Its official…The GOP’s $1.5 trillion tax plan cleared the Senate early this morning.
(…with a lump of coal provision in the end.)
The bill passed the House earlier Tuesday, but due to a procedural snafu the chamber will vote again today before noon. The re-vote isn’t expected to change the outcome. The Tax Cuts and Jobs Act, which is being touted as “the most significant overhaul of the tax code since 1986,” underwent many last minute changes and provisions in the days leading up to its passing.
One of those provisions, which felt something like a lump of coal to us, impacted the timing rules we based our year-end tax tips on:
SEC. 11042. LIMITATION ON DEDUCTION FOR STATE AND LOCAL, ETC. TAXES.
(a) IN GENERAL.—Subsection (b) of section 164 is amended by adding at the end the following new paragraph:
‘‘(6) LIMITATION ON INDIVIDUAL DEDUCTIONS FOR TAXABLE YEARS 2018 THROUGH 2025.—In the case of an individual and a taxable year beginning after December 31, 2017, and before January 1, 2026—
‘‘(A) foreign real property taxes shall not be taken into account under subsection (a)(1), and
‘‘(B) the aggregate amount of taxes taken into account under paragraphs (1), (2), and (3) of subsection (a) and paragraph (5) of this subsection for any taxable year shall not exceed $10,000 ($5,000 in the case of a married individual filing a separate return).
The preceding sentence shall not apply to any foreign taxes described in subsection (a)(3) or to any taxes described in paragraph (1) and (2) of subsection (a) which are paid or accrued in carrying on a trade or business or an activity described in section 212. For purposes of subparagraph (B), an amount paid in a taxable year beginning before January 1, 2018, with respect to a State or local income tax imposed for a taxable year beginning after December 31, 2017, shall be treated as paid on the last day of the taxable year for which such tax is so imposed.’’
(b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable years beginning after December 31, 2016.
Basically this provision eliminates the opportunity for prepayment of state and local income to be utilized as a deduction on your 2017 personal income tax return. The revised bill specifically states that the prepayment of 2018 amounts will not be allowed as a deduction on your 2017 personal income tax return. If these amounts have already been paid, it will be important that they not be included as part of your itemized deductions on your 2017 personal income tax return.
We were pretty disappointed to see one of the more generous Easter Eggs in the Tax Bill disappear to be replaced with a lump of coal… and we were definitely not alone in our frustration. Unfortunately we don’t make the rules, although our team is working diligently to understand them in order to best serve our clients. The full impact of the final tax legislation is yet to be seen, but you can rest assured we will do everything we can to help our clients maximize the benefits that do exist and minimize any negative implications that arise as a result of the new Tax Bill.