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December 2017 Newsletter
Introduction
As 2017 is coming to a close, we have a new tax law.
 
To help you understand the tax law changes, we have provided CCH's Tax Breifing of the new tax law.
 
There was a lot of discussion throughout the process about simplifying the tax code.  After reading the briefing, it appears to have simplified the filing process for many by increasing the standard deduction but may have increased complexity for those still itemizing.
 
The immediate concern of the tax law changes relate to the timing of last minute deductions by December 31st.  We have tried to lay this thought process out for you in "By Year End" below.
 
We have only highlighted items to complete by December 31st and mortgage interest below.  You can download CCH's Tax Briefing for further details.  We will continue to provide updates in future newsletters as more analysis of the tax law becomes available.
 
Watch for our correspondence for the upcoming tax season.  We will be reaching out to you soon.  If you have questions or concerns, please let us know by calling our office at (720) 945-9100 or responding to this email.
 
Enjoy the holiday season, cherish your moments with family and friends, and be safe so we can see you in 2018.
Tax Cuts and Jobs Act
To assist you with an analysis of the tax law changes, we have provided CCH's Tax Briefing.
 
President Signs Sweeping Tax Overhaul Into Law
 
The Tax Cuts and Jobs Act (H.R. 1) has been approved by Congress and signed by President Trump.  After a last-minute procedural glitch that required the Senate to vote first on the final bill, the most sweeping change to the U.S. tax code in decades cleared the Senate, 51 to 48, in the early morning hours on December 20, followed by House approval, 224 to 201, later the same day.  President Trump signed the Bill into law at the White House on December 22, 2017.
 
Click here for a detailed summary of the tax law changes.
By Year End
So we have new tax changes, which are removing tax benefit for itemized deductions in 2018.  Should you make last minute changes to claim these deductions in 2017?
 
To be deductible by December 31st, any item mailed must be post marked by this date.  If you incur by credit card or debit card, it needs to be processed by this date.
 
To determine if you should quickly incur deductions by December 31st, you will need to determine if you will be claiming the standard deduction rather than itemizing or if your state and local taxes will become limited.
 
Standard Deduction
 
For 2018, the standard deduction is now $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other individuals.  Under prior tax law, these were $13,000 for joint filers, $9,550 for heads of households, and $6,550 for all other filers.
 
The additional standard deduction for the elderly and blind, $1,300 for married taxpayers and $1,600 for single taxpayers, is retained.
 
Charitable Contributions
 
 
If you believe you will begin using the standard deduction, you may want to accelerate your cash and noncash charitable contributions by December 31st. 
 
Colorado does provide a limited deduction for taxpayers claiming standard deduction on their federal returns.  
 
State and Local Tax
 
For 2018, the itemized deduction for state income tax (or sales tax, if greater than income tax), real estate tax, personal property tax, and any other local tax, will be limited to $10,000 or $5,000 for married filing separate.
 
If you believe you will either begin using the standard deduction or this limitation may restrict your deductions, you may want to:
  1. pay your 2017 state tax liability by December 31st; or
  2. prepay your 2017 real estate tax by December 31st.
The law specifically disallows taxpayers the ability to prepay their 2018 taxes.  However, in Colorado, we pay our real estate taxes in arrears so we pay our 2017 taxes in 2018.  Therefore, you should still be able to pay these by December 31st.
 
Miscellaneous Itemized Deductions
 
If you have been claiming unreimbursed employee expenses, investment expenses, or tax preparation fees, you will no longer be able to deduct these starting in 2018.  Therefore, these are also items you may want to incur by December 31st.
 
Medical Expenses
 
These remain deductible and the floor was decreased from 10% to 7.5% for 2017 and 2018.  Therefore, you may not need to accelerate these deductions.
Mortgage Interest
We field many questions for this deduction so we have isolated this deduction.
 
Under prior tax law, a taxpayer could deduct mortgage interest up to $1.1 million of indebtedness.  This was made up of $1 million for acquisition indebtedness and $100,000 for home equity.
 
Even though the term is titled acquisition indebtedness, it also included improvements to the property.  However, home equity loans could be used for any purpose but because the home was the security on the loan, the mortgage interest was still deductible.
 
For new tax law, there are now two rules based on whether you are grandfathered in on December 15th or your loan is post December 15th.
 
If your loan began on or before December 15th, you still have the $1 million limit for acquisition indebtedness or $500,000 for married filing separate.
 
If your loan begins after December 15th, your acquisition indebtedness limitation becomes $750,000 or $375,000 for married filing separate.
 
A mortgage on a second home is still deductible but is subject to the overall $750,000 limitation so this limitation is for your first and second homes combined.
 
The $100,000 for home equity is no longer deductible.  However, if you used your home equity loan for improvements to the property and your total mortgages are less than the acquisition indebtedness limitations, the mortgage interest is still deductible.
In this issue:
Introduction
Tax Cuts and Jobs Act
By Year End
Mortgage Interest
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Mogg, Hoeye & Associates, LLC  •  5808 South Rapp Street, Suite 210  •  Littleton  •  CO  •  80120

http://www.bmoggcpa.com

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