Things to Know for the Current Tax Year
Provisions Extended in the 2018 Bipartisan Budget Act of 2018 (signed into law on February 9, 2018)
Congress included in the budget bill that was passed on February 9 an extension for one year of the provisions that had expired at the end of 2016 for one year. Therefore the following will be applicable for 2017 only:
- Tuition and Fees Deduction - Form 8917/Form 1040, line 34
- Exclusion of gain from income of foreclosed home mortgage debt (Form 982, line 1e)
- Ability to treated mortgage insurance premiums as qualified mortgage interest (Schedule A, line 13)
- Nonbusiness Energy Property Credit – Form 5695, Part II
- Credit for 2-Wheeled plug-in electric vehicles – Form 8936
- Credit for new qualified fuel cell motor vehicles – Form 8910
Extended 21 federal business provisions for one year.
Other Energy Related Provisions (Extended for more than one year)
The following energy related provisions were extended for more than one year:
- 30 percent Investment Tax Credit solar energy, fiber optic solar energy, qualified fuel cell and qualified small wind energy property for property the construction which begins before 2020 and is then phased out for property the construction that begins before 2022.
- 10 percent ITC for qualified microturbine, combined heat and power system and thermal energy property is available for property the construction that begins before 2022.
Hurricane and California Wildfire Relief
The Disaster Tax Relief and Airport and Airway Extension Act of 2017 (signed into law on September 29, 2017 included the following tax provisions that provide relief for taxpayers affected by Hurricanes Harvey, Irma and Maria. Also the Bipartisan Budget Act of 2018 (signed into law on February 9, 2018) included the same provisions for taxpayers affected by the California Wildfires.
Deduction for Personal Casualty Losses
Uncompensated losses in an applicable hurricane or California wildfire disaster area:
- Must exceed $500 in order to take a deduction
- Removes the requirement that the loss exceed 10% of AGI
- May be taken as an itemized deduction or as an increase in a taxpayer’s standard deduction.
Special Rule for Determining 2017 Earned Income for the Earned Income Tax Credit and Child Tax Credit
Qualified individuals may use their earned income from 2016 to determine their earned income tax credit and their child tax credit for their 2017 federal income tax return if their 2017 earned income is less than their 2016 earned income.
Qualified individuals are those whose principal place of abode was located in the Hurricane Harvey, Irma or Maria or California wildfire disaster zone or lived in the applicable hurricane or California wildfire disaster area and such individual was displaced because of the hurricane or wildfire.
Penalty-Free Access to Retirement Funds
- For qualified hurricane or wildfire relief an individual can withdrawal funds (up to $100,000) from a retirement account free of the 10 percent early withdrawal penalty and can spread the taxable portion on that distribution over a three year period.
- Allows for any qualified hurricane or wildfire relief withdrawal will not be taxable if it is recontributed within three years of the date of distribution.
- Increases the maximum loan amount for qualified hurricane or wildfire relief to $100,000.
- Allows for re-contribution of retirement plan withdrawals for cancelled home purchases or construction of a principal residence due to eligible disasters.
Charitable Contributions for Hurricane or Wildfire Relief
Suspends the limitation on charitable contributions associated with hurricane relief that are made between August 23, 2017 and December 31, 2017.
Also suspends the limitation for charitable contributions associated with California wildfire relief that are made between October 8, 2017 and December 31, 2018.
Provides qualifying businesses a tax credit for 40 percent of wages (up to $6,000 per employee) paid by a disaster affected employer to an employee from a core hurricane or California wildfire disaster area.
PATH Act Reminders for 2018 Filing Season
Federal Refunds will not be Issued Until February 15 for Taxpayers who claim EITC or Additional Child Tax Credit
This is a reminder that as with last year any refund related to a federal return that claims the Earned Income Tax Credit or the Additional Child Tax Credit will not be issued to the taxpayer until February 15.
Expansion of Preparer Due Diligence Requirements
This is a reminder that the PATH Act expanded the EITC due diligence requirements under Code Section 6695 (including the $500 penalty) to include the child tax credit and the American Opportunity Education credit last year.
Therefore the Form 8867 (Paid Preparer’s Due Diligence Checklist) now includes questions for the child tax credit and the American Opportunity Education Credit as well as for the Earned Income Tax Credit.
Also for this year the IRS has made changes to the Form 8867 that should make it easier for preparers to understand and answer the due diligence questions.
See the 2017 Form 8867 for more information on the changes that have been made to the Paid Preparer’s Checklist.
Tax Year 2017 Annual Changes and Reminders (for returns filed during the 2018 filing season)
Schedule A – Medical Expense Threshold Percentage (Reminder)
Medical expenses are deductible as an itemized deduction when they exceed 7.5% of the taxpayer’s AGI.
Exemption Amount: $4,050 per exemption