Education credits: No changes to AOC and no changes to LLC.
@calmom The rest of that quote is also key - “in order to avoid the dollar limitation applicable for years after 2017”.
Since payments in 2018 of up to $10k of state income taxes are deductible if this act is signed into law, then prepaying up to $10k of 2018 state income taxes in 2017 is deductible in 2017 (is how I read it).
Plenty of people pay more than 10K in SALT taxes. If I could, I’d pay all my 2018 property taxes except for 10K this year, so I can deduct it all for at least one more year. But Washington state doesn’t allow us to do that.
Thanks @Madison85 - that’s great news for my grad student daughter. Next semester is her last semester and no tuition waiver as they are not allowed to TA when student teaching. I was trying to get her to prepay the tuition to get the credit in 2017 but she has been procrastinating - nice to know she can still benefit from it for 18.
An easy to read synopsis of the bill.
While a lot of people might see a small reduction in their tax bill for a few years - the change to chained CPI from CPI will increase everyone’s taxes over time. Watch for Chained CPI to be used next on SS.
The Federal Reserve is also planning on raising interest rates 3 times next year which will also make it more expensive for those who need to get any type of loan. That will definitely hurt those in the middle class who need to borrow.
The repeal of the Individual mandate will also increase the cost of purchasing individual health insurance for those who don’t get subsidized. For the life of me I can’t understand why anyone would be for that - especially those that don’t get a subsidy but aren’t millionaires. Of course, they can choose to go without insurance at the expense of putting their whole economic future in possible jeopardy. Talk about cutting off your nose to spite your face.
@notrichenough thank you for your info for self employed. I read a good chunk of this tax reform last night…and the section was really convoluted.
My opinion about this reform…the only ones who are REALLY going to benefit are the tax preparers, and the tax software companies. Big time.
@calmom What about prepaying mortgage interest to claim the deduction in 2017? My bank will let me prepay through Feb.
@ProfessorMom1, what situation is it that you would do that in? Is that because you think you won’t itemize in 2018, so the mortgage deduction in that year won’t help you? It sounds like they aren’t making changes to mortgage deductions of current loans. I can’t see any other reason to prepay mortgage interest, unless you think you won’t itemize any longer.
The part quoted in #2350 specifically disallows this deduction no matter what state you live in. It says if you prepay your 2018 taxes in 2017, for purposes of the deduction the payment counts as happening December 31, 2018, and you don’t get to deduct more than $10K.
From post #2350:
"The payment shall be treated as paid on the last
day of the taxable year for which such tax is so imposed for purposes of applying the provision
limiting the dollar amount of the deduction. "
It don’t think it says it counts as happening in 2018, it says for “purposes of applying the provision” (i.e. the provision is the $10k limit).
Judging from the confusion engendered by this one section, can we surmise that they have not made the tax code easier and it is unlikely that I will be able to file on a postcard?
Yes, this is incredibly confusing. And people aren’t going to have time to figure it out by the start of next year…so I"d be really careful about doing anything differently for this year, lest you mess it up and cost yourself some money. No doubt the accountants are even scrambling to figure it out at this point.
Forbes explains (the entire article is good, btw):
Suckers.
“The legislation fails to eliminate long-standing incentives for companies to move overseas and, in some cases, may even increase them, they say.”
“This bill is potentially more dangerous than our current system,” said Stephen Shay, a senior lecturer at Harvard Law School and former Treasury Department international tax expert in the Obama administration. “It creates a real incentive to shift real activity offshore.”
How is this relevant to the discussion?
Since we don’t have dependent exemptions anymore, is it best for college students to just file their own returns to get the full standard deduction? How will this affect my FAFSA? Anyone have a crystal ball?
Yes, the Forbes article is referring to “subparagragh B” which is the $10k limit. Forbes explains that you can’t prepay in 2017 to avoid the (subparagraph B) $10k limit. But the question is can you prepay a 2018 state income tax amount up to $10k in 2017 and deduct it in 2017.
“How is this relevant to the discussion?”
You are right it’s not directly related, but it will devour any “tax break” lower and middle class workers will receive. Of course, if the bill had real tax breaks for the lower and middle classes it wouid offset, at the very least, the increased cost of borrowing. But now, the new car that was promised middle class taxpayers will be able to buy with their tax savings will cost them more in interest on the loan needed to purchase that car.
Here is what switching to Chained CPI versus CPI will do to middle class taxpayers.
How about this? We get our property tax bills and payback in two installments. The second one is due BY January 1. We should receive the second bill…today.
Can I pay THAT now?
Property tax installment payments are just a “courtesy” to homeowners. The tax is due by a certain date and there’s never anything to stop people from paying as soon as the bill arrives. I’m guessing tons of people will be doing this - wonder if the tax districts will be happy with all the early payments!?
It also doesn’t look like there are any issues with paying 4th quarter 2017 estimated state income tax in December. The issue would be trying to prepay 2018 taxes.
After reviewing the quick and dirty analysis in my post 2112, it still looks like we should accelerate any possible itemized deductions into our 2017 taxes. Even with the medical expenses included for 2018, it looks like our itemization would only come to about $25,000 - only $1000 over the standard deduction. So at the 12% margin, that would only gain us about $120 to itemize. And if corporations shower their tax savings onto stockholders, who knows what income my mutual funds will generate! Lots of guesswork involved.
If I pay our second property tax installment in December, we’ll save 15% on $5600. i.e. $840. Also I’ll be sure to actually pay our Jan. 1 mortgage before Jan. 1 instead of the 10 day grace period. About another $100 tax savings.
DS is visiting the last week of the year so hope he understands if I need to take an hour or so to frantically submit payments. Unless, of course, suddenly a handful of senators stop and have a rational moment and vote no. 8-|