investment services are short-term capital gains if held for three years or less. Before the Act, gains from a profits interest in a partnership (sometimes referred to as a carried interest) typically passed through an investment partnership as long-term capital gains and, thus, were taxed in the hands of the taxpayer at more favorable rates. Thus, for the wealthiest citizens who fell into the 39.6% bracket, long-term capital gains were generally taxed at a rate of 20%.
The Act changes the tax treatment of gains from a profits interest in a partnership (carried interest) held in connection with the performance of services by providing that if one or more “applicable partnership interests” are held by a taxpayer at any time during the tax year, the excess (if any) of (1) the taxpayer’s net long-term capital gain with respect to those interests for that tax year, over (2) the taxpayer’s net long-term capital gain with respect to those interests for that tax year by substituting “three years” for “one year,” will be treated as short-term capital gain. Thus, the Act provides for a three-year holding period in the case of certain net long-term capital gain with respect to any applicable partnership interest held by the taxpayer. If the three-year holding period is not met with respect to an applicable partnership interest held by the taxpayer, the taxpayer’s gain will be treated as short-term gain taxed at ordinary income rates. These changes are effective beginning after Dec. 31, 2017.
Excess business loss disallowance rule replaces limitation on excess farm loss for non-corporate taxpayers. Before the Act, if a non-corporate taxpayer received any applicable subsidy, the taxpayer’s excess farm loss for the tax year was not allowed. The amount of losses that could be claimed by an individual, estate, trust, or partnership were limited to a threshold amount if the taxpayer had received an applicable subsidy. Any excess farm loss was carried over to the next tax year.
The Act provides that for a non-corporate taxpayer, the limitation on excess farm loss does not apply. Instead, the taxpayer’s excess business loss, if any, for the tax year is disallowed. In other words, the Act expands the limitation on excess farming loss to other non-corporate taxpayers engaged in any business. Under the new rule, excess business losses are not allowed for the tax year but are instead carried forward and treated as part of the taxpayer’s net operating loss (’NOL’) carryforward in subsequent tax years. This limitation applies after the application of the passive loss rules. These changes come into effect after December 31, 2017. Barring further legislation, these changes will expire after 2025.
Deduction for personal casualty and theft losses are suspended unless attributable to a federally declared disaster. Before the Act, losses of property not connected with a trade or business or a transaction entered into for profit were deductible as personal casualty losses if the losses were the result of fire, storm, shipwreck, or other casualty, or of theft. Aggregate net casualty and theft losses are deductible only to the extent they exceed 10% of an individual’s adjusted gross income (’AGI’). The 10%-of-AGI threshold is applied after the per-casualty floor.
Under the Tax Cuts and Jobs Act, the personal casualty and theft loss deduction is suspended, except for personal casualty losses incurred in a federally declared disaster. However, where a taxpayer has personal casualty gains, the loss suspension does not apply to the extent that such loss does not exceed the gain. The loss deduction is subject to the $100-per-casualty and 10%-of-AGI limitations. A taxpayer may deduct the portion of the personal casualty loss not attributable to a federally declared disaster to the extent the loss does not exceed the personal casualty gains. These changes come into effect after December 31, 2017. Barring further legislation, these changes will expire after 2025.
Gambling loss limitation is broadened: deduction for any expense incurred in gambling—not just gambling losses—is limited to gambling winnings. Before the Act, nonwagering expenses of a gambling business were not included in “gambling losses,” so these expenses were not subject to the rule limiting gambling losses to gambling gains, and were deductible business expenses.
The Act provides that the limitation on wagering losses is modified to provide that all deductions for expenses incurred in carrying out wagering transactions, and not just gambling losses, are limited to the extent of gambling winnings. Losses sustained from wagering transactions are allowed only to the extent of the gains from those transactions. Thus, under the Act, those in the trade or business of gambling may no longer deduct non-wagering expenses, such as travel expenses or fees, to the extent those expenses exceed gambling gains. These changes come into effect after December 31, 2017. Barring further legislation, these changes will expire after 2025.
Child tax credit is increased to $2,000 and expanded. Before the Act, individuals could claim a maximum child tax credit (’CTC’) of $1,000 for each qualifying child under the age of 17. The CTC phased out for taxpayers with modified AGI above certain threshold amounts ($110,000 for joint filers, $75,000 for single filers and heads of household, and $55,000 for married taxpayers filing separately). The allowable CTC was reduced by $50 for each $1,000 (or fraction thereof) by which the taxpayer’s modified AGI exceeded the applicable threshold amount.
The Act modifies the CTC by increasing the credit amount, increasing the threshold amounts for the phaseout, and allowing a partial credit for dependents who do not qualify for a full CTC. Under the Act, the child tax credit is increased to $2,000. The income levels at which the credit phases out are increased to $400,000 for married taxpayers filing jointly ($200,000 for all other taxpayers) (not indexed for inflation). In addition, a $500 nonrefundable credit is provided for certain non-child dependents. The amount of the credit that is refundable is increased to $1,400 per qualifying child, and this amount is indexed for inflation, up to the $2,000 base credit amount. The earned income threshold for the refundable portion of the credit is decreased from $3,000 to $2,500. These changes come into effect after December 31, 2017. Barring further legislation, these changes will expire after 2025.
State and local tax deduction limited to $10,000. Before the Act, individual taxpayers were allowed an itemized deduction for state and local taxes (’SALT’) and foreign taxes, even though not incurred in a taxpayer’s trade or business.
Under the Act, individual taxpayers may not deduct foreign real property tax, other than taxes paid or accrued in carrying on a trade or business. A taxpayer may claim an itemized deduction of up to $10,000 ($5,000 for marrieds filing separately) for the aggregate of (a) state and local property taxes not paid or accrued in carrying on a trade or business and (b) state and local income, war profits, and excess profits taxes (or sales taxes in lieu of income, etc. taxes) paid or accrued in the tax year. Foreign real property taxes may not be deducted under the $10,000 aggregate limitation rule. These changes come into effect after December 31, 2017. Barring further legislation, these changes will expire after 2025.
Mortgage interest deduction acquisition debt maximum is lowered to $750,000; deduction for home equity interest is suspended. Taxpayers may claim an itemized deduction for “qualified residence interest” (’QRI’) (the mortgage interest deduction). Before the Act, deductible QRI was interest paid or accrued on acquisition indebtedness that is secured by a qualified residence, or, home equity indebtedness that was secured by a qualified residence. Prior to the Tax Cuts and Jobs Act, the maximum amount treated as acquisition indebtedness was $1 million ($500,000 for married taxpayers filing separately). The amount of home equity indebtedness could not exceed $100,000 ($50,000 for a married individual filing separately).
Under the Act, the deduction for mortgage interest is limited to underlying indebtedness of up to $750,000 ($375,000 for married taxpayers filing separately), and the deduction for interest on home equity indebtedness is suspended. Taxpayers may not claim a deduction for interest on home equity indebtedness. The Act’s $750,000/$375,000 limit on acquisition indebtedness does not apply to any indebtedness incurred on or before Dec. 15, 2017. Therefore, acquisition indebtedness incurred before Dec. 15, 2017, is limited to $1,000,000 ($500,000 for marrieds filing separately). These changes apply to tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026.
Medical expense deduction threshold is reduced to 7.5% of AGI, is retroactively extended through 2018 and is applied to all taxpayers. A deduction is allowed for unreimbursed expenses paid during the tax year for the medical care of the taxpayer, the taxpayer’s spouse, and the taxpayer’s dependents to the extent the expenses exceed a threshold amount. Before the Act, the threshold was generally 10% of (’AGI’). But for tax years 2013-2016, a 7.5%-of-AGI floor for medical expenses applied if a taxpayer or the taxpayer’s spouse had reached age 65 before the close of the tax year. The medical expense deduction rules applied for alternative minimum tax (’AMT’) purposes, except that medical expenses were deductible only to the extent they exceeded 10% of AGI. Taxpayers could not take advantage of the lower 7.5% threshold for AMT purposes, even if they qualified for it for regular tax purposes.
Under the Act, for tax years beginning after Dec. 31, 2016 and ending before Jan. 1, 2019, the threshold on medical expense deductions is reduced to 7.5% for all taxpayers, and the rule limiting the medical expense deduction for AMT purposes to 10% of AGI does not apply. For tax years ending after Dec. 31, 2018, medical expenses will be subject to the 10% floor for both regular tax and AMT purposes.
Limitations on deductions for charitable contributions are increased. An individual’s charitable contributions deduction is limited to percentages of the taxpayer’s “contribution base.” An individual’s contribution base is AGI, but without deducting any net operating loss carryback to that year. Before the Act, an individual could take an itemized deduction up to 50%, 30%, or 20% of the individual’s contribution base depending on the type of organization to which the contribution was made, whether the contribution was made “to” or merely “for the use of” the donee organization, and whether the contribution consisted of capital gain property. If an individual’s charitable contributions exceed the applicable contribution-base percentage limit, then the excess may be carried forward and deducted for up to five years.
Under the Act, the 50% limitation for cash contributions to public charities and certain private foundations is increased to 60%. Contributions exceeding the 60% limitation are allowed to be carried forward and deducted for up to five years, subject to the later year’s ceiling. Although the Act increases the percentage limit for cash contributions to charities, more taxpayers are expected to take advantage of the increased standard deduction rather than itemizing deductions. Taxpayers who no longer itemize will not be able to deduct any of their charitable contributions. The Act also repeals the donee-reporting exception from the contemporaneous written acknowledgement requirement. These changes come into effect after December 31, 2017. Barring further legislation, these changes will expire after 2025.
Alimony no longer deductible starting in 2019. Under current law, alimony is deductible to the payor and includable in gross income by the recipient. For divorce or separation agreements signed after December 31, 2018, alimony is no longer deductible for the payor or includable in the income of the recipient under the Act.
Deductions for moving expenses, unreimbursed employee expenses, tax preparation fees, and investment expenses are suspended until 2026. The deduction for teacher expenses increased to $500. Under current law, certain moving expenses and certain unreimbursed expenses for employees are deductible. Some of those deductions, like certain moving expenses and certain expenses paid by teachers, were deductible regardless of whether the taxpayer itemized. Other expenses were deductible o
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*Gambling Losses Deduction 2018 Form
*Gambling Losses Deduction 2017
*Gambling Losses Deduction 2016
The Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law by President Donald Trump on December 22, 2017. The Act changes many provisions of the Internal Revenue Code, from individual and business provisions, to matters affecting pass-through and tax-exempt organizations. The Act is generally effective starting in 2018. In this summary, we address the major issues that will affect our clients and their industries in the years to come. If you have any questions regarding the Act, please contact a Schwabe attorney.
SUMMARY OF THE TAX CUTS AND JOBS ACT
However, deductions for certain other miscellaneous expenses have been spared. For instance, you can continue to deduct gambling losses, up to the amount of winnings, on 2017 returns and beyond. The TCJA did, however, modify the gambling loss deduction, beginning in 2018. Recent tax law changes turned a bad situation worse. The higher standard deduction means fewer people will benefit from deducting gambling losses since you need enough itemized deductions to exceed the standard deduction before the gambling losses reduce your tax liability. Then we have issues with state tax returns. As an example, let’s say that in a given year you went gambling twice, winning $6,000 in one instance, but losing $8,000 in another. In this case, you can only deduct $6,000 from that $8,000 loss. Casualty and theft losses from a federally declared disaster; There is also space to write in and deduct miscellaneous losses and payments. These are less common, with examples including gambling losses, any federal estate tax you paid on another person’s income, and casualty or theft losses from an income-producing property.
I. INDIVIDUAL TAX CHANGES
Tax rates and brackets for individuals and trusts and estates have been updated. Before the Act, individuals were subject to the following tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% and estates and trusts were subject to five different tax brackets: 15%, 25%, 28%, 33%, and 39.6%. Individuals are now subject to the following tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Estates and trusts are now subject to four tax brackets: 10%, 24%, 35%, and 37%. Corresponding tax rates have been replaced with new rate tables. These changes come into effect after December 31, 2017. Barring further legislation, these changes will expire after 2025, and the previous brackets and rates for individuals, trusts, and estates will once again be in effect.
Temporary increase of the basic standard deduction for individuals across all filing statuses. The basic standard deduction varies depending on the taxpayer’s filing status. For 2017, the basic standard deduction dollar amounts were $12,700 for joint filers and surviving spouses, $9,350 for heads of household, and $6,350 for singles and marrieds filing separately.
Under the Act, the standard deduction is increased to $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other taxpayers, adjusted for inflation in tax years beginning after 2018. No changes are made to the additional standard deduction for the elderly and blind. These changes come into effect after December 31, 2017. Barring further legislation, these changes will expire after 2025.
Personal exemptions suspended. For 2017, the (inflation-adjusted) amount deductible for each personal exemption was $4,050. Under the Act, the deduction for personal exemptions is effectively suspended by reducing the exemption amount to zero. This change is effective beginning after Dec. 31, 2017. Barring further legislation, these changes will expire after 2025.
Chained CPI-U (’C-CPI-U’) replaces CPI-U in inflation adjustments. Various tax parameters under the Code are adjusted annually for inflation. Previously, inflation was indexed by reference to the Consumer Price Index for all urban consumers (’CPI-U’). Under the Act, C-CPI-U is required instead of CPI-U.
The C-CPI-U, like the CPI-U, is a measure of the average change over time in prices paid by urban consumers. But the C-CPI-U reflects people’s ability to lessen the impact of inflation by buying fewer goods or services that have risen in price and buying more goods and services whose prices have risen less, or not at all. Thus, C-CPI-U is a slower-growing method of calculating cost of living adjustments. Using a slower rate of inflation to calculate tax brackets means taxpayers will more quickly slip into the next higher tax bracket, and may pay more in taxes over time. This change is effective beginning after Dec. 31, 2017. This change, unlike many provisions in the Act, is permanent.
Kiddie tax modified to apply estates’ and trusts’ ordinary and capital gains rates to child’s net unearned income. Before the Act, children with unearned income (investment income) were taxed at their parents’ tax rate on any unearned income over $2,100 for 2017. Children with earned income are taxed under the rates for unmarried taxpayers. The Act only modifies the treatment of a child’s unearned income.
Under the Act, the child’s tax will no longer be affected by the tax situation of the child’s parent or the unearned income of any siblings. Children with unearned income are taxed at rates for estate and trust ordinary and capital gains. Applying the estate and trust tax rates under the kiddie tax rules will produce a higher tax bill because the income ranges under the new kiddie tax schedule are much smaller than those for individuals. For example, the top 37% income tax rate applies to married joint filers at $600,000, but it applies to a child’s unearned income at $12,500. This change is effective beginning after Dec. 31, 2017. Barring further legislation, these changes will expire after 2025.
Modifications to capital gain provisions. The Act generally retains present-law maximum rates on net capital gains and qualified dividends. The adjusted net capital gain of an individual, estate, or trust is taxed at maximum rates of 0%, 15%, or 20%. It retains the breakpoints that exist under pre-Act law, but indexes them for inflation using C-CPI-U. The change is effective after Dec. 31, 2017. Barring further legislation, these changes will expire after 2025.
Certain gains from partnership profits interests held in connection with performance of investment services are short-term capital gains if held for three years or less. Before the Act, gains from a profits interest in a partnership (sometimes referred to as a carried interest) typically passed through an investment partnership as long-term capital gains and, thus, were taxed in the hands of the taxpayer at more favorable rates. Thus, for the wealthiest citizens who fell into the 39.6% bracket, long-term capital gains were generally taxed at a rate of 20%.
The Act changes the tax treatment of gains from a profits interest in a partnership (carried interest) held in connection with the performance of services by providing that if one or more “applicable partnership interests” are held by a taxpayer at any time during the tax year, the excess (if any) of (1) the taxpayer’s net long-term capital gain with respect to those interests for that tax year, over (2) the taxpayer’s net long-term capital gain with respect to those interests for that tax year by substituting “three years” for “one year,” will be treated as short-term capital gain. Thus, the Act provides for a three-year holding period in the case of certain net long-term capital gain with respect to any applicable partnership interest held by the taxpayer. If the three-year holding period is not met with respect to an applicable partnership interest held by the taxpayer, the taxpayer’s gain will be treated as short-term gain taxed at ordinary income rates. These changes are effective beginning after Dec. 31, 2017.
Excess business loss disallowance rule replaces limitation on excess farm loss for non-corporate taxpayers. Before the Act, if a non-corporate taxpayer received any applicable subsidy, the taxpayer’s excess farm loss for the tax year was not allowed. The amount of losses that could be claimed by an individual, estate, trust, or partnership were limited to a threshold amount if the taxpayer had received an applicable subsidy. Any excess farm loss was carried over to the next tax year.
The Act provides that for a non-corporate taxpayer, the limitation on excess farm loss does not apply. Instead, the taxpayer’s excess business loss, if any, for the tax year is disallowed. In other words, the Act expands the limitation on excess farming loss to other non-corporate taxpayers engaged in any business. Under the new rule, excess business losses are not allowed for the tax year but are instead carried forward and treated as part of the taxpayer’s net operating loss (’NOL’) carryforward in subsequent tax years. This limitation applies after the application of the passive loss rules. These changes come into effect after December 31, 2017. Barring further legislation, these changes will expire after 2025.
Deduction for personal casualty and theft losses are suspended unless attributable to a federally declared disaster. Before the Act, losses of property not connected with a trade or business or a transaction entered into for profit were deductible as personal casualty losses if the losses were the result of fire, storm, shipwreck, or other casualty, or of theft. Aggregate net casualty and theft losses are deductible only to the extent they exceed 10% of an individual’s adjusted gross income (’AGI’). The 10%-of-AGI threshold is applied after the per-casualty floor.
Under the Tax Cuts and Jobs Act, the personal casualty and theft loss deduction is suspended, except for personal casualty losses incurred in a federally declared disaster. However, where a taxpayer has personal casualty gains, the loss suspension does not apply to the extent that such loss does not exceed the gain. The loss deduction is subject to the $100-per-casualty and 10%-of-AGI limitations. A taxpayer may deduct the portion of the personal casualty loss not attributable to a federally declared disaster to the extent the loss does not exceed the personal casualty gains. These changes come into effect after December 31, 2017. Barring further legislation, these changes will expire after 2025.
Gambling loss limitation is broadened: deduction for any expense incurred in gambling—not just gambling losses—is limited to gambling winnings. Before the Act, nonwagering expenses of a gambling business were not included in “gambling losses,” so these expenses were not subject to the rule limiting gambling losses to gambling gains, and were deductible business expenses.
The Act provides that the limitation on wagering losses is modified to provide that all deductions for expenses incurred in carrying out wagering transactions, and not just gambling losses, are limited to the extent of gambling winnings. Losses sustained from wagering transactions are allowed only to the extent of the gains from those transactions. Thus, under the Act, those in the trade or business of gambling may no longer deduct non-wagering expenses, such as travel expenses or fees, to the extent those expenses exceed gambling gains. These changes come into effect after December 31, 2017. Barring further legislation, these changes will expire after 2025.
Child tax credit is increased to $2,000 and expanded. Before the Act, individuals could claim a maximum child tax credit (’CTC’) of $1,000 for each qualifying child under the age of 17. The CTC phased out for taxpayers with modified AGI above certain threshold amounts ($110,000 for joint filers, $75,000 for single filers and heads of household, and $55,000 for married taxpayers filing separately). The allowable CTC was reduced by $50 for each $1,000 (or fraction thereof) by which the taxpayer’s modified AGI exceeded the applicable threshold amount.
The Act modifies the CTC by increasing the credit amount, increasing the threshold amounts for the phaseout, and allowing a partial credit for dependents who do not qualify for a full CTC. Under the Act, the child tax credit is increased to $2,000. The income levels at which the credit phases out are increased to $400,000 for married taxpayers filing jointly ($200,000 for all other taxpayers) (not indexed for inflation). In addition, a $500 nonrefundable credit is provided for certain non-child dependents. The amount of the credit that is refundable is increased to $1,400 per qualifying child, and this amount is indexed for inflation, up to the $2,000 base credit amount. The earned income threshold for the refundable portion of the credit is decreased from $3,000 to $2,500. These changes come into effect after December 31, 2017. Barring further legislation, these changes will expire after 2025.
State and local tax deduction limited to $10,000. Before the Act, individual taxpayers were allowed an itemized deduction for state and local taxes (’SALT’) and foreign taxes, even though not incurred in a taxpayer’s trade or business.
Under the Act, individual taxpayers may not deduct foreign real property tax, other than taxes paid or accrued in carrying on a trade or business. A taxpayer may claim an itemized deduction of up to $10,000 ($5,000 for marrieds filing separately) for the aggregate of (a) state and local property taxes not paid or accrued in carrying on a trade or business and (b) state and local income, war profits, and excess profits taxes (or sales taxes in lieu of income, etc. taxes) paid or accrued in the tax year. Foreign real property taxes may not be deducted under the $10,000 aggregate limitation rule. These changes come into effect after December 31, 2017. Barring further legislation, these changes will expire after 2025.
Mortgage interest deduction acquisition debt maximum is lowered to $750,000; deduction for home equity interest is suspended. Taxpayers may claim an itemized deduction for “qualified residence interest” (’QRI’) (the mortgage interest deduction). Before the Act, deductible QRI was interest paid or accrued on acquisition indebtedness that is secured by a qualified residence, or, home equity indebtedness that was secured by a qualified residence. Prior to the Tax Cuts and Jobs Act, the maximum amount treated as acquisition indebtedness was $1 million ($500,000 for married taxpayers filing separately). The amount of home equity indebtedness could not exceed $100,000 ($50,000 for a married individual filing separately).
Under the Act, the deduction for mortgage interest is limited to underlying indebtedness of up to $750,000 ($375,000 for married taxpayers filing separately), and the deduction for interest on home equity indebtedness is suspended. Taxpayers may not claim a deduction for interest on home equity indebtedness. The Act’s $750,000/$375,000 limit on acquisition indebtedness does not apply to any indebtedness incurred on or before Dec. 15, 2017. Therefore, acquisition indebtedness incurred before Dec. 15, 2017, is limited to $1,000,000 ($500,000 for marrieds filing separately). These changes apply to tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026.
Medical expense deduction threshold is reduced to 7.5% of AGI, is retroactively extended through 2018 and is applied to all taxpayers. A deduction is allowed for unreimbursed expenses paid during the tax year for the medical care of the taxpayer, the taxpayer’s spouse, and the taxpayer’s dependents to the extent the expenses exceed a threshold amount. Before the Act, the threshold was generally 10% of (’AGI’). But for tax years 2013-2016, a 7.5%-of-AGI floor for medical expenses applied if a taxpayer or the taxpayer’s spouse had reached age 65 before the close of the tax year. The medical expense deduction rules applied for alternative minimum tax (’AMT’) purposes, except that medical expenses were deductible only to the extent they exceeded 10% of AGI. Taxpayers could not take advantage of the lower 7.5% threshold for AMT purposes, even if they qualified for it for regular tax purposes.
Under the Act, for tax years beginning after Dec. 31, 2016 and ending before Jan. 1, 2019, the threshold on medical expense deductions is reduced to 7.5% for all taxpayers, and the rule limiting the medical expense deduction for AMT purposes to 10% of AGI does not apply. For tax years ending after Dec. 31, 2018, medical expenses will be subject to the 10% floor for both regular tax and AMT purposes.
Limitations on deductions for charitable contributions are increased. An individual’s charitable contributions deduction is limited to percentages of the taxpayer’s “contribution base.” An individual’s contribution base is AGI, but without deducting any net operating loss carryback to that year. Before the Act, an individual could take an itemized deduction up to 50%, 30%, or 20% of the individual’s contribution base depending on the type of organization to which the contribution was made, whether the contribution was made “to” or merely “for the use of” the donee organization, and whether the contribution consisted of capital gain property. If an individual’s charitable contributions exceed the applicable contribution-base percentage limit, then the excess may be carried forward and deducted for up to five years.
Under the Act, the 50% limitation for cash contributions to public charities and certain private foundations is increased to 60%. Contributions exceeding the 60% limitation are allowed to be carried forward and deducted for up to five years, subject to the later year’s ceiling. Although the Act increases the percentage limit for cash contributions to charities, more taxpayers are expected to take advantage of the increased standard deduction rather than itemizing deductions. Taxpayers who no longer itemize will not be able to deduct any of their charitable contributions. The Act also repeals the donee-reporting exception from the contemporaneous written acknowledgement requirement. These changes come into effect after December 31, 2017. Barring further legislation, these changes will expire after 2025.
Alimony no longer deductible starting in 2019. Under current law, alimony is deductible to the payor and includable in gross income by the recipient. For divorce or separation agreements signed after December 31, 2018, alimony is no longer deductible for the payor or includable in the income of the recipient under the Act.
Deductions for moving expenses, unreimbursed employee expenses, tax preparation fees, and investment expenses are suspended until 2026. The deduction for teacher expenses increased to $500. Under current law, certain moving expenses and certain unreimbursed expenses for employees are deductible. Some of those deductions, like certain moving expenses and certain expenses paid by teachers, were deductible regardless of whether the taxpayer itemized. Other expenses were deductible o
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