New Budget Agreement Brings Additional Tax Changes

The ink on the Tax Cuts and Jobs Act (TCJA), which swept in a tidal wave of changes to federal tax rules, had been dry for only seven weeks before Congress passed more legislation that could affect many taxpayers. The Bipartisan Budget Act of 2018 (BBA), which President Trump signed into law February 9, 2018, contains several tax-related provisions that could reduce the amounts some taxpayers owe for the 2017 tax year.

Tax Extenders

The BBA extends for one year a set of tax provisions, known as “extenders,” which expired at the end of 2016. Key provisions that have been extended include:

Exclusion of discharge of mortgage debt. The BBA extends homeowners’ ability to exclude from gross income mortgage debt on a principal residence that was forgiven in 2017 (for example, as a result of a foreclosure, short sale, or loan modification). It also modifies the exclusion to make it apply to debt discharged later than 2017, but in accordance with a written agreement entered into in 2017. Without the extended provision, taxpayers would pay income taxes on the amount of mortgage debt forgiven.

Deductibility of mortgage insurance premiums. Taxpayers can continue to treat mortgage insurance premiums as deductible interest. But this affects only taxpayers who itemize their deductions, and changes under the TCJA are expected to significantly reduce the number of taxpayers who do so. Further, the deduction phases out for taxpayers with adjusted gross income (AGI) of $100,000 to $110,000.

Deductibility of qualified tuition and related expenses. “Above-the-line” deductions are subtracted from a taxpayer’s gross income to calculate AGI. The BBA extends the above-the-line deduction for higher education expenses. Taxpayers needn’t itemize to take advantage of the deduction, but it’s capped at $4,000 for individuals with AGI that doesn’t exceed $65,000 ($130,000 for joint filers) and $2,000 for individuals with AGI that doesn’t exceed $80,000 ($160,000 for joint filers).

Incentives for empowerment zones. Empowerment zones are located in economically distressed areas. The BBA extends through 2017 the tax incentives — including tax-exempt bonds, employment credits, increased expensing and certain gain exclusion — for certain businesses and employers to operate in empowerment zones.

Additional Tax-Related Provisions

The BBA also contains several other provisions that could affect federal taxes, including those related to:

Estimated corporate tax payments. The BBA repeals a rule in the Trade Preferences Extension Act of 2015 regarding the payment of certain estimated corporate taxes. The rule would have required corporations with assets of at least $1 billion to increase the amount of the estimated taxes installment due in July, August, or September 2020 by 8%, with the next required installment (due in October, November, or December 2020) reduced accordingly.

Senior citizen tax returns. Beginning with their 2019 taxes, taxpayers age 65 or older should be able to file their federal income taxes on a new Form 1040SR. The BBA directs the IRS to develop a form that is as simple as Form 1040-EZ, Income Tax Return for Single and Joint Filers With No Dependents. It will allow reporting of Social Security and retirement distributions, interest and dividends, and certain capital gains and losses.

Natural disasters. The BBA provides tax relief for people affected by the 2017 California wildfires. This relief includes an employee retention tax credit and special rules regarding early distributions from retirement plans and deductions for personal casualty losses due to the fires. The BBA also extends similar tax relief that previously had been provided to eligible taxpayers in disaster areas hit by Hurricanes Harvey, Irma, and Maria.

Whistleblower awards. Two amendments clarifying whistleblower rights made their way into the BBA. The first makes clear that whistleblowers awarded money under the Dodd-Frank Act and state False Claims Acts — not just under the federal False Claims Act and federal tax laws — are entitled to an above-the-line tax deduction for their attorneys’ fees. This treatment prevents double taxation of the fees (first as part of the entire amount received by the whistleblower and again on the amount paid to the attorney).

The second amendment defines “collected proceeds” to include criminal fines and civil forfeitures. In some cases, the IRS has argued that the amount of proceeds — which determines the amount of IRS whistleblowers’ awards — was limited to proceeds collected under the Internal Revenue Code (for example, the tax cheat’s penalties and interest), thereby excluding the consideration of criminal fines and civil forfeitures from the awards.

What Now?

The BBA’s inclusion of provisions applying retroactively to 2017 taxes is sure to cause some confusion, particularly for those taxpayers who have already filed their tax returns. The IRS has indicated that it’s reviewing the BBA and plans to provide additional information as quickly as possible. Taxpayers whose returns are filed will likely need to file amended returns to take advantage of the benefits described above, but the IRS could provide an alternative solution.

If you have questions about the tax changes related to the new budget agreement, or would like to request a speaker on this topic for your organization or event, contact one of our PYA executives below at (800) 270-9629.

© 2018

 

Access additional tax reform insights here

 


Eric Elliott

Eric Elliott

Principal

Mark Brumbelow

Mark Brumbelow

Senior Manager

Related Posts
PYA has released a new white paper explaining how competing health systems may overcome antitrust obstacles to merger by formally committing to population health improvement in the communities they serve....
Read More

PYA White Paper Explains How Pro-Competitive Impacts of Hospital Consolidation Can Overcome Antitrust Concerns

The new Tax Cuts and Jobs Act (TCJA) can be confusing for many-- especially small business owners.  Although many aspects of the TCJA have been discussed, one component of the...
Read More

Government Clamps Down on “Deductible Fun” for Businesses

As businesses consider the impact of the Tax Cuts and Jobs Act (TCJA) introduced late last year, the corporate tax rate is receiving substantial attention.  However, according to a 2014...
Read More

2018 Tax Reform – The Excess Loss Limitation Likely to Squeeze Owners of Cyclical Businesses

A recent Accounting Standards Update (ASU) addresses land easements and their accounting under the new lease standards.  In January 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-01 Leases:...
Read More

Land Easements—Guidance for Implementing New Lease Accounting Standards

According to its tagline, Atlanta Business RadioX spotlights “the city’s best businesses and the people who lead them.”   PYA is pleased to share that one of its own, Consulting Principal...
Read More

PYA’s Lori Foley Shared Insight in Live Radio Interview

Many Americans have a 401(k) retirement savings plan as a benefit of employment with their employers.  They contribute a percentage of their compensation to their 401(k) each pay period with...
Read More

Taking Distributions from Your 401(k): What You Need to Know

The recent Tax Cuts and Jobs Act (TCJA) imposes a limit on deductions for business interest for taxable years beginning in 2018.  The limit, like other aspects of the law,...
Read More

IRS Sheds Light on New Limit on Business Interest Expense Deductions

Stakeholders seeking clarity were behind the latest Accounting Standards Update (ASU) issued by the Financial Accounting Standards Board (FASB).  In response to questions raised, the FASB released ASU 2018-03: Technical...
Read More

Measuring Fair Value: New ASU Offers Clarity

The Tax Cuts and Jobs Act (TCJA) of 2017 brings sweeping changes for many businesses. Along with a reduced corporate tax rate and the elimination of the Alternative Minimum Tax...
Read More

Looking Ahead: Net Operating Loss Rules under the New Tax Act

Share This Insight

If you received value from this article, please share it with your network (e.g., Facebook, Twitter, LinkedIn). Icons below for your convenience.

Stay Current

* indicates required
Monthly eNewsletters
See more newsletter and alert options.

PYA Population Health Ascend

PYA Healthcare Blog

PYA Thought Leadership Services

The Healthcare Loop