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

This Tax Update article is authored by Laurie A. Hunter, Kevin D. Millard, Jonathan F. Haskell and Heidi J. Gassman.

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    • corporate Alternative Minimum Tax repealed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)

On June 25, 2015, the Supreme Court of the United States held in the King v. Burwell decision that tax credits for health insurance premiums are available to taxpayers in every state, regardless of whether those taxpayers live in a state which has established its own health insurance exchange or a state which instead uses a federally-established exchange.  Chief Justice Roberts delivered the 6-3 decision.

Mitch Morrissey, the Denver District Attorney, recently shared this Consumer Advisory called Hang Up Before You Pay.

Congress did not pass an extension of the opportunity for taxpayers age 70-1/2 and older to contribute up to $100,000 from an IRA directly to charity, so that income exclusion expired at the end of 2013. On May 29, 2014, the House passed H.R. 4619 (The "Permanent IRA Charitable Contribution Act of 2014") that would make that income exclusion permanent. In addition, the House also passed H.R. 3134 (The "Charitable Giving Extension Act") which would allow an individual taxpayer to deduct charitable contributions made after December 31, but before the due date of the individual's return; and H.R. 2807 (The "Conservation Easement Incentive Act of 2013") that would make permanent some of the liberalized rules for deducting the value of charitable contributions of conservation easements (that also expired at the end of 2013). Tax extender bills have stalled in the Senate, so it is unknown whether this will pass in time to permit taxpayers to make this kind of contribution in 2014.

There are a number of tax provisions that will expire at the end of 2013 unless they are extended, which has usually happened over the past 10 years or so, on a one- or 2-year basis.  Senate Majority Leader Harry Reid tried to bring a one-year extender bill to the Senate on December 19, but it failed.  The Chair of the House Ways and Means Committee announced earlier in December that he would not bring an extender bill this year.  The expiring provisions include: tax-free distributions from IRAs to charities for persons at least age 70 ½; enhanced conservation easement deduction; a number of energy credits and deductions as incentives for alternative fuel cars, energy efficient appliances and improvements to homes and businesses; enhanced depreciation and credits for equipment purchased by businesses; research credits for businesses; and special rules for capital gains on small business stock.