Colorado Probate Blog - Wade Ash Woods Hill & Farley, P.C.

Overview of 2018 Tax Act

President Trump signed the 2018 Tax Act into law on December 22, 2017. Most of the provisions apply only to taxable years starting January 1, 2018 through December 31, 2025. The changes in the corporate tax rates are permanent. Wade Ash intends to send out a newsletter in February that will summarize more fully the provisions of the Act, especially as affecting estate planning. The following is a list of some of the major provisions:

    • The estate, gift and generation-skipping transfer tax exemption is doubled from $5 million to $10 million and still indexed for inflation since 2011. The 2018 exemption will be about $11.2 million.
    • The individual standard deduction is also nearly doubled to $24,000 for married filing jointly, and $12,000 for single taxpayers; the income tax rates are slightly reduced.
    • No more deductions for personal exemptions on individual returns (although they apparently do still apply for trusts and estates).
    • Many itemized deductions for individuals were eliminated or reduced:
      • $10,000 limit on the deduction for state and local taxes
      • no deduction for interest on home equity loans, including current loans
      • the deduction for mortgage interest on new loans is only allowed up to $750,000 in indebtedness
      • No deduction for alimony on divorces finalized after 12/31/2018 (and the receipt of alimony will not be taxable income)
      • medical expenses may still be deducted over 10% of AGI
      • charitable contributions may still be deducted (up to 60% of AGI instead of only 50% for cash contributions to public charities)
      • NO miscellaneous itemized deductions, including investment advisor fees, accountants’ fees, attorney fees
    • 529 plan accounts may make qualified distributions for elementary and high school education up to $10,000 per year per student
    • C corporation changes are permanent and include:
      • corporate tax rate reduced to 21% from 35%
      • corporate Alternative Minimum Tax repealed
      • 100% expensing of new and used property used in the business, except for buildings
      • Business expense deductions include state and local taxes without the $10,000 limit
    • New 20% deduction for "qualified business income" under pass-through entities such as partnerships, LLCs and Sub-S corporations
      • Must be income earned in a "trade or business"
      • Deduction excludes income from capital gains, dividends, interest
      • If total income is less than $315,000 for married filing jointly ($157,500 for single taxpayers), no further limit on the deduction.
      • If more than the threshold, subject to limitation of greater of (a) 50% of taxpayer’s share of W-2 wages, or 25% of taxpayer’s share of W-2 wages plus 2.5% of depreciable property
      • If income is over the threshold, no 20% deduction for income from pass- through service companies, including health, law, accounting, performing arts, athletics, financial services, "reputation/skill-based" services, investment management
    • Many issues have not been addressed in the Act, and will need to be clarified in regulations
  • no deduction for business entertainment expenses (except if employees are included, like holiday parties)
  • changes to fiduciary income tax (trusts and estates):
    • miscellaneous itemized deductions (subject to the 2% floor) are NOT deductible
    • items that are deductible are those NOT subject to the 2% floor and include trustee fees, attorney fees to administer the trust or estate, preparation of estate tax returns and fiduciary income tax returns (but not gift tax returns), and administrative expenses such as probate filing fees, appraisals and preparation of accountings
    • state and local taxes up to $10,000 are deductible
    • charitable contributions are deductible if required by the governing instrument
    • trusts and estates still have the personal exemption ($600 for estates, $100 for simple trusts and $300 for complex trusts)
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Minority Interest Discounts in Family Controlled Entities

On August 2, 2016, the Treasury Department proposed a series of regulations to Section 2704 of the Internal Revenue Code. If these proposed regulations are made final, this could greatly limit the ability of family controlled partnerships, limited liability companies, and corporations to transfer interests in a manner that takes advantage of minority discounts.

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IRS Delays Basis Reporting Again

In Notice 2016-19, 2016-9 IRB, the IRS again delayed the due date for filing the new Form 8971, Information Regarding Beneficiaries Acquiring Property From a Decedent, reporting the basis in a decedent's estate both to the IRS and to the beneficiaries. The 2015 Form 1041 (U.S. Fiduciary Income Tax Return) includes provisions requiring consistent basis reporting. As noted in earlier blogs, the "Highway Bill" signed into law on July 31, 2015, requires executors of estates and certain heirs filing U.S. Estate Tax Returns (Form 706) on or after that date to file a statement with the IRS, and to report the fair market value of assets on the return to the beneficiaries within 30 days of filing the Form 706. The IRS had delayed the due date for new Form 8971 until February 29, 2016, and has now extended that date again to March 31, 2016. The Form and Instructions are now posted on the IRS website, but numerous questions have been raised, resulting in not only another delayed due date, but a "suggestion" by the IRS that taxpayers wait until proposed regulations are issued to file the return. Proposed regulations are expected "shortly."

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