Please Post Tax Bill Questions Here [was Tax Bill Omnibus Thread]

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
an_asker
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Re: Tax Bill Omnibus Thread

Post by an_asker » Thu Dec 21, 2017 2:38 pm

IMO wrote:
Thu Dec 21, 2017 2:34 pm
In not in any way a tax professional, but there seems to be the thought by some that if one prepays their mortgage payments now for 2018 and even further, say 2019, that they can use that interest they are prepaying to their advantage for itemizing.

I just don't believe that is legitimate. I'd consult one's tax professional before considering that.

IRS publication 936 states:

"Prepaid interest.
If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. You can deduct in each year only the interest that qualifies as home mortgage interest for that year. However, there is an exception that applies to points, discussed later. "
I definitely don't know how you can prepay interest for 2019! But when advantageous, I do (and did, earlier today) pay the mortgage payment due 1/1.

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triceratop
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Re: Tax Bill Omnibus Thread

Post by triceratop » Thu Dec 21, 2017 2:38 pm

I removed some off-topic political posts. Per forum rules, remember to not speculate on possible future legislation, other than this one. :wink:
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

KATNYC
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Re: Tax Bill Omnibus Thread

Post by KATNYC » Thu Dec 21, 2017 2:39 pm

darrvao777 wrote:
Thu Dec 21, 2017 1:42 pm
Gleevec wrote:
Thu Dec 21, 2017 1:02 pm
So for those of us with "side hustle" 1099 income (eg solo consulting, separate from our W2 day job wages) who are excluded from pass through tax relief, does it make any sense to become a C-corp?
And to expand on this further, is there a way to become a C-corp and convert our W2 day job wages? Or is this not an option for employees?
found this:

1) Incorporate yourself
Under the new law, the top ordinary rate on labor income will be much higher than the top rate on corporate income. As a result, many taxpayers will be able to shield a portion of their labor income from tax by setting up a corporation. So Joe Smith, previously an assistant account director for a PR firm, can become Joe Smith, Inc., a new startup company! The firm makes payments to the new corporation instead of to Smith. Thus, Smith shields his labor income from the higher individual tax rate.

The IRS might investigate whether the new corporation pays Smith a reasonable fee for his services, which some tax-law precedents suggest it is obliged to. That’s one check against this tax dodge, and there could be others. But how many new corporations can the IRS investigate? And if Smith can find a few friends to join his new corporation, it will be even harder for the IRS to challenge.

3) Take your job and shove it (and create a pass-through)
As mentioned, under current rules people who earn income via a pass-through business pay tax at the individual rates. But under the Republican bill they first get to deduct part of this income. That means — surprise! — new pass-throughs will blossom as more taxpayers will redefine their work as a business instead of a mere wage-earning job.

Many independent contractors and members of a partnership automatically qualify for pass-through status. So expect to see workers giving their bosses two weeks’ notice and reentering the workforce as independent contractors and partners in their own firms.

https://www.vox.com/the-big-idea/2017/1 ... ccountants
Last edited by KATNYC on Thu Dec 21, 2017 2:50 pm, edited 1 time in total.

KATNYC
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Re: Bunching mortgage for 1 year, 2 years?

Post by KATNYC » Thu Dec 21, 2017 2:45 pm

itworks wrote:
Thu Dec 21, 2017 1:58 pm
Want to run this idea with you folks for my situation:

1. I am pretty sure I will hit hard by AMT in year 2017.
2. In HCOLA state. my SALT+Property tax is way over the allowed $10K.
3. Mortgage interest is about $18K in 2017, which makes my 2018 itemized-deduction ($27K) not too valuable compared to the standard-deduction $24K.

My lender said I can prepay mortgage for as many years as I like (which is bizarre, and I do not know whether I can trust the CSR; for any question I asked, she would reply 'let me check and get back to you'.)

Let us assume I can prepay mortgage for N years, and here is the math:

- prepay 1 year
extra mortgage interest deducted from 2017 filing: $17K.
Saved tax in 2017: $4.8K.
Added tax in 2018: $1.3K

- prepay 2 years
extra mortgage interest deducted from 2017 filing: $34K.
Saved tax in 2017: $9.5K.
Added tax in 2018: $5.5K

The other consideration factor is, if that amount of money does not go to the mortgage, I can use them for investment, so there is an opportunity cost.

Any pointers? Should I go ahead?
I am not following. If you prepay, isn't that for principal, not making advanced interest payment - so no bills until 2019?

Nate79
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Re: Tax Bill Omnibus Thread

Post by Nate79 » Thu Dec 21, 2017 2:46 pm

I was searching thru the tax bill and found this section on 529 plans. Anyone understand what the section on limitation means?

SEC. 11032. 529 ACCOUNT FUNDING FOR ELEMENTARY AND SECONDARY EDUCATION.

(a) In General.—

(1) IN GENERAL.—Section 529(c) is amended by adding at the end the following new paragraph:


“(7) TREATMENT OF ELEMENTARY AND SECONDARY TUITION.—Any reference in this subsection to the term ‘qualified higher education expense’ shall include a reference to expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.”.

(2) LIMITATION.—Section 529(e)(3)(A) is amended by adding at the end the following: “The amount of cash distributions from all qualified tuition programs described in subsection (b)(1)(A)(ii) with respect to a beneficiary during any taxable year shall, in the aggregate, include not more than $10,000 in expenses described in subsection (c)(7) incurred during the taxable year.”.

(b) Effective Date.—The amendments made by this section shall apply to distributions made after December 31, 2017.

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MP123
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Re: Tax Bill Omnibus Thread

Post by MP123 » Thu Dec 21, 2017 2:47 pm

KATNYC wrote:
Thu Dec 21, 2017 2:39 pm
darrvao777 wrote:
Thu Dec 21, 2017 1:42 pm
Gleevec wrote:
Thu Dec 21, 2017 1:02 pm
So for those of us with "side hustle" 1099 income (eg solo consulting, separate from our W2 day job wages) who are excluded from pass through tax relief, does it make any sense to become a C-corp?
And to expand on this further, is there a way to become a C-corp and convert our W2 day job wages? Or is this not an option for employees?
found this:

1) Incorporate yourself
Under the new law, the top ordinary rate on labor income will be much higher than the top rate on corporate income. As a result, many taxpayers will be able to shield a portion of their labor income from tax by setting up a corporation. So Joe Smith, previously an assistant account director for a PR firm, can become Joe Smith, Inc., a new startup company! The firm makes payments to the new corporation instead of to Smith. Thus, Smith shields his labor income from the higher individual tax rate.

The IRS might investigate whether the new corporation pays Smith a reasonable fee for his services, which some tax-law precedents suggest it is obliged to. That’s one check against this tax dodge, and there could be others. But how many new corporations can the IRS investigate? And if Smith can find a few friends to join his new corporation, it will be even harder for the IRS to challenge.

https://www.vox.com/the-big-idea/2017/1 ... ccountants
And note that even specified service businesses can get at least a portion of the 20% deduction up to $415k AGI and all of it under $315k. So you may not be excluded after all with the changes they made right before it passed.

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UpsetRaptor
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Re: Tax Bill Omnibus Thread

Post by UpsetRaptor » Thu Dec 21, 2017 3:08 pm

Nate79 wrote:
Thu Dec 21, 2017 2:46 pm
I was searching thru the tax bill and found this section on 529 plans. Anyone understand what the section on limitation means?

SEC. 11032. 529 ACCOUNT FUNDING FOR ELEMENTARY AND SECONDARY EDUCATION.

(a) In General.—

(1) IN GENERAL.—Section 529(c) is amended by adding at the end the following new paragraph:


“(7) TREATMENT OF ELEMENTARY AND SECONDARY TUITION.—Any reference in this subsection to the term ‘qualified higher education expense’ shall include a reference to expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.”.

(2) LIMITATION.—Section 529(e)(3)(A) is amended by adding at the end the following: “The amount of cash distributions from all qualified tuition programs described in subsection (b)(1)(A)(ii) with respect to a beneficiary during any taxable year shall, in the aggregate, include not more than $10,000 in expenses described in subsection (c)(7) incurred during the taxable year.”.

(b) Effective Date.—The amendments made by this section shall apply to distributions made after December 31, 2017.
It means that when using 529s for K-12 expenses you can only withdraw qualified expenses up to $10K/yr per beneficiary.

The Wizard
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Re: Bunching mortgage for 1 year, 2 years?

Post by The Wizard » Thu Dec 21, 2017 3:11 pm

itworks wrote:
Thu Dec 21, 2017 1:58 pm
Want to run this idea with you folks for my situation:

1. I am pretty sure I will hit hard by AMT in year 2017.
2. In HCOLA state. my SALT+Property tax is way over the allowed $10K.
3. Mortgage interest is about $18K in 2017, which makes my 2018 itemized-deduction ($27K) not too valuable compared to the standard-deduction $24K.

My lender said I can prepay mortgage for as many years as I like (which is bizarre, and I do not know whether I can trust the CSR; for any question I asked, she would reply 'let me check and get back to you'.)

Let us assume I can prepay mortgage for N years, and here is the math:

- prepay 1 year
extra mortgage interest deducted from 2017 filing: $17K.
Saved tax in 2017: $4.8K.
Added tax in 2018: $1.3K

- prepay 2 years
extra mortgage interest deducted from 2017 filing: $34K.
Saved tax in 2017: $9.5K.
Added tax in 2018: $5.5K

The other consideration factor is, if that amount of money does not go to the mortgage, I can use them for investment, so there is an opportunity cost.

Any pointers? Should I go ahead?
If you make a prepayment on your mortgage, ALL of it should go to reducing your principal balance.
It would be a terrible idea to give the bank a gift of interest before the passage of time causes them to earn it!!
Attempted new signature...

Nutmeg
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Re: Bunching mortgage for 1 year, 2 years?

Post by Nutmeg » Thu Dec 21, 2017 3:14 pm

KATNYC wrote:
Thu Dec 21, 2017 2:45 pm
itworks wrote:
Thu Dec 21, 2017 1:58 pm
Want to run this idea with you folks for my situation:

1. I am pretty sure I will hit hard by AMT in year 2017.
2. In HCOLA state. my SALT+Property tax is way over the allowed $10K.
3. Mortgage interest is about $18K in 2017, which makes my 2018 itemized-deduction ($27K) not too valuable compared to the standard-deduction $24K.

My lender said I can prepay mortgage for as many years as I like (which is bizarre, and I do not know whether I can trust the CSR; for any question I asked, she would reply 'let me check and get back to you'.)

Let us assume I can prepay mortgage for N years, and here is the math:

- prepay 1 year
extra mortgage interest deducted from 2017 filing: $17K.
Saved tax in 2017: $4.8K.
Added tax in 2018: $1.3K

- prepay 2 years
extra mortgage interest deducted from 2017 filing: $34K.
Saved tax in 2017: $9.5K.
Added tax in 2018: $5.5K

The other consideration factor is, if that amount of money does not go to the mortgage, I can use them for investment, so there is an opportunity cost.

Any pointers? Should I go ahead?
I am not following. If you prepay, isn't that for principal, not making advanced interest payment - so no bills until 2019?
To the first poster: It is true that you can prepay your mortgage payments. What is not entirely clear is whether the tax code allows you to deduct mortgage interest attributable to those prepayments, Based on information provided a few posts back, it appears to me that it is not possible to deduct interest payments on 2017 taxes attributable to interest that didn't accrue until 2018.

Furthermore, it appears that anybody who had enough cash on hand (after fully funding retirement accounts, an HSA, 529s, umbrella, life and disability insurance, and an emergency fund) to make a full year of mortgage payments in the next several days might be better off making an early payment of principal, thereby reducing the amount of mortgage interest owed for the entire life of the loan.

To the most recent poster: How the lender applies unspecified payments above and beyond your normally-scheduled payments is determined by the default rules in the loan documents; to ensure that the payments are applied in the way that the mortgagor wishes, it is important to designate whether a payment is an early payment of principal or a prepayment of a mortgage payment due on a later date.

dave_k
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Re: Tax Bill Omnibus Thread

Post by dave_k » Thu Dec 21, 2017 3:17 pm

A couple questions related to mortgage interest deductibility:

1. Earlier this year I compared paying down our mortgage vs. investing in muni bonds given our tax situation, and decided it was better to go with muni bonds. We expect to sell the house in 5 years or so, which is when we would have gotten the payoff from paying it down.

Now it looks like we'll go from being in the AMT phaseout range where mortgage interest was deductible at an effective 35% federal rate (plus 6% state) to not itemizing and completely losing out on the deductibility of mortgage interest (including state under current rules). Our effective mortgage rate will go from about 2.1% to the actual 3.5%, and so will the benefit from paying it down. Muni bonds are no longer a better option.

The muni bonds are up a bit, so we'd have a capital gain of a few thousand, but should we consider selling them and pay down the mortgage instead? I assume we should wait until a year has passed so it would be a LTCG (or maybe the gain will have evaporated - although that would be worse than paying taxes on it).

We also have extra cash, so keeping the bonds and paying down the mortgage is also an option (instead of investing the cash in stock funds), that now looks better than it did.

2. We also own a rental property. Is the mortgage interest (and property taxes) for that property still deductible from the rental income under the new bill?

It sounds like items purchased for the property will be fully deducible when purchased instead of amortized, is that correct? Will items already being amortized still remain on that schedule?

Theseus
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Re: Tax Bill Omnibus Thread

Post by Theseus » Thu Dec 21, 2017 3:22 pm

CAsage wrote:
Thu Dec 21, 2017 1:26 pm
Theseus wrote:
Thu Dec 21, 2017 9:20 am
CAsage wrote:
Wed Dec 20, 2017 11:51 pm
Theseus wrote:
Wed Dec 20, 2017 10:50 pm
Per my latest scenario run in TurboTax I owe almost $24k in state taxes this year to Virginia. This is partly due to sale of my business and I have not yet paid estimated taxes to my state yet. So if I send the check in, will I be able to itemize that in my 2017 federal return? And if I don’t send the check in 2017 then I loose it in 2018 due to $10k cap?
Your understanding appears to be consistent with what everyone else is saying and writing and reading in the new tax code. If you can pay that online, to ensure it gets in this year, I would do that! Pay now!
Thank you. So I entered the estimated Virginia state tax payment of $24,000 in TurboTax. While it zeroed out my Virginia state tax, the Federal Tax reduced by only about $350 - that's only about 1.5% of reduction. So does this mean my deductions are phasing out? Where do I go and look in TurboTax or in the form to see these calculations?
Tragically, you have been (I am guessing) hit by the dreaded AMT. Look in TurboTax for form 6251 and Line 45 of your 1040. I was affected adversely in the same way (though will smaller numbers :) ) and the only way to deduct larger SALT or property taxes in AMT-zone is massive Charitable (or other...) deductions. Which explains the interest in Charitable Donor Advised Funds here and in other threads. You really have to model this stuff with tax software; everyone's case is different. Congrats on the business sale!
Thank you! I checked. You are correct, It is the darn AMT. My AMT went from $359 to $3390 when I added estimated state tax. I am already working to xfer $200K in stocks to DAF at Fidelity . But if I increase it to $210k the federal tax remains the same. So I have reached the end of the road I guess.

I am not complaining. I just want to make sure I am not leaving anything on the table.

keystone
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Re: Tax Bill Omnibus Thread

Post by keystone » Thu Dec 21, 2017 3:27 pm

IMO wrote:
Thu Dec 21, 2017 2:34 pm
In not in any way a tax professional, but there seems to be the thought by some that if one prepays their mortgage payments now for 2018 and even further, say 2019, that they can use that interest they are prepaying to their advantage for itemizing.

I just don't believe that is legitimate. I'd consult one's tax professional before considering that.

IRS publication 936 states:

"Prepaid interest.
If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. You can deduct in each year only the interest that qualifies as home mortgage interest for that year. However, there is an exception that applies to points, discussed later. "
Thanks, it looks like you're right. Nevertheless, for those of us who will itemize in 2017 but not 2018, paying your January 01, 2018 in 2017 is a good option.

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FIREchief
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Re: Tax Bill Omnibus Thread

Post by FIREchief » Thu Dec 21, 2017 3:31 pm

Da5id wrote:
Thu Dec 21, 2017 11:30 am
mega317 wrote:
Thu Dec 21, 2017 10:53 am
KATNYC wrote:
Thu Dec 21, 2017 10:40 am
forcing many of us to scramble
To be fair no one is forcing us to do these little tax tricks.
Last minute changes in "the rules" do make life difficult. Nobody is forced to do anything. But those who want to take all reasonable steps minimize taxes (which is many bogleheads) some scrambling is going on.

e.g. I just went and paid for property tax for first half of 2018. Hope that ends up working (as many articles have suggested), as I'm itemizing this year and not next. Worst case I'm out the interest on that money for 6 months, I'll live. Best case save a few thousand dollars, not pocket change. Only other hoop I'm considering is generously paying my Q4 estimated tax before Dec 31, and perhaps accelerating a charitable contribution.
A few comments about this. First, since the approved legislation generally applies to tax years beginning after Dec 31, 2017; your 2017 itemized deductions should be coverd by existing law, which allows you to pay property taxes due in 2018 provided they've been assessed and "billed" by your County. Going forward, it doesn't make sense that you couldn't continue to do this as paying property taxes during the current year that are due the following spring is really no different than paying state taxes (through witholding and estimted taxes) that are due the next Spring. In my state, technically only 90% of your state tax bill due next April is "required" to be paid during the current year; so withholding/estimated taxes paid above that amount is "paying taxes that are not due until the next year."
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

JBTX
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Re: Tax Bill Omnibus Thread

Post by JBTX » Thu Dec 21, 2017 3:31 pm

As to mortgage interest you can only deduct mortgage interest related to the current calendar year 2017. You cannot prepay interest related to future years. I’ve confirmed this in a couple of different places.

What you can do is prepay your January mortgage payment which is actually your December mortgage payment paid in arrears. Typically you pay December mortgage within the first 2 weeks of January. But you can go ahead and pay that in December.

delamer
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Re: Tax Bill Omnibus Thread

Post by delamer » Thu Dec 21, 2017 3:35 pm

Based on the frugal professor’s calculator — many thanks for that — our federal tax bill will be about 3% lower in 2018 (assuming no income changes). That is a 0.4% increase in our gross income.

However, we will be changing to a standard deduction from itemized deductions. And according to our current state tax laws, we can’t itemize for our state return unless we have on our federal return. So it will be interesting to see what happens if the state law isn’t changed. My estimate in that case is that we’ll virtually no change in our combined federal and state taxes.

Our state exemptions have to be the same as shown on our federal return, so the state will have to make some adjustment to the tax law to address that issue (at a minimum) or there will be an uprising when everyone’s state taxes jump. Hopefully, there will be a change to allow itemized deductions for the state with standard for the federal too.

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FIREchief
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Re: Tax Bill Omnibus Thread

Post by FIREchief » Thu Dec 21, 2017 3:37 pm

DrGoogle2017 wrote:
Thu Dec 21, 2017 11:36 am
These are not last minute changes, it has been on the news for weeks.
Exactly. Also, the full text of all approved versions (house, senate and committee) have all been published. As each step completed, I plugged the numbers into my mega financial planning spreadsheet and was able to give serious thought to the implications and potential year end strategies. There have also been good discussions in other internet forums, however I'm glad we can now discuss it here. Bogleheads likely has the broadest cross section of tax/accounting/etc. knowledge, so its always reassuring to see what they have to say about these topics.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

DrGoogle2017
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Re: Tax Bill Omnibus Thread

Post by DrGoogle2017 » Thu Dec 21, 2017 3:40 pm

KATNYC wrote:
Thu Dec 21, 2017 2:39 pm
darrvao777 wrote:
Thu Dec 21, 2017 1:42 pm
Gleevec wrote:
Thu Dec 21, 2017 1:02 pm
So for those of us with "side hustle" 1099 income (eg solo consulting, separate from our W2 day job wages) who are excluded from pass through tax relief, does it make any sense to become a C-corp?
And to expand on this further, is there a way to become a C-corp and convert our W2 day job wages? Or is this not an option for employees?
found this:

1) Incorporate yourself
Under the new law, the top ordinary rate on labor income will be much higher than the top rate on corporate income. As a result, many taxpayers will be able to shield a portion of their labor income from tax by setting up a corporation. So Joe Smith, previously an assistant account director for a PR firm, can become Joe Smith, Inc., a new startup company! The firm makes payments to the new corporation instead of to Smith. Thus, Smith shields his labor income from the higher individual tax rate.

The IRS might investigate whether the new corporation pays Smith a reasonable fee for his services, which some tax-law precedents suggest it is obliged to. That’s one check against this tax dodge, and there could be others. But how many new corporations can the IRS investigate? And if Smith can find a few friends to join his new corporation, it will be even harder for the IRS to challenge.

3) Take your job and shove it (and create a pass-through)
As mentioned, under current rules people who earn income via a pass-through business pay tax at the individual rates. But under the Republican bill they first get to deduct part of this income. That means — surprise! — new pass-throughs will blossom as more taxpayers will redefine their work as a business instead of a mere wage-earning job.

Many independent contractors and members of a partnership automatically qualify for pass-through status. So expect to see workers giving their bosses two weeks’ notice and reentering the workforce as independent contractors and partners in their own firms.

https://www.vox.com/the-big-idea/2017/1 ... ccountants
Maybe they can also forgo stock options and RSUs. Independent contractors don’t get them.

TwstdSista
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Re: Tax Bill Omnibus Thread

Post by TwstdSista » Thu Dec 21, 2017 3:42 pm

It looks like the husband and I will save approximately 3.5% of our gross income next year -- I'm calling that a win!

chw
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Re: Tax Bill Omnibus Thread

Post by chw » Thu Dec 21, 2017 3:45 pm

Alex, thank you for starting this thread- it woke me up that the window was quickly closing on several possible deductions to be taken in 2017, that definitely won't be taken in 2018 (my tax situation would have me taking the standard deduction). Some moves being done are:

1) Paying my January 1, 2018 mortgage in December, 2017. I usually pay my mortgage by auto pay shortly after the 1st of the month, but this move will grab an extra months interest into 2017. Some have questioned how this can be done. Mortgage interest is paid in arrears (the payment you make on the first of the month pays the interest of the previous month), so if you typically pay on or after the 1st of the month, you can get 1 extra month of interest paid by timing the 1/1/2018 mortgage payment just before the end of December. The interest being reported for 2017 will be actual interest paid from 12/1/2016 (this is the interest paid with the 1/1/2017 payment if paid in 2017) thru 12/31/2017.

2) Paying estimated State income taxes due for 2017. I usually have a moderate bill due for dividends, and interest collected during the year.

3) Setting up a Donor Advised Fund for future Charitable giving. Future cash donations will not be tax deductible for my tax situation will not be allowed in the future due to using the standard deduction. I'm funding this fund with an mutual fund in my brokerage account with a 150% gain, and hope to have over 20 years of charitable giving based on current levels of giving. Charles Schwab advised they can get the DAF in place anytime thru 12/29/17 with funds already with Schwab.

4) Prepaid remaining 2017 real estate taxes. 3rd and 4th quarter bills are available (tax collector emailed me the bill being mailed next week), but not past due until 2/1/2018, and 5/1/2018 (live in MA). The deduct-ability of this prepayment appears to be a gray area at this time, but figured even if not allowed as a deduction, I won't be deducting real estate taxes payments next year anyways.

As a recent retiree, these changes will help capture maximum itemization of expenses this year, as taxable income will be lower next year, and thus falling into using the new standard deduction (though would have anyways due to the SALT cap).

Thanks also to the Boglehead community for the many topics being discussed regarding the impacts of the new tax law, and it's various impacts for various situations.
Last edited by chw on Thu Dec 21, 2017 4:00 pm, edited 1 time in total.

DrGoogle2017
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Re: Tax Bill Omnibus Thread

Post by DrGoogle2017 » Thu Dec 21, 2017 3:47 pm

dave_k wrote:
Thu Dec 21, 2017 3:17 pm
A couple questions related to mortgage interest deductibility:


2. We also own a rental property. Is the mortgage interest (and property taxes) for that property still deductible from the rental income under the new bill?

It sounds like items purchased for the property will be fully deducible when purchased instead of amortized, is that correct? Will items already being amortized still remain on that schedule?
Rental property is where you can still deduct everything. I’m still wondering about whether I could fully depreciate my property or not, in the past we had 27.5 years for depreciation. It seems like the new tax law, we maybe able to depreciation new or used immediately. Maybe somebody can chime in on this.
Last edited by DrGoogle2017 on Thu Dec 21, 2017 3:57 pm, edited 1 time in total.

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Ketawa
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Re: Tax Bill Omnibus Thread

Post by Ketawa » Thu Dec 21, 2017 3:49 pm

IMO wrote:
Thu Dec 21, 2017 2:34 pm
In not in any way a tax professional, but there seems to be the thought by some that if one prepays their mortgage payments now for 2018 and even further, say 2019, that they can use that interest they are prepaying to their advantage for itemizing.

I just don't believe that is legitimate. I'd consult one's tax professional before considering that.

IRS publication 936 states:

"Prepaid interest.
If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. You can deduct in each year only the interest that qualifies as home mortgage interest for that year. However, there is an exception that applies to points, discussed later. "
I was about to post this also.
an_asker wrote:
Thu Dec 21, 2017 2:38 pm
I definitely don't know how you can prepay interest for 2019! But when advantageous, I do (and did, earlier today) pay the mortgage payment due 1/1.
This has no effect on your taxes. Mortgage interest is paid in arrears. Your payment due in January is for December's interest. This is also how it is reported on a 1098. (Edit - I think. I have to go back and look at my records.) (Edit 2 - This was wrong.)
Last edited by Ketawa on Thu Dec 21, 2017 6:43 pm, edited 2 times in total.

DrGoogle2017
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Re: Tax Bill Omnibus Thread

Post by DrGoogle2017 » Thu Dec 21, 2017 3:54 pm

NorCalDad wrote:
Thu Dec 21, 2017 1:11 pm
miamivice wrote:
Thu Dec 21, 2017 10:42 am
I don't know if it's been said above (didn't read all 412 posts) but the thing I find most interesting about the new tax plan is that few people will itemize.

A $24,000 standard deduction is huge. It takes a lot of donations + taxes + interest in order to justify itemizing.

The takeaway on that is that most charitable donations (cash or goods) from regular people will no longer be tax deductible. I am curious to see if this has much impact on charitable donations that are received by non-profits. In particular, we used to get a nice tax writeoff for donating items to thrift stores.

Will be interesting to see the implication on non-profits.
I have a feeling people will still donate items to thrift stores. I mean, what else are they going to do with all of that stuff? Have more garage sales?

But charities that rely on smaller cash donations from mid- to upper-middle-class taxpayers might be nervous. I wonder if such charities will still use the "tax-deductible" phrasing. I've noticed many refer to something like "tax-deductible to the full extent allowed by law," so maybe they'll stick to that.
My daughter’s business partner and his wife gave $5k to charity last year and they couldn’t deduct a thing. But it’s important to them so I think there are a lot of people like that.

betablocker
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Re: New tax bill and muni bonds

Post by betablocker » Thu Dec 21, 2017 4:04 pm

brak wrote:
Wed Dec 20, 2017 11:26 pm
I am trying to figure out how the new tax structure effects the decision to invest in muni rather than taxable bonds, and how one figures out which is more advantageous. Thanks much in advance.
Brak,

It all depends on your tax rate as it always has. If you are falling down a tax bracket it's less attractive and if you are stay put with a 2% decrease in your rate it's probably about as attractive. If you are in a high state and local tax state it might make them more attractive. They are also going to be more scarce which I'd assume means they will have more value. Many states and localities rushed to issue at the end of the year and the bill prevents states and localities (but not private activity bond issuers) from reissuing as rates rise. You should do the math on the spread between munis and similar duration Treasuries with your tax rate lowering the Treasury return.

an_asker
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Re: Tax Bill Omnibus Thread

Post by an_asker » Thu Dec 21, 2017 4:07 pm

Ketawa wrote:
Thu Dec 21, 2017 3:49 pm
IMO wrote:
Thu Dec 21, 2017 2:34 pm
In not in any way a tax professional, but there seems to be the thought by some that if one prepays their mortgage payments now for 2018 and even further, say 2019, that they can use that interest they are prepaying to their advantage for itemizing.

I just don't believe that is legitimate. I'd consult one's tax professional before considering that.

IRS publication 936 states:

"Prepaid interest.
If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. You can deduct in each year only the interest that qualifies as home mortgage interest for that year. However, there is an exception that applies to points, discussed later. "
I was about to post this also.
an_asker wrote:
Thu Dec 21, 2017 2:38 pm
I definitely don't know how you can prepay interest for 2019! But when advantageous, I do (and did, earlier today) pay the mortgage payment due 1/1.
This has no effect on your taxes. Mortgage interest is paid in arrears. Your payment due in January is for December's interest. This is also how it is reported on a 1098. (Edit - I think. I have to go back and look at my records.)
I am pretty sure all interest payment amounts paid from 1/1 to 12/31 are included in the 1098 (even though I probably need to go back and double check my records, as I have done this only ONCE!!). I am pretty sure I read about this in multiple sources - print as well as blogs - and it is legitimate (up to the first payment of the next year, that is, as long as the payments are all in the same calendar year).

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Re: Tax Bill Omnibus Thread

Post by VictoriaF » Thu Dec 21, 2017 4:09 pm

After thinking about the implications of the new tax rules, I came up with the following logic:

The termination of Roth Recharacterization strengthens Backdoor Roth:

1. Roth Recharacterization was required for those who had exceeded the annual Roth Conversion limit.
2. Since 2010, the limit on Roth Conversions has been removed, and thus the need for Roth Recharacterization has disappeared.
3. After 2010, Roth Recharacterization was used to hedge one's portfolio performance: do Roth Conversion for more than you need and then Recharacterize back to Traditional IRA whatever has performed the worst.
4. Starting in 2018, Roth Recharacterizations will not be allowed.

5. Conclusion: There will be no limits on Roth Conversions. Backdoor Roth is here to stay.

Victoria
Last edited by VictoriaF on Thu Dec 21, 2017 4:10 pm, edited 1 time in total.
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betablocker
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Re: Tax Bill Omnibus Thread

Post by betablocker » Thu Dec 21, 2017 4:10 pm

Seems like most people's posts are getting lost on the thread given all the disparate topics: effects on SALT, for pass through owner, real estate, muni treatment, etc. I'm not sure what difference it makes having one versus 10 threads but it's not my board so not my rules. But if we can't post separate threads is there a way to title posts to categorize them so people can take advantage of the wisdom of the other people on the board. Maybe something in all caps at the top of the message? Then we could scan for relevant messages.

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Re: Tax Bill Omnibus Thread

Post by Phil1234 » Thu Dec 21, 2017 4:21 pm

perl wrote:
Thu Dec 21, 2017 2:15 am
Can someone clarify the times rules on home equity loan interest deductibility? Is it completely removed, or still deductible if used for home improvements?
Did this get answered? I am wondering this as well. The kitces article linked previously makes it seem like if the home equity loans or lines-of-credit was used for home improvements, it would still be deductible. But I haven't seen that distinction other places.

Article link again:
https://www.kitces.com/blog/final-gop-t ... trategies/

DesertMan
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Re: Tax Bill Omnibus Thread

Post by DesertMan » Thu Dec 21, 2017 4:21 pm

Fast question: Did Coverdell ESAs survive in the final bill? I have seen inconsistent answers on news sites. Thanks.

theta
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Re: Tax Bill Omnibus Thread

Post by theta » Thu Dec 21, 2017 4:22 pm

Pretty thorough article from an Accountant website that explains their opinion that the prepayment of 2018 taxes will not be accepted as a valid deduction:
https://www.journalofaccountancy.com/ne ... 18054.html

Note that the title refers to prepaying state income taxes, but the text of the article refers more generally to prepayment of any future taxes that may or may not come to pass. The article even implies that any accountant who suggests this path to a taxpayer might fall under certain provider penalty provisions. And that professional standards might come into play with respect to disclosing to the client the nature of the position that is being recommended.

To me, it sounded somewhat more serious than I was envisioning. Still, it would be clearer if the article mentioned property or real estate taxes specifically, which it does not do.

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Re: Tax Bill Omnibus Thread

Post by siamond » Thu Dec 21, 2017 4:32 pm

betablocker wrote:
Thu Dec 21, 2017 4:10 pm
Seems like most people's posts are getting lost on the thread given all the disparate topics: effects on SALT, for pass through owner, real estate, muni treatment, etc. I'm not sure what difference it makes having one versus 10 threads but it's not my board so not my rules.
Agreed, this kind of arbitrary limitation is quite silly.

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Re: Tax Bill Omnibus Thread

Post by LadyGeek » Thu Dec 21, 2017 4:35 pm

triceratop wrote:
Thu Dec 21, 2017 2:38 pm
I removed some off-topic political posts. Per forum rules, remember to not speculate on possible future legislation, other than this one. :wink:
To be clear, political comments (opinions of politicians and the political process) remain off-topic. See: Politics and Religion
In order to avoid the inevitable frictions that arise from these topics, political or religious posts and comments are prohibited. The only exceptions to this rule are:
  • Common religious expressions such as sending your prayers to an ailing member.
  • Usage of factual and non-derogatory political labels when necessary to the discussion at hand.
  • Discussions about enacted laws or regulations that affect the individual investor. Note that discussions of proposed legislation are prohibited.*
  • Proposed regulations that are directly related to investing may be discussed if and when they are published for public comments.
*Stricken for this thread only.
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Re: Tax Bill Omnibus Thread

Post by Lynette » Thu Dec 21, 2017 4:40 pm

Has anyone who takes RMDs (70 1/2 age) doing a DAF instead of QCDs? I suppose that the source is different as I assume that most people fund a DAF from a taxable account whereas a QCD comes from a tax advantaged account. I will make a certain level of charitable contribution no matter if it is tax-deductible or not. But it seems to me that it is much more advantageous to make a QCD rather than take the money from a DAF. A QCD lowers one's AGI and it may lower one's Medicare IRMAA payments. If I put a large amount of highly appreciated stock into a DAF to last me many years, I would not take a QCD.

I'd appreciate comments. Thanks,

Lynette

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Leif
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Re: Tax Bill Omnibus Thread

Post by Leif » Thu Dec 21, 2017 4:41 pm

Tigermoose wrote:
Thu Dec 21, 2017 12:23 pm
Thank you so much. Based on your advice and the advice of others we have setup a DAF with Fidelity and made a contribution.

:sharebeer :moneybag :moneybag :moneybag :sharebeer
Same here. I already have an account with Fidelity. The DAF was very easy to setup and fund. I did it all on-line. Took me maybe 10-15 minutes (yah, I'm slow. I read everything) 8-) .

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Re: Tax Bill Omnibus Thread

Post by VictoriaF » Thu Dec 21, 2017 4:43 pm

siamond wrote:
Thu Dec 21, 2017 4:32 pm
betablocker wrote:
Thu Dec 21, 2017 4:10 pm
Seems like most people's posts are getting lost on the thread given all the disparate topics: effects on SALT, for pass through owner, real estate, muni treatment, etc. I'm not sure what difference it makes having one versus 10 threads but it's not my board so not my rules.
Agreed, this kind of arbitrary limitation is quite silly.
I have spent several hours yesterday and additional several hours today reading this entire thread. I bookmarked it and when I click on my "Notifications" it takes me to the first post I have not seen.

While most discussions do not apply to my case, I still find it useful to read everything in the Omnibus on the new tax bill for the reasons as follows:
1. The Bogleheads are very good in bringing up issues that nobody else has thought of.
2. If we had several threads instead of this Omnibus, I would have likely skipped some of them as irrelevant to me.
3. Now, that I've read everything, a variety of topics is stored in the back of my mind. If my financial situation and considerations change, I will have a trigger to look relevant information up.

Victoria
Last edited by VictoriaF on Thu Dec 21, 2017 4:45 pm, edited 1 time in total.
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

Bacchus01
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Re: Tax Bill Omnibus Thread

Post by Bacchus01 » Thu Dec 21, 2017 4:44 pm

Anyone rethinking their 401k elections?

The middle bands are so broad and so close, I’m really starting to wonder if it’s worth it.

I cancelled my NQ deferred comp elections today. There seemed to be no benefit given Pease was gone, AMT phase out all the way to $1M, and the likelihood the tax bracket stay be so close pre and post retirement.

Next I’ll be looking really hard at the pre-tax 401k and may be thinking Roth.

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Re: Tax Bill Omnibus Thread

Post by jebmke » Thu Dec 21, 2017 4:46 pm

Lynette wrote:
Thu Dec 21, 2017 4:40 pm
Has anyone who takes RMDs (70 1/2 age) doing a DAF instead of QCDs? I suppose that the source is different as I assume that most people fund a DAF from a taxable account whereas a QCD comes from a tax advantaged account. I will make a certain level of charitable contribution no matter if it is tax-deductible or not. But it seems to me that it is much more advantageous to make a QCD rather than take the money from a DAF. A QCD lowers one's AGI and it may lower one's Medicare IRMAA payments. If I put a large amount of highly appreciated stock into a DAF to last me many years, I would not take a QCD.

I'd appreciate comments. Thanks,

Lynette
In general, I think you are correct. If you intend to do QCDs you would not want to pre-load a DAF now for grants you would make in lieu of QCDs.
When you discover that you are riding a dead horse, the best strategy is to dismount.

KATNYC
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Re: Tax Bill Omnibus Thread

Post by KATNYC » Thu Dec 21, 2017 4:57 pm

Phil1234 wrote:
Thu Dec 21, 2017 4:21 pm
perl wrote:
Thu Dec 21, 2017 2:15 am
Can someone clarify the times rules on home equity loan interest deductibility? Is it completely removed, or still deductible if used for home improvements?
Did this get answered? I am wondering this as well. The kitces article linked previously makes it seem like if the home equity loans or lines-of-credit was used for home improvements, it would still be deductible. But I haven't seen that distinction other places.

Article link again:
https://www.kitces.com/blog/final-gop-t ... trategies/


Totally disallowed.In the case of taxable years beginning after December 31, 2017, and before January 1, 2026—
‘‘(I) DISALLOWANCE OF HOME EQUITY INDEBTEDNESS INTEREST

https://www.scribd.com/document/3672840 ... l-tax-bill




Conference Agreement
The conference agreement provides that, in the case of taxable years beginning after December 31, 2017, and beginning before January 1, 2026, a taxpayer may treat no more than $750,000 as acquisition indebtedness ($375,000 in the case of married taxpayers filing separately). In the case of acquisition indebtedness incurred before December 15, 2017 this limitation is $1,000,000 ($500,000 in the case of married taxpayers filing separately).

For taxable years beginning after December 31, 2025, a taxpayer may treat up to $1,000,000 ($500,000 in the case of married taxpayers filing separately) of indebtedness as acquisition indebtedness, regardless of when the indebtedness was incurred.

Additionally, the conference agreement suspends the deduction for interest on home equity indebtedness. Thus, for taxable years beginning after December 31, 2017, a taxpayer may not claim a deduction for interest on home equity indebtedness. The suspension ends for taxable years beginning after December 31, 2025.

The Wizard
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Re: Tax Bill Omnibus Thread

Post by The Wizard » Thu Dec 21, 2017 5:00 pm

chw wrote:
Thu Dec 21, 2017 3:45 pm

...Prepaid remaining 2017 real estate taxes. 3rd and 4th quarter bills are available (tax collector emailed me the bill being mailed next week), but not past due until 2/1/2018, and 5/1/2018 (live in MA). The deduct-ability of this prepayment appears to be a gray area at this time, but figured even if not allowed as a deduction, I won't be deducting real estate taxes payments next year anyways...
Not a gray area for me at all.
My property tax bill is labeled Fiscal 2018 and I already paid the first two quarterly payments due 8/1 and 11/1. Then this morning I paid the 2/1 and 5/1 amounts.
So I'll have a nice refund coming in the spring for my last year of itemizing federal taxes...
Attempted new signature...

IMD801
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Re: Tax Bill Omnibus Thread

Post by IMD801 » Thu Dec 21, 2017 5:04 pm

Maybe this has been covered, but with the large increase in the standard deduction, does it suddenly make more sense to pay down a mortgage? Previously we were itemizing and the effective mortgage rate was in the 2.x% range. It's hard to argue with a ~4% guaranteed return since we can no longer deduct to "make" the effective rate lower.

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CollegePrudens
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Re: Tax Bill Omnibus Thread

Post by CollegePrudens » Thu Dec 21, 2017 5:07 pm

sketchy9 wrote:
Wed Dec 20, 2017 8:41 pm
One data point: I just ran a dummy return using TurboTax 2017, adding projections for my final paycheck (due next week). Thanks to the AMT, it makes absolutely no difference whether I make an extra property tax payment or not on my tax liability for 2017. I'm in CA.
Sketchy - It may be worthwhile for your to make the 2018 property tax payment in 2017 if it increases your CA state refund (or lowers what you owe). In 2018, Property taxes + CA State tax deductions will be capped at $10K. If the sum of these two taxes is greater than $10K for you (after you make the extra payment in 2017), the only thing that you would lose with the extra payment is the interest (or similar) that you could have earned if you had hung on to the cash.

This thread has gotten very long (although still very good). I read all the posts, but I am not sure if anybody specifically responded to you.
Live as if you were to die tomorrow; learn as if you were to live forever - Gandhi

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BrandonBogle
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Re: Tax Bill Omnibus Thread

Post by BrandonBogle » Thu Dec 21, 2017 5:08 pm

VictoriaF wrote:
Thu Dec 21, 2017 4:43 pm
siamond wrote:
Thu Dec 21, 2017 4:32 pm
betablocker wrote:
Thu Dec 21, 2017 4:10 pm
Seems like most people's posts are getting lost on the thread given all the disparate topics: effects on SALT, for pass through owner, real estate, muni treatment, etc. I'm not sure what difference it makes having one versus 10 threads but it's not my board so not my rules.
Agreed, this kind of arbitrary limitation is quite silly.
I have spent several hours yesterday and additional several hours today reading this entire thread. I bookmarked it and when I click on my "Notifications" it takes me to the first post I have not seen.

While most discussions do not apply to my case, I still find it useful to read everything in the Omnibus on the new tax bill for the reasons as follows:
1. The Bogleheads are very good in bringing up issues that nobody else has thought of.
2. If we had several threads instead of this Omnibus, I would have likely skipped some of them as irrelevant to me.
3. Now, that I've read everything, a variety of topics is stored in the back of my mind. If my financial situation and considerations change, I will have a trigger to look relevant information up.

Victoria
Similar to Victoria, I see value in the Omnibus Thread at this time. When IRS guidance comes out in February and other definitive developments come out, then it would be great for those to be in their own thread. And thankfully, at that point, they will not be "proposed legislation" and thus, we'd be good with the forum rules.

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Re: Tax Bill Omnibus Thread

Post by VictoriaF » Thu Dec 21, 2017 5:09 pm

IMD801 wrote:
Thu Dec 21, 2017 5:04 pm
Maybe this has been covered, but with the large increase in the standard deduction, does it suddenly make more sense to pay down a mortgage? Previously we were itemizing and the effective mortgage rate was in the 2.x% range. It's hard to argue with a ~4% guaranteed return since we can no longer deduct to "make" the effective rate lower.
Yes, it may make sense to pay off your mortgage. This has been discussed in this thread. If you want a shortcut, search Grabiner's messages.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

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Re: Tax Bill Omnibus Thread

Post by fantasytensai » Thu Dec 21, 2017 5:11 pm

I usually calculate my withholdings to owe close to no taxes when filing. In fact, my 2017 NY state tax withholdings will be coming in a little short according to my calculations. It will only be short by about 1 to 2 thousand dollars (max). Should I pay $2,000 to my 2017 Q4 taxes before 12/31/2017 so I can deduct $2,000 more for my 2017 federal taxes? I assume that whatever amount I overpay will just be refunded to me? How will that implicate the $2,000 I deducted?

DrGoogle2017
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Re: Tax Bill Omnibus Thread

Post by DrGoogle2017 » Thu Dec 21, 2017 5:13 pm

For those BH tax geeks, here is a link from Deloitte, more details on pass through. There is a pdf file to down load.
https://www2.deloitte.com/us/en/pages/t ... etter.html

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CollegePrudens
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Re: Tax Bill Omnibus Thread

Post by CollegePrudens » Thu Dec 21, 2017 5:15 pm

Hi Masha - I just responded to Sketchy.

One can do both. I.e. give to charity/DAF and prepay 2018 property taxes in 2017 (depending on your county), if they have the cash flow.

The former works because charitable contributions can be used for itemized deductions as well for AMT. The latter helps only with itemized deductions; however, depending on one's specific circumstance, the extra property tax payment may lower 2017 state taxes without hurting one in 2018 (see viewtopic.php?f=2&t=235146&start=500#p3676112)
sketchy9 wrote:
Wed Dec 20, 2017 8:41 pm
One data point: I just ran a dummy return using TurboTax 2017, adding projections for my final paycheck (due next week). Thanks to the AMT, it makes absolutely no difference whether I make an extra property tax payment or not on my tax liability for 2017. I'm in CA.
masha12 wrote:
Wed Dec 20, 2017 10:16 pm
I found the same thing when I was playing around in H&R Block's 2017 software. But, if you are one of those people who gives to charity and/or has a DAF, you can increase your charitable contributions (or give the 2018 donations in 2017) to get rid of the AMT caused by the property tax payment.

And, an extra mortgage payment in 2017 will also help offset some of the AMT (although not a whole lot).
Live as if you were to die tomorrow; learn as if you were to live forever - Gandhi

Phil1234
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Re: Tax Bill Omnibus Thread

Post by Phil1234 » Thu Dec 21, 2017 5:18 pm

KATNYC wrote:
Thu Dec 21, 2017 4:57 pm
Phil1234 wrote:
Thu Dec 21, 2017 4:21 pm
perl wrote:
Thu Dec 21, 2017 2:15 am
Can someone clarify the times rules on home equity loan interest deductibility? Is it completely removed, or still deductible if used for home improvements?
Did this get answered? I am wondering this as well. The kitces article linked previously makes it seem like if the home equity loans or lines-of-credit was used for home improvements, it would still be deductible. But I haven't seen that distinction other places.

Article link again:
https://www.kitces.com/blog/final-gop-t ... trategies/


Totally disallowed.In the case of taxable years beginning after December 31, 2017, and before January 1, 2026—
‘‘(I) DISALLOWANCE OF HOME EQUITY INDEBTEDNESS INTEREST

https://www.scribd.com/document/3672840 ... l-tax-bill




Conference Agreement
The conference agreement provides that, in the case of taxable years beginning after December 31, 2017, and beginning before January 1, 2026, a taxpayer may treat no more than $750,000 as acquisition indebtedness ($375,000 in the case of married taxpayers filing separately). In the case of acquisition indebtedness incurred before December 15, 2017 this limitation is $1,000,000 ($500,000 in the case of married taxpayers filing separately).

For taxable years beginning after December 31, 2025, a taxpayer may treat up to $1,000,000 ($500,000 in the case of married taxpayers filing separately) of indebtedness as acquisition indebtedness, regardless of when the indebtedness was incurred.

Additionally, the conference agreement suspends the deduction for interest on home equity indebtedness. Thus, for taxable years beginning after December 31, 2017, a taxpayer may not claim a deduction for interest on home equity indebtedness. The suspension ends for taxable years beginning after December 31, 2025.
Right, but if you look at the definition of "Acquisition indebtedness", it would cover indeptedness used to "substantially improve a qualified residence of the taxpayer which secures the residence." So even though it is a home equity loan or LOC, if it is used for home improvements, the interest may still be deductible if under the limits. That is what the kitces article states. It doesn't matter if it the debt is a home equity loan or line of credit, instead what it is used for. But maybe it is not correct. That is the question.

Below is from the bill.
"Acquisition indebtedness is indebtedness that is incurred in acquiring, constructing, or substantially improving a qualified residence of the taxpayer and which secures the residence"

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Munir
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Re: Tax Bill Omnibus Thread

Post by Munir » Thu Dec 21, 2017 5:19 pm

The issue of the tax-deductibility of 529 distributions for secondary/ primary schools' education has gone back and forth that I am unable to find the ending conclusion to it. Is it a yea or nay?

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Re: Tax Bill Omnibus Thread

Post by retiredjg » Thu Dec 21, 2017 5:20 pm

The Wizard wrote:
Thu Dec 21, 2017 11:17 am
The Wizard wrote:
Thu Dec 21, 2017 11:02 am
retiredjg wrote:
Thu Dec 21, 2017 10:29 am
The Wizard wrote:
Thu Dec 21, 2017 9:42 am
With the old folks SD now being $13,600, I see no way of getting an additional $3600 itemized in a normal year...
Check the numbers - I think the old folks standard deduction (non-blind) will be $12,000 + $1,300 for singles and $24,000 + $2,600 for a couple.
It's actually $12,000 + $1600 for we elderly single folks, oddly enough...
Reference for that $1600 extra:
https://www.forbes.com/sites/kellyphill ... eform/amp/
That is what it says, but I think it is incorrect. It does not even make sense (to me) as written.

"If you are over age 65, blind or disabled, you can tack on $1,300 to your standard deduction ($1,600 for unmarried taxpayers)."

This will all get sorted out in a few days though.

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Re: Tax Bill Omnibus Thread

Post by chw » Thu Dec 21, 2017 5:21 pm

The Wizard wrote:
Thu Dec 21, 2017 5:00 pm
chw wrote:
Thu Dec 21, 2017 3:45 pm

...Prepaid remaining 2017 real estate taxes. 3rd and 4th quarter bills are available (tax collector emailed me the bill being mailed next week), but not past due until 2/1/2018, and 5/1/2018 (live in MA). The deduct-ability of this prepayment appears to be a gray area at this time, but figured even if not allowed as a deduction, I won't be deducting real estate taxes payments next year anyways...
Not a gray area for me at all.
My property tax bill is labeled Fiscal 2018 and I already paid the first two quarterly payments due 8/1 and 11/1. Then this morning I paid the 2/1 and 5/1 amounts.
So I'll have a nice refund coming in the spring for my last year of itemizing federal taxes...
I tend to agree. The fact that the bills became available this week, and the Collector accepted the payments sealed the deal for me. I hadn't fully read the IRS publication about real estate tax prepayments, so wanted to confirm. Also, Congress mentioned last night they weren't allowing prepayment of real estate taxes due in 2018 as an itemized deduction in 2017. Since our 3rd and 4th quarter fiscal year 2018 bills aren't due until 2018, I was going to research this a bit further before filing my taxes next year. The "gray" to me was that they are fiscal year 2018 payments due in 2018. Since the Town had the bill available to pay however, and accepted the payments seems to hopefully indicate may be able to take the deduction. Fingers crossed...

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Re: Tax Bill Omnibus Thread

Post by jebmke » Thu Dec 21, 2017 5:22 pm

CollegePrudens wrote:
Thu Dec 21, 2017 5:15 pm
Hi Masha - I just responded to Sketchy.

One can do both. I.e. give to charity/DAF and prepay 2018 property taxes in 2017 (depending on your county), if they have the cash flow.

The former works because charitable contributions can be used for itemized deductions as well for AMT. The latter helps only with itemized deductions; however, depending on one's specific circumstance, the extra property tax payment may lower 2017 state taxes without hurting one in 2018 (see viewtopic.php?f=2&t=235146&start=500#p3676112)
sketchy9 wrote:
Wed Dec 20, 2017 8:41 pm
One data point: I just ran a dummy return using TurboTax 2017, adding projections for my final paycheck (due next week). Thanks to the AMT, it makes absolutely no difference whether I make an extra property tax payment or not on my tax liability for 2017. I'm in CA.
masha12 wrote:
Wed Dec 20, 2017 10:16 pm
I found the same thing when I was playing around in H&R Block's 2017 software. But, if you are one of those people who gives to charity and/or has a DAF, you can increase your charitable contributions (or give the 2018 donations in 2017) to get rid of the AMT caused by the property tax payment.

And, an extra mortgage payment in 2017 will also help offset some of the AMT (although not a whole lot).
I'll repeat a PSA on DAF donations for HR Block users. HR Block defaults non-cash donations as 50% donations. You have to go into the donation forms and select from the drop down to make it use the 30% AGI threshold for DAF/Foundation donations of appreciated securities. If you run over the 30% without doing this you will get a nice email from the friendly folks at the IRS asking you to send them a contribution.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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