2017 Tax Reform Bill and Year End Tax Planning


The Senate and the House each passed tax reform bills, and are currently negotiating a final version of the bill.  The goal is to have tax legislation finalized and signed by the end of the 2017. While the law has not yet been enacted, it is more likely than not that legislation will pass before the end of the year. The new legislation will be effective as of January 1, 2018.

Based on the information that is currently available, the legislation would decrease the number of itemized deductions currently allowed, while increasing the amount of the standard deduction. Taxpayers who itemize deductions may want to accelerate certain payments or activities before the close of 2017 in order to claim those deductions under the current rules.

Below is a list of highlights of individual tax changes in the proposed tax bill.

Highlights of the proposed federal tax bill (Note that there are differences between the Senate and House bills that will have to be resolved in Conference):

  • Increase in the standard deduction ($24,000 for married couples, $12,000 for single filers)
  • Preserves property tax itemized deduction up to $10,000
  • Ends the itemized deduction for payment of state and local income tax
  • Allows itemized deductions of medical expenses above 7.5% of AGI for 2018 and 2019 before reverting to the current AGI threshold of 10%
  • Disallows deduction of interest paid on home equity loans
  • The Senate bill retains the Alternative Minimum Tax (AMT), but increases the exemption amount, while the House version eliminates AMT.
  • Requires individual investors who hold multiple positions in the same stock purchased over time to dispose of shares in the order the shares were acquired (first in first out), rather than decide which specific shares to sell or gift

In preparation for these anticipated changes in the tax law, individual taxpayers should consider taking the following action before December 31, 2017:

  • Pay Iowa property taxes due March 2018 before the end of 2017 if your property tax bill exceeds $10,000 per year, or if you are likely to take the larger standard deduction for 2018.
  • Accelerate payment of your 4th quarter state estimates, unless currently subject to AMT (proposed legislation would not impact filers subject to AMT). Check line 45 of your 2016 Form 1040 to see if you paid AMT in 2016, as you may be subject to the tax again in 2017.
  • Accelerate charitable contributions if you are likely to take the larger standard deduction for 2018.

Please keep in mind that the tax bill has not yet been finalized.  This advice is based on the best information available at the present time.  You should contact your tax preparer to obtain personalized advice on whether certain tax planning actions that should be taken before the end of the year.

Questions involving this post or tax planning in general can be directed to Andrew Seyfer at aseyfer@bradleyriley.com.  Or call our offices at 319-363-0101 or 319-466-1511.