Disaster Relief (Special disaster rules for the use of retirement funds)– provides an exception to the 10% early retirement plan withdrawal penalty for qualified disaster relief distributions (not to exceed $100,000 in qualified hurricane distributions cumulatively). It allows for the re-contribution of retirement plan withdrawals for home purchases canceled due to eligible disasters, and provides flexibility for loans from retirement plans for qualified hurricane relief.
Repeal of increase in unrelated business taxable income for certain fringe benefit expenses- The Code required the unrelated business taxation income (UBTI) of tax-exempt organizations to be increased by expenses related to qualified transportation fringe benefits (the so-called “church parking tax”). Under the new law, The Disaster Act repeals this requirement. This repeal applies to amounts paid or incurred after Dec 31, 2017. (Code Sec 512 (a)(7), as amended by Disaster Act Sec. 302).
Targeted audits and regulations (New Law)- The Act prohibits the IRS from targeting any U.S. citizen for exercising any First Amendment right. (Div. C Sec 106). The Act also prohibits the IRS from targeting groups for regulatory security based on their ideological beliefs. (DIV C Sec 107)
Reduction in medical expense deduction floor- The Code provides that, individuals, for 2017 and 2018, could claim an itemized deduction for unreimbursed medical expenses to the extent that such expenses exceeded 7.5% of AGI.
Deduction of qualified tuition and related expenses- The Code provides an above the line deduction for qualified tuition and related expenses for higher education. The deduction is capped at $4,000 for an individual whose AGI does not exceed $65,000 ($130,000) for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers). New Law- The Disaster Act retroactively extends this deduction through 2020. This applies to tax years beginning after Dec 31, 2017. (Code Sec 222 €, as amended by Disaster Act Sec 104)
Nonbusiness energy property- The Code provides a credit for purchases of nonbusiness energy property. The Code allows a credit of 10% of the amounts paid or incurred by the taxpayer for the qualified energy improvements to the building envelope (windows, doors, skylights, and roofs) of principal residences. The Code allows credits of fixed dollar amounts ranging from $50 to $300 for energy efficient property including furnaces, boilers, biomass stoves, heat pumps, water heaters, central air conditioners, and circulating fans, and is subject to a lifetime cap of $500. New Law- The Disaster Act retroactively extends this credit through 2020. This applies to property placed in service after Dec 31, 2017. (Code Sec 25c (g) (2), as amended by Disaster Act Sec. 123)
Energy Efficient Homes Credit- The Code provides a credit for manufacturers of energy- efficient residential homes. An eligible contractor may claim a tax credit of $1,000 or $2,000 for the construction or manufacture of a new energy efficient home that meets qualifying criteria. New Law- The Disaster Act extends the credit for energy-efficient new homes to homes acquired before Jan 1, 2021. (Code Sec 45L (g), as amended by Disaster Act Sec 129).
Employer tax credit for paid family and medical leave- The Code provides an employer credit for paid family and medical leave, which permits eligible employers to claim and elective general business credit based on eligible wages paid to qualifying employees with respect to family and medical leave. The credit us equal to 12.5 % of eligible wages of the rate of payment is 50% of such wages and is increased by 0.25 percentage points (but not above 25%) for each percentage point that the rate of payment exceeds 50%. The maximum amount of family and medical leave that may be taken into account with respect to any qualifying employee is 12 weeks per tax year. New Law- The Disaster Act extends this credit through 2020.
Miscellaneous Itemized Deductions to which 2% pf AGI- floor applied included the following:
• unreimbursed employee business expenses
• unreimbursed vehicle expenses of rural mail carriers
• investment expenses and expenses for the production or collection of income
• tax determination expenses
• expenses allowed under the “hobby loss” rules of Code Sec. 183
Pre Tax Cuts and Job Acts Law- an individual could take an itemized deduction up to 50% of the individuals contribution base (the 50% limit) for contributions to (as opposed to for the use of) 50% charities. These charitable organizations such as 1) churches, 2) hospitals, 3) foundations for the benefit of state colleges or universities, 4) hospitals and medical research organizations, 5) agricultural research organizations, 6) governmental bodies, 7) publicly supported organizations, 8) certain membership and other broadly supported organizations, 9) supporting organizations, and (10 certain private foundations. Charities that aren’t 50% charities are 30% charities. Individuals may deduct up to 30% of their contribution bases (the 30% limit) for charitable contributions to or for the use of 30% charities and contributions for the use of 50% charities.
Standard Deduction Increase (New Law)-For tax years beginning after Dec 31, 2017- Jan 1, 2026, 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 current-law additional standard deduction for the elderly and blind. (Code Sec 63(c)(7), as added by Act Sec 11021 (a)).
Personal Exemptions Suspended (New Law)- For tax years beginning after Dec 31, 2017 and before Jan. 1, 2026, the deduction for personal exemptions is effectively suspended by reducing the exemption amount to zero (Code Sec. 121 (d), as modified by Act Sec 11041 (a)) A number of corresponding changes are made throughout the Code where specific provisions contain references to the personal exemption amount in Code Sec 151 (d), and in each of these instances, the dollar amount to be used is $4,150, as adjusted by inflation. These include Code Sec 642 (b)(2)(C) (exemption deduction for qualified trusts), Code Sec. 3402 (wage withholding, subject to an exception below for 2018), and Code Sec. 6334 (d) (property exempt from levy). Withholding rules- The Conference Agreement specifies that IRS may administer the withholding rules under Code Sec. 3402 for tax years beginning before Jan 1, 2019 without regard to the above amendments- i.e., wage withholding rules may remain the same as present law for 2018.
Capital Gains Provisions Conformed (New Law) – The Act generally retains present-law maximum rates on net capital gains and qualified dividends. It retains the breakpoints that exist under pre-Act law, but indexes them for inflation using C-CPI-U in tax years after Dec 31, 2017. (Code Sec 1 (j)(5)(A), as amended by Act Sec 11001 (a)). For 2018, the breakpoint is: $77,200 for joint returns and surviving spouses (half this amount for married filing separately), $51,700 for heads of household, $2,600 for trusts and estates, and $38,600 for other unmarried individuals. The 20% breakpoint is $479,000 for joint returns and surviving spouses (half this amount for married taxpayers filing separately), (452,400 for heads of household, $12, 700 for estates and trust, and $425, 800 for other unmarried individuals. (Code Sec 1(h)(1), as amended by Act Sec 11001 (a)(5)).
Child Tax Credit (New Law)– For tax years beginning after Dec. 31, 2017 and before January. 1, 2026, the child tax credit is increased to $2,000 and other changes are made to phase outs and refundability during this same period, as outlined below. (Code Sec 24 (h)(2), as needed by Act Sec. 11022 (a)). The income levels at which the credit phases out are increased to $400,000 for married taxpayers filing jointly ($200,000 for all other tax payers) (not indexed for inflation). (Code Sec 24(h)(3), as added by Act Sec. 1102 (a)). The amount of credit that is refundable is increased to $1,400 per qualifying child, and this amount is indexed for inflation, up to the base $2,000 base credit amount. The earned income threshold for the refundable portion of the credit is decreased from $3,000 to $2,500. ((Code Sec. 24 (h)(6), as added by Act Sec. 11022 (a))).
No credit will be allowed to a taxpayer with respect to any qualifying child unless the taxpayer provides the child’s SSN. (Code Sec 24(h)(7), as added by Act Sec 11022(a)).
State and Local Tax Deduction Limited (New Law)– For tax years beginning after Dec 31, 2017 and before Jan 1, 2026, subject to exception. State, local and foreign property taxes, and state and local sales taxes, are deductible only when paid or accrued in carrying on a trade or business or an activity described in Code Sec 212 (generally, for the production of income). State and local income, war profits, and excess profits are not allowable as a deduction.
Mortgage & Home Equity Indebtedness Interest Deduction Limited (New Law)– For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the deduction for interest on home equity indebtedness is suspended, and the deduction for mortgage interest is limited to underlying indebtedness of up to $750,000 ($375,000 for married taxpayers filing separately). (Code Sec 163(h)(3)(F), as amended by Act Sec. 11043 (a)). For tax years after Dec. 31, 2025, the prior $1 million/$500,000 limitations are restored, and a taxpayer may treat up to these amounts as acquisition indebtedness regardless of when the indebtedness was incurred. The suspension for the home equity indebtedness also ends for tax years beginning after Dec 21, 2025. The lower limited does not apply to any acquisition indebtedness incurred before Dec 15, 2017.
Medical Expense Deduction Threshold Temporarily Reduced (New Law)– 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. (Code Sec 213 (f), as amended by Act Sec 11027 (a)). The ruling limiting the medical expense deduction for AMT purposes to 10% of AGI doesn’t apply to tax years beginning after Dec. 31, 2016 and ending before Jan 1, 2019. (Code Sec. 56(b)(1)(B), as amended by Act Sec 11027(b))
Alimony Deduction by Payor/Inclusion by Payee Suspended(New Law)- For any divorce or separation agreement executed after Dec. 31, 2018, or executed before that date but modified after it (if the modification expressly provides that the new amendments apply), alimony and separate maintenance payments are not deductible by the payor spouse and are not included in the income of the payee spouse. Rather, income used for alimony is taxed at the rates applicable to the payor spouse (Former Code Secs. 215, 61 (a)(8), and 71, as stricken by Act Sec 11051)
Miscellaneous Itemized Deductions Suspended (New Law)- For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the deduction for miscellaneous itemized deductions that are subject to the 2% floor is suspended. (Code Sec 67(g), as added by Act Sec 11045)
Repeal of Obamacare Individual Mandate (New Law)- For months beginning after Dec 31, 2018, the amount of the individual shared responsibility payment is reduced to zero. (Code Sec 5000A(c) as amended by Act Sec 11081) This repeal is permanent.
Expanded Use of 529 Account Funds (New Law)– For distributions after Dec. 31, 2017, qualified higher education expenses include tuition at an elementary or secondary public, private or religious school and various expenses associated with homeschool, up to a $10,000 limit per tax year. (Code Sec 529(c)(7) as added by Act Sec 11032 (a)).