PLENTY OF QUESTIONS

Implementation of The Tax Cuts and Jobs Act changes to tax law certainly raises a multitude of questions for tax professionals.

(1) As I previously discussed in “A Nightmare on Tax Street”, will the Form 1098 form to report mortgage interest be revised and will additional recordkeeping requirements be placed on bank and mortgage companies? 

Will existing IRS regulations on acquisition debt and home equity debt – treatment of closing costs of refinancing included in principle, application of payments of principle on consolidated mortgages, etc. - remain, or will new ones be written?

(2) What about the revised dreaded Alternative Minimum Tax (AMT)?  The exemptions and exemption phase-out ranges have been changed, but I have read of no change to the “preferences”, other than because miscellaneous expenses subject to the 2% of AGI threshold are no longer deductible on Schedule A this will no longer be a preference. 

In the “old” AMT personal exemptions were a tax preference, and not deductible in calculating Alternative Minimum Taxable Income.  And the Child Tax Credit is allowed as a credit against AMT.  We will no longer have a personal exemption deduction – this deduction is replaced by an increased Child Tax Credit and a new “non-child” dependent credit.  Will the enhanced and new credit be allowed in full as a credit against AMT?

(3) How will the new Schedule A report the specific components of real estate taxes and state and local income or sales taxes that make up the $10,000 maximum if this maximum is applied?  This information will be important in determining if any portion of state tax refunds are includable in taxable income in the subsequent year. 

I would think the first line in the tax section of Schedule A would be to identify real estate taxes paid, up to the $10, 000 maximum.  A second line would report either state and local income taxes or state and local sales taxes allowed (with a box check like on the current Schedule A), up to the combined maximum, if the property taxes paid are less than $10,000. 

(4) We know that the 20% deduction of “pass-through” business income will not be deducted directly on Schedules C or E or as an “adjustment to income” to reduce AGI, but will be deducted from AGI to determine net taxable income.  But will this deduction also be applied in determining “net earnings from self-employment” subject to the self-employment tax.

And the list goes on.

With a law written and passed in such a hurry there will be lots of issues that will need to be addressed, many in additional “Technical Corrections” legislation.

TAFN