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ask the taxgirl

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Today, I’m opening up the Ask The Taxgirl mailbag to answer some of the questions you asked about the tax reform bill. The mailbag isn’t empty yet: I still have yet to answer some of your questions. Keep watching for another round of answers soon. But here’s a first look at what you want to know so far:

Taxpayer asks:

According to your article here, it sounds like the new tax legislation, if passed, would not take effect until Jan. 1, 2019 (thereby affecting 2020 filings). Is that correct? I thought if they pass the legislation this calendar year, it would take effect on Jan. 1, 2018 (thereby affecting 2019 filings). Maybe I’m just reading it wrong!?!

Taxgirl says:

Here’s the reason for the confusion: The Internal Revenue Service (IRS) released the 2018 tax rates (those that you would use to file your tax returns in 2019) in October of 2017. Those are the rates that, barring any tax reform cuts or tax reform changes, will go into effect as of January 1, 2018.
However, on November 2, 2017, the House released its version of a tax reform bill which, if passed as is, would be effective beginning that same time. If that happened, the House bill (which would then be a law) would supersede the 2018 tax rates and the new law would apply.

Taxpayer asks:

I have itemized deductions for as long as I can remember…am I reading the plan correctly that if I itemize my deductions (mainly mortgage interest and property tax), I won’t have a personal exemption for me and my dependents? Or is the new standard deduction going to be in addition to my itemized deductions (wishful thinking)?

Taxgirl says:

Under the proposal, as before, you would be able to claim the standard deduction (which has been increased) or itemized deductions but not both. And yes, the personal exemption would be eliminated.

Taxpayer asks:

Will this extra 1250 per taxpayer 65+ be gone now? So all couples will get the 25000?

Taxgirl says:

Under the proposed bill, the standard deduction would increase to $12,200 for individuals, $18,300 for head of household (HOH) and $24,400 for married couples, and the additional standard deduction would be eliminated.

Taxpayer asks:

Will I have to pay the Obamacare-penalty next year?

Taxgirl says:

If you are subject to the shared responsibility payment/penalty, you will have to pay it in 2018. The proposal did not alter or modify the shared responsibility payment at all.



Taxpayer asks:

Wondered if you could comment on what happens to existing AMT credits if the AMT is eliminated?

Taxgirl says:

Under the proposed bill, the AMT would be eliminated. If you have AMT credits, under the proposal, you’d be allowed to claim a refund of 50% of the remaining credits (to the extent the credits exceed regular tax for the year) for the 2019, 2020, and 2021 tax years and you would be able to claim a refund of all remaining credits in the 2022 tax year.

Taxpayer asks:

I have lived in my house for more than five years and my mortgage is more than $500,000. Does this mean I would lose my mortgage deduction?

Taxgirl says:

No, under the proposal, existing mortgages would be “grandfathered” meaning that the old law would apply. The new cap would apply to debt incurred after a certain date. That date is a little bit of a moving target: The bill says November 2 but I don’t know if that date will stick.

Taxpayer asks:

How does the bill affect the capital gains tax on stocks?

Taxgirl says:

Under the proposed bill, capital gains from the sale of stocks will be treated the same as before: the rates will change depending on income and length of time the asset is held.

Taxpayer asks:

Can you tell me if the deductions for a home office and/or mileage deduction for business use of a vehicle were eliminated?

Taxgirl says:

Under the proposed bill, most itemized deductions (except home mortgage interest deduction, the charitable donation deduction, and a modified state and local property tax deduction) would be eliminated in favor of an increased standard deduction. Some business-related deductions are slated to stay in place, however, any deductions which are clearly employee-related (i.e. expenses you incur in the business of being an employee, including maintaining a home office) would be eliminated.

Taxpayer asks:

I haven’t seen or heard anything NEW regarding Personal Exemptions so I presume that they are going to be eliminated like medical expenses. Is that correct?

Taxgirl says:

Yes, under the proposed bill, personal exemptions would be eliminated.
Under current law, taxpayers can claim a personal exemption for himself or herself, as well as taxpayer’s spouse and dependents.

Taxpayer asks:

How will mortgage interest and real-estate taxes be treated for a second home? Do they get lumped together on the maximum deductible ($10k for RE taxes, $500k for mortgage interest)?

Taxgirl says:

Under the proposed tax reform bill, the deduction on home mortgage interest would only be allowed for one home, the taxpayer’s principal residence. Under current law, the deduction is allowed for a principal residence and one other residence of the taxpayer.

Under the proposed tax reform bill, the deduction for state and local real estate taxes would be capped at $10,000 but the cap does not appear to be limited to one property.

Taxpayer asks:

Will there be penalties resulting from any under-withheld tax (due to the new bill)?

Taxgirl says:

Great question. I don’t know since it hasn’t been addressed but I have to think IRS will offer a workaround/some limited relief.

Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to “ask the taxgirl.”