Tax Reform Planning-Consider Additional 2017 Deductions

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Tax Reform Planning-Consider Additional 2017 Deductions

Congress’s tax reform package is on its way to the President’s desk for signature. There are some pared back tax breaks in the final package that will affect your 2018 taxes. Many deductions removed or limited for 2018, so you may consider accelerating certain deductions into 2017, if possible, to minimize the risk of limitations on deductibility in 2018.

Filers who itemize their deductions have some flexibility in shifting write-offs:

  • State and local income taxes and residential property taxes – The total of this deduction will be limited to $10,000 in 2018. Mailing your state estimated tax payment due in January by year-end lets you claim the deduction in 2017. You may also consider prepayment of taxes on your home this year.
  • Mortgage interest – If you make the January 2018 mortgage payment on your residence before the end of the year, you are able to deduct the interest portion in 2017. The write-off of interest at the same rates is expected to still be deductible in 2018, but it may not be as valuable next year if standard deductions are raised. Mortgage interest expense will be limited for new acquisition debt loans entered into after December 15, 2017 if the debt is above $750,000.
  • Charitable contributions – This write-off is safe, but as with all itemized deductions, it may not be as valuable next year with projected standard deduction increases.  You can accelerate donations into 2017, but you must charge them or mail the checks by December 31st to ensure a 2017 write-off.
  • Moving costs – Both proposals scrap this deduction. So if you’re contemplating relocating for a job, you may want to do so before year-end.

However, please keep in mind that the Alternative Minimum Tax (AMT) can throw a monkey wrench in these plans because deductions for many items, including state and local taxes, residential real property taxes, mortgage interest on home equity borrowing and miscellaneous deductions, aren’t allowed in figuring the AMT. So prepaying a property tax bill or state estimated tax payment won’t work if you are subject to AMT.

If you’re not sure how these strategies will affect your taxes, please give us a call so we can assist you with planning. Our full tax planning email will follow.