During the past few months, the news has inundated with the Trump tax reform and what it could mean for you. Taxes, in general, are confusing. Add the new laws, and your head is probably spinning. But nearly all of the clauses in the Trump tax reform bill are not effective until January 1, 2018, meaning they will not affect your 2017 tax return filings due in 2018. However, there are some clauses that are retroactive to 2016 or 2017, which we’ve summarized below.
Personal Casualty Losses
Personal casualty losses tax breaks is retroactive to 2016. The Trump tax reform bill also expanded this tax break to include your losses if in a federally declared disaster area. To qualify, your primary residence must have:
- Sustained a loss from a federally declared disaster, and
- Been located in a 2016 disaster area.
Typically, you no longer have to claim personal casualty losses when you itemize your deducts; rather, the new bill permits you to claim the loss as a standard deduction, with limitations.
Previously, you could write off qualifying medical expenses — in your itemized deductions — that exceed 10% of your AGI, or adjusted gross income. Pursuant to the Trump Tax Reform, the 7.5% floor is back in place for two years, beginning January 1, 2017, and thus affects your 2017 tax return. This means you to take a larger deduction of medical expenses in your itemized deductions. The “floor” is the medical expenses you can deduct that are over that percentage of your AGI.
Notably, the healthcare mandate is not impacted. The Trump Tax Reform repealed the healthcare mandate, but that is not effective until 2019, affecting the return you will file in 2020. Thus, for the tax years 2017 and 2018, you still have to demonstrate that you have health coverage; otherwise, you must claim an exemption or waiver, or be subject to penalty. For 2017 tax year, the penalty, payable in 2018, is equal to 2.5% of your AGI, or $695 per adult and $374.50 per child, up to a maximum of $2,085, whichever is higher.
The Trump Tax Reform also made changes regarding business property:
- You can expense, now up to 100%, your business property in the first year, for property you acquired and you placed in service after September 27, 2017.
- The qualifying property could be used and the initial use of the property no longer needs to begin with the taxpayer.
- The qualified property definition now includes qualified film, theatrical productions (live), and television, released after September 27, 2017.
Local and State Taxes
If you itemize deductions, then for the 2018 tax year — filed in 2019 — you could deduct your local and state income tax, sales tax, and/or property taxes not to exceed $10,000. Although not directly affecting your 2017 tax year (filed in 2018), there is a clause that could affect your 2017 tax year.
If your total property, local and state taxes are usually more than $10,000, you may think it would be beneficial to prepay a portion of your 2018 taxes in your 2017 tax year so you could receive the full tax write off on your 2017 tax return. However, the new bill forbids prepaying your 2018 local and state taxes, in your 2017 tax year filings, if they were not charged in 2017.
Almost all of the new provisions, including the rates, are not effective until January 1, 2018, affecting the return you will file in 2019. Thus, most of the provisions, including the rates, that were good law in 2017 are still good law for the purpose of filing your 2017 tax return.
Contact Us With Your Tax Needs
Our experienced tax lawyers at Sodowsky Law Firm, P.C. can provide you with more information regarding your 2017 tax return filing.