Tax News
Important Updates!

1. ACA Information - Do you have insurance through Marketplace? If so, you will receive statement 1095-A to use when preparing your personal return. Note: You cannot file your personal tax return without this form.

2. 
Impact of the Anthem Breach on BCBS Members

3. Most people don't find out there has been a lien against their property until they try to refinance or sell. Lake Country Recorder Mary Ellen Venderventer announced a free service for homeowners to use to fight against identity theft and mortgage fraud. This new 24/7 service allows residents to sign up on the Recorder's website to receive an e-mail or text, alerting them when certain documents have been recorded against their name or property. 

Residents are encouraged to sign up for property check alerts at: www.lakecountyil.gov/recorder. For more information, contact the Recorder's office at 847-377-2575.
 

4. Employer obligations in regards to reporting new hires under the Unemployment Insurance Act

5. Illinois notification of filing changes for withholding all are now quarterly, for the official bulletin click here

6. Phone scammers are always adapting to find new ways to steal, so you may want to check out some great tips in the beginning of the Feb. 2017 Grant Township newsletter and on the IL Attorney General website.

2018 Newsletter

January 5, 2018

Hello, and Happy New Year to you! My website address is www.jblackassociates.net.
Please check the website from time to time, as I will be posting more information you
may find useful and information on the Tax Cuts and Jobs Act, how it will affect you. If
you would like to send your tax information with a secure electronic portal, the link is on
my website. Please call my office for the file transfer password.
Please take a few minutes to review the highlights of this newsletter to see if they pertain
to you. Ask me any questions you have or enclose a note with your tax information. If
no organizer is included with this letter, and you would like one, let me know. I can mail
or e-mail one to you.

Filing season this year begins January 29th. Refunds should be available starting after
February 20th, with a delay for those with Earned Income Credit or Additional Child Tax
Credit. This allows additional time to help prevent revenue lost due to identity theft and
refund fraud related to fabricated wages and withholdings.
New Illinois State Law P.A. 100-0401 increases income eligibility limitation for all
counties for the Property Tax Senior Freeze Exemption. For 2017, Cook County will
increase to $65,000 from $55,000, respectively. The limitation will increase to $65,000
for the rest of the state in tax year 2018. The new law also implements a minimum
exemption of $2,000 for Cook County under the Senior Freeze. This means that even if
the EAV of a qualifying senior’s home does not increase from the base, they will still
receive at least $2,000 exemption under the senior freeze. The homestead exemption
and senior exemption is increased for homeowners in Cook County to $10k and
$8k, respectively for the 2017 EAV.


Among the other Illinois provisions to note for 2017 tax year are:
• Illinois Income Tax increase to 4.95% from 3.75% for Individuals, Trusts &
Estates and 7% from 5.25% for Corporations (excluding S-Corps) for 2017
• Classroom supplies credit of $2500
• Education Expense Credit -increase from $500 to $750 per family for K-12,
tuition, books and lab fees
• New penalties on high income earners (AGI>500k MFJ or 250k other status).
5% property tax credit eliminated and personal exemption of $2175 eliminated.
• Invest in Kids Act - 75% income tax credit for authorized contributions to IDOR
approved, nonpublic, nonprofit scholarship granting organizations. Eligible
students must be below certain income level.
• All sales tax returns must be filed electronically, starting with January 2018
• 2017 W2s must be filed with IDOR electronically by 1/31/18


P.O. Box 498 Ingleside IL 60041 Phone (847) 587-3065 Fax (847) 587-3453

• QSEHRA---Small employers can now offer their employees an HRA for payment
or reimbursement of employee’s or family members medical expenses without
violating provisions of the ACA

Provisions that expired on December 31, 2016 are as follows:
• Exclusion for discharge of indebtedness for qualified principal residence
indebtedness
• Deduction for mortgage insurance premiums as qualified mortgage interest
• Tuition and fees deduction. If eligible, you will still get the education credits.
• Credit for energy efficient home improvements (insulation, exterior windows and
doors, and certain metal or asphalt roofs)

Allowable limit on gifts, before gift tax imposition remains at $14,000 for 2017 ($15,000
for 2018) The federal estate tax exemption—that is the amount an individual can leave
to heirs without having to pay federal estate tax—will be $5.49 million in 2017, and $11.2
million in 2018. The top federal estate tax rate is 39.6% for 2017 and 37% for 2018.
Deadlines for C corporations, partnerships, and FBAR reporting remain the same as
2016. C corporations will be due 3 1/2 months after year end (April 15 for December
year ends). Partnerships will be due March 15 (instead of April 15) and foreign bank
reporting is due April 15 (instead of June).

Earnings Ceiling for Social Security for 2018 under full retirement age is $17,040 for
the year full retirement is reached is $45,360. Maximum FICA taxable earnings for 2017
and 2018 are $127,200 and $128,700 respectively.

Standard Mileage Deduction -Per mile 2017 rates (in cents): Business-53.5;
Charitable- 14, Medical/moving- 17. For 2018, these rates are 54.5, 14, and 18 cents,
respectively. Reminder, deduction is dependent on "contemporaneous" (occurring at
the time of the event, not reproduced later) mileage log including who, what, where and
when.

Pension and IRA Contribution Limits---Maximum retirement contributions for 2017
and 2018 are as follows: IRA $5,500 (with catch up of $1000) for both years, SIMPLE-
$12,500 (catch up of $3k) and 401(k), 403.(b) and most 457 plans is $18k for 2017 and
$18,500 for 2018 (catch up of $6k). For defined contribution plans and SEPs , the limits
are the lesser of $54k or 25% of compensation and $55k for 2018. Please consult your
investment advisor or contact me regarding the phase out of deduction/allowable
amount, as there are income limitations and rules when you have another retirement
plan.


Circular 230 Disclaimers
Any tax advice contained in this newsletter is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service, or to promote, market, or recommend to another person any tax relate matter. These materials are distributed with the understanding that Jacqueline Black & Associates, Ltd. assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein. The reader is also cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated.

Tax Fraud Scam Warning

IR-2018-27, Feb. 13, 2018

WASHINGTON — The Internal Revenue Service today warned taxpayers of a quickly growing scam involving erroneous tax refunds being deposited into their bank accounts. The IRS also offered a step-by-step explanation for how to return the funds and avoid being scammed.

Following up on a Security Summit alert issued Feb. 2, the IRS issued this additional warning about the new scheme after discovering more tax practitioners’ computer files have been breached. In addition, the number of potential taxpayer victims jumped from a few hundred to several thousand in just days. The IRS Criminal Investigation division continues its investigation into the scope and breadth of this scheme.

These criminals have a new twist on an old scam. After stealing client data from tax professionals and filing fraudulent tax returns, these criminals use the taxpayers' real bank accounts for the deposit.

Thieves are then using various tactics to reclaim the refund from the taxpayers, and their versions of the scam may continue to evolve.
Different Versions of the Scam

In one version of the scam, criminals posing as debt collection agency officials acting on behalf of the IRS contacted the taxpayers to say a refund was deposited in error, and they asked the taxpayers to forward the money to their collection agency.

In another version, the taxpayer who received the erroneous refund gets an automated call with a recorded voice saying he is from the IRS and threatens the taxpayer with criminal fraud charges, an arrest warrant and a “blacklisting” of their Social Security Number. The recorded voice gives the taxpayer a case number and a telephone number to call to return the refund.

As it did last week, the IRS repeated its call for tax professionals to step up security of sensitive client tax and financial files.

The IRS urged taxpayers to follow established procedures for returning an erroneous refund to the agency. The IRS also encouraged taxpayers to discuss the issue with their financial institutions because there may be a need to close bank accounts. Taxpayers receiving erroneous refunds also should contact their tax preparers immediately.

Because this is a peak season for filing tax returns, taxpayers who file electronically may find that their tax return will reject because a return bearing their Social Security number is already on file. If that’s the case, taxpayers should follow the steps outlined in the Taxpayer Guide to Identity Theft. Taxpayers unable to file electronically should mail a paper tax return along with Form 14039, Identity Theft Affidavit, stating they were victims of a tax preparer data breach.

Here are the official ways to return an erroneous refund to the IRS.

Taxpayers who receive the refunds should follow the steps outlined by Tax Topic Number 161 - Returning an Erroneous Refund. The tax topic contains full details, including mailing addresses should there be a need to return paper checks. By law, interest may accrue on erroneous refunds.

If the erroneous refund was a direct deposit:

Contact the Automated Clearing House (ACH) department of the bank/financial institution where the direct deposit was received and have them return the refund to the IRS.
Call the IRS toll-free at 800-829-1040 (individual) or 800-829-4933 (business) to explain why the direct deposit is being returned.

If the erroneous refund was a paper check and hasn't been cashed:

Write "Void" in the endorsement section on the back of the check.
Submit the check immediately to the appropriate IRS location listed below. The location is based on the city (possibly abbreviated) on the bottom text line in front of the words TAX REFUND on your refund check.
Don't staple, bend, or paper clip the check.
Include a note stating, "Return of erroneous refund check because (and give a brief explanation of the reason for returning the refund check)."

The erroneous refund was a paper check and you have cashed it:

Submit a personal check, money order, etc., immediately to the appropriate IRS location listed below.
If you no longer have access to a copy of the check, call the IRS toll-free at 800-829-1040 (individual) or 800-829-4933 (business) (see telephone and local assistance for hours of operation) and explain to the IRS assistor that you need information to repay a cashed refund check.
Write on the check/money order: Payment of Erroneous Refund, the tax period for which the refund was issued, and your taxpayer identification number (social security number, employer identification number, or individual taxpayer identification number).
Include a brief explanation of the reason for returning the refund.
Repaying an erroneous refund in this manner may result in interest due the IRS.

IRS mailing addresses for returning paper checks

For your paper refund check, here are the IRS mailing addresses to use based on the city (possibly abbreviated). These cities are located on the check’s bottom text line in front of the words TAX REFUND:

ANDOVER – Internal Revenue Service, 310 Lowell Street, Andover MA 01810
ATLANTA – Internal Revenue Service, 4800 Buford Highway, Chamblee GA 30341
AUSTIN – Internal Revenue Service, 3651 South Interregional Highway 35, Austin TX 78741
BRKHAVN – Internal Revenue Service, 5000 Corporate Ct., Holtsville NY 11742
CNCNATI – Internal Revenue Service, 201 West Rivercenter Blvd., Covington KY 41011
FRESNO – Internal Revenue Service, 5045 East Butler Avenue, Fresno CA 93727
KANS CY – Internal Revenue Service, 333 W. Pershing Road, Kansas City MO 64108-4302
MEMPHIS – Internal Revenue Service, 5333 Getwell Road, Memphis TN 38118
OGDEN – Internal Revenue Service, 1973 Rulon White Blvd., Ogden UT 84201
PHILA – Internal Revenue Service, 2970 Market St., Philadelphia PA 19104

SUMMARY OF THE TAX EXTENDERS AGREEMENT
DIVISION D – REVENUE MEASURES
TITLE I – EXTENSION OF EXPIRING PROVISIONS


Subtitle A – Tax Relief for Families and Individuals

Section 40201. Extension and modification of exclusion from gross income of discharge of
qualified principal residence indebtedness. The provision extends through 2017 the exclusion
from gross income of a discharge of qualified principal residence indebtedness. The provision
also modifies the exclusion to apply to qualified principal residence indebtedness that is
discharged pursuant to a binding written agreement entered into in 2017.

Section 40202. Extension of mortgage insurance premiums treated as qualified residence
interest. The provision extends through 2017 the treatment of qualified mortgage insurance
premiums as interest for purposes of the mortgage interest deduction. This deduction phases out
ratably for taxpayers with adjusted gross income of $100,000 to $110,000.

Section 40203. Extension of above-the-line deduction for qualified tuition and related
expenses. The provision extends through 2017 the above-the-line deduction for qualified tuition
and related expenses for higher education. The deduction is capped at $4,000 for an individual
whose adjusted gross income (AGI) does not exceed $65,000 ($130,000 for joint filers) or
$2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers).

Subtitle B – Incentives for Growth, Jobs, Investment, and Innovation

Section 40301. Extension of Indian employment tax credit. The provision extends through
2017 the Indian employment tax credit. The Indian employment credit provides a credit on the
first $20,000 of qualified wages paid to each qualified employee who works on an Indian
reservation.

Section 40302. Extension and modification of railroad track maintenance credit. The
provision extends through 2017 the railroad track maintenance tax credit. The provision includes
a “safe harbor” to provide that assignments of the credit shall be effective if made pursuant to a
written agreement entered into no later than 90 days following date of enactment.

Section 40303. Extension of mine rescue team training credit. The provision extends
through 2017 the mine rescue team training tax credit. Employers may take a credit equal to the
lesser of 20 percent of the training program costs incurred, or $10,000.

Section 40304. Extension of classification of certain race horses as 3-year property. The
provision extends the 3-year recovery period for race horses to property placed in service during
2017.

Section 40305. Extension of 7-year recovery period for motorsports entertainment
complexes. The provision extends the 7-year recovery period for motorsport entertainment
complexes to property placed in service during 2017.

Section 40306. Extension and modification of accelerated depreciation for business
property on an Indian reservation. The provision extends accelerated depreciation for
qualified Indian reservation to property placed in service during 2017.

Section 40307. Extension of election to expense mine safety equipment. The provision
extends the election to expense mine safety equipment to property placed in service during 2017.

Section 40308. Extension of special expensing rules for certain film, television, and
theatrical productions. The provision extends through 2017 the special expensing provision for
qualified film, television, and theatrical productions. In general, only the first $15 million of
costs may be expensed.

Section 40309. Extension of deduction allowable with respect to income attributable to
domestic production activities in Puerto Rico. The provision extends through 2017 the
eligibility of domestic gross receipts from Puerto Rico for the domestic production deduction.

Section 40310. Extension of Treatment of timber gains. The provision provides that C
corporation timber gains are subject to a tax rate of 23.8 percent. The provision is effective for
tax year 2017.

Section 40311. Extension of empowerment zone tax incentives. The provision extends
through 2017 the tax benefits for certain businesses and employers operating in empowerment
zones. Empowerment zones are economically distressed areas, and the tax benefits available
include tax-exempt bonds, employment credits, increased expensing, and gain exclusion from the
sale of certain small-business stock.

Section 40312. Extension of American Samoa economic development credit. The provision
extends through 2017 the existing credit for taxpayers currently operating in American Samoa.

Subtitle C – Incentives for Energy Production and Conservation

Section 40401. Extension of credit for nonbusiness energy property. The provision extends
through 2017 the credit for purchases of nonbusiness energy property. The provision allows a
credit of 10 percent of the amount paid or incurred by the taxpayer for qualified energy
improvements, up to $500.

Section 50402. Extension and Modification of Credit for Residential Energy Property.
The provision extends the credit for residential energy efficient property for all qualified
property placed in service prior to 2022, subject to a reduced rate of 26 percent for property
placed in service during 2020 and 22 percent for property placed in service during 2021. The
provision would be effective for property placed in service after 2016.

Section 40403. Extension of credit for new qualified fuel cell motor vehicles. The provision
extends through 2017 the credit for purchases of new qualified fuel cell motor vehicles. The
provision allows a credit of between $4,000 and $40,000, depending on the weight of the
vehicle, for the purchase of such vehicles.

Section 40404. Extension of credit for alternative fuel vehicle refueling property. The
provision extends through 2017 the credit for the installation of non-hydrogen alternative fuel
vehicle refueling property. (Under current law, hydrogen-related property already is eligible for
the credit.) Taxpayers are allowed a credit of up to 30 percent of the cost of the installation of
the qualified alternative fuel vehicle refueling property.

Section 40405. Extension of credit for 2-wheeled plug-in electric vehicles. The provision
extends through 2017 the 10-percent credit for two-wheeled plug-in electric vehicles (capped at
$2,500).

Section 40406. Extension of second generation biofuel producer credit. The provision
extends through 2017 the credit for production of cellulosic biofuels.

Section 40407. Extension of biodiesel and renewable diesel incentives. The provision
extends through 2017 the existing $1.00 per gallon tax credit for biodiesel and biodiesel
mixtures, and the small agri-biodiesel producer credit of 10 cents per gallon. The provision also
extends through 2017 the $1.00 per gallon production tax credit for diesel fuel created from
biomass. The provision extends through 2017 the fuel excise tax credit for biodiesel mixtures.

Section 40408. Extension of production credit for Indian coal facilities. The provision
extends through 2017 the $2 per ton production tax credit for coal produced on land owned by an
Indian tribe.

Section 40409. Extension and of credits with respect to facilities producing energy from
certain renewable resources. The provision extends the production tax credit (PTC) for certain
renewable sources of electricity to facilities for which construction has commenced by the end of
2017.

Section 40410. Extension of credit for energy-efficient new homes. The provision extends
through 2017 the tax credit for manufacturers of energy-efficient residential homes. An eligible
contractor may claim a tax credit of $1,000 or $2,000 for the construction or manufacture of a
new energy efficient home that meets qualifying criteria.

Section 40411. Extension and phaseout of energy credit.
The provision generally harmonizes the expiration dates and phaseout schedules for different
properties. The 30 percent Investment Tax Credit (ITC) for solar energy, fiber optic solar energy,
qualified fuel cell, and qualified small wind energy property is available for property the
construction of which begins before 2020 and is then phased out for property the construction of
which begins before 2022. Additionally, the 10 percent ITC for qualified microturbine,
combined heat and power system, and thermal energy property is made available for property the
construction of which begins before 2022.

Section 50412. Extension of special allowance for second generation biofuel plant property.
The provision extends through 2017 50-percent bonus depreciation for cellulosic biofuel
facilities.

Section 40413. Extension of energy efficient commercial buildings deduction. The provision
extends through 2017 the deduction for energy efficiency improvements to lighting, heating,
cooling, ventilation, and hot water systems of commercial buildings.

Section 40414. Extension of special rule for sales or dispositions to implement FERC or
State electric restructuring policy for qualified electric utilities. The provision extends
through 2017 a rule that permits taxpayers to elect to recognize gain from qualifying electric
transmission transactions ratably over an eight-year period beginning in the year of sale (rather
than entirely in the year of sale) if the amount realized from such sale is used to purchase exempt
utility property within the applicable period.

Section 40415. Extension of excise tax credits relating to alternative fuels. The provision
extends through 2017 the $0.50 per gallon alternative fuel tax credit and alternative fuel mixture
tax credit.

Section 40416. Extension of Oil Spill Liability Trust Fund financing rate. An excise tax of
$0.09 per barrel is imposed on crude oil received at a refinery and petroleum products entered
into the U.S. and deposited into the Oil Spill Liability Trust Fund. Having expired at the end of
2017, the excise tax is reinstated beginning on the first day of the first calendar month beginning
after the date of enactment.

Subtitle D – Modifications of Energy Incentives

Section 40501. Credit for Production from Advanced Nuclear Power Facilities
The provision allows the Secretary of the Treasury, after January 1, 2021, to re-allocate any of
the national 6,000 megawatt capacity that is unused, first to qualifying facilities to the extent
such facilities did not receive an allocation equal to their full capacity, and then to facilities
placed in service after such date. Additionally, certain public entities would be eligible for an
election to transfer tax credits to specified project partners.

TITLE II – MISCELLANEOUS PROVISIONS

Section 41102. Modifications to Rum Cover Over. The provision extends the rum cover over
through the end of 2021. Additionally, the provision maintains the cover-amount as being based
on $13.25 per proof gallon of rum imported into the U.S. regardless of actual tax collected.

Section 41103. Extension of Waiver of Limitations With Respect to Excluding From Gross
Income Amounts Received by Wrongfully Incarcerated Individuals. As of December 18,
2015, current law provides that, with respect to any wrongfully incarcerated individual, gross
income does not include any civil damages, restitution, or other monetary award (including
compensatory or statutory damages and restitution imposed in a criminal matter) relating to the
incarceration of that individual for the covered offense for which that individual was convicted.

Current law contains a special rule allowing individuals to make a claim for credit or refund of
any overpayment of tax resulting from the exclusion, even if such claim would be disallowed, if
the claim for credit or refund is filed before the close of the one-year period beginning on
December 18, 2015 (i.e., before December 18, 2016).

This provision in the bill would extend the waiver on the statute of limitations with respect to
filing a claim for a credit or refund of an overpayment of tax resulting from the exclusion
described above for an additional two years – that is, until December 18, 2018. The provision is
effective on the date of enactment.

Section 41104. Individuals Held Harmless on Improper Levy On Retirement Plans. Under
present law, if the IRS improperly levies on an individual retirement arrangement (“IRA”) or
certain employer-sponsored retirement plans (“employer-sponsored plans”), an individual may
not be made whole even if the IRS returns the amount levied with interest because the individual
may lose the opportunity to have those funds accumulate on a tax-favored basis until retirement.
The provision allows amounts, including interest, returned to an individual from the IRS
pursuant to a levy to be contributed to the IRA or employer-sponsored plan without regard to
normal contribution limits. In general, any tax attributable to the amount distributed from the
IRA or employer-sponsored plan by reason of a levy is not to be assessed, if assessed is to be
abated, and if collected is to be credited or refunded as an overpayment.

In addition, the IRS is required to pay interest on an amount returned to the individual in the case
of a levy that is determined to be premature or otherwise not in accordance with administrative
procedures, as well as in the case of a wrongful levy under present law. The provision is
effective for levied amounts, and interest thereon, returned to individuals in taxable years
beginning after December 31, 2017.

Section 41105. Modification of User Fee Requirements For Installment Agreements. An
installment agreement with the IRS allows taxpayers who cannot afford to fully pay their tax
liability the option to pay through monthly installments.

The provision prohibits increases in the amount of user fees charged by the IRS for installment
agreements. In addition, the IRS is required to waive the fees imposed for installment
agreements for taxpayers whose income falls below 250 percent of the poverty line and has
agreed to make the payments by electronic means through a debit account. Further, for those
taxpayers whose income falls below 250 percent of the poverty line, are unbanked, and
successfully complete an installment agreement, the fee would be reimbursed at the end of the
installment agreement period.

The provision applies to agreements entered into on or after the date that is 60 days after the date
of enactment.

Section 41106. Form 1040SR for Seniors. Current law provides that persons required to file
tax returns do so in the form prescribed by the Secretary of the Treasury in regulations. The
standard form available for individuals subject to income tax are in the series of form known as
Form 1040, and include two simplified versions, the Form 1040A and the Form 1040EZ.
The provision requires that the IRS publish a simplified income tax return form designated a
Form 1040SR, for use by persons who are age 65 or older by the close of the taxable year. The
form is to be as similar as possible to the Form 1040EZ. The use of Form 1040SR is not to be
restricted based on the amount of taxable income to be shown on the return, or the fact that the
income to be reported for the taxable year includes social security benefits, distributions from
qualified retirement plans, annuities or other such deferred payment arrangements, interest and
dividends, or capital gains and losses taken into account in determining adjusted net capital gain.
This provision is effective for taxable years beginning after date of enactment.

Section 41107. Attorney Fees Relating to Awards to Whistleblowers. This provision would
allow an above-the-line deduction for attorney fees and courts costs paid by, or on behalf of, a
taxpayer in connection with any action involving a claim under State False Claims Acts, the SEC
whistleblower program, and the Commodity Futures Trading Commission whistleblower
program. The provision would be applicable in to taxable years beginning after December 31,
2017.

Section 41108. Clarification of Whistleblower Awards. This provision modifies the
definition of collected proceeds eligible for awards to include: (1) penalties, interest, additions to
tax, and additional amounts, and (2) any proceeds under enforcement programs that the Treasury
has delegated to the IRS the authority to administer, enforce, or investigate, including criminal
fines and civil forfeitures, and violations of reporting requirements. This definition would also
be used to determine eligibility for the enhanced reward program under which proceeds and
additional amounts in dispute exceed $2,000,000. Collected proceeds amounts would be
determined without regard to whether such proceeds are available to the IRS. The provision
would apply to information provided before, on, or after the date of enactment with respect to
which a final determination for an award has not been made before the date of enactment.

Section 41109. Clarification Regarding Excise Tax Based on Investment Income of Private
Colleges and Universities. The provision narrows the scope of educational institutions that are
subject to the excise tax on investment income of private colleges and universities, by modifying
the definition of “student” to “tuition-paying student.”

Section 41110. Exception from Private Foundation Excess Business Holding Tax for
Independently-Operated Philanthropic Business Holdings. The provision creates an
exception to the excess business holdings rules for certain philanthropic business holdings.
Specifically, the tax on excess business holdings does not apply with respect to the holdings of a
private foundation in any business enterprise that, for the taxable year, satisfies the following
requirements: (1) the ownership requirements; (2) the "all profits to charity" distribution
requirement; and (3) the independent operation requirements. The ownership requirements are
satisfied if: (1) all ownership interests in the business enterprise are held by the private
foundation at all times during the taxable year; and (2) all the private foundation's ownership
interests in the business enterprise were acquired under the terms by a means other than purchase
of the testator or settlor, as the case may be.

Section 41111. Rule of Construction for Craft Beverage Modernization and Tax Reform.
The provision states that the provisions contained within the Craft Beverage Modernization and
Tax Reform Section of the Tax Cuts and Jobs Act, shall be not construed to preempt, supersede,
or otherwise limit or restrict any State, local, or tribal law that prohibits or regulates the
production or sale of distilled spirits, wine, or malt beverages.

Section 41112. Simplification of Rules Regarding Records, Statements, and Returns.
Under current law, brewers are subject to certain inventory rules for both tax paid and non-tax
paid beer, which are in some cases unclear. This section would require Treasury to clarify these
regulations to allow a unified accounting system for beer on which excise tax has already been
paid, including in cases where such beer is intended to be consumed on the brewery premises.

Section 41113. Modification of Rules Governing Hardship Distribution. Elective deferrals
under a section 401(k) plan or a section 403(b) plan may not be distributed before the occurrence
of one or more specified events, including financial hardship of the employee. Applicable
Treasury regulations provide that a distribution is made on account of hardship only if the
distribution is made on account of an immediate and heavy financial need of the employee and is
necessary to satisfy the heavy need. The Treasury regulations provide a safe harbor under which
a distribution may be deemed necessary to satisfy an immediate and heavy financial need. One
requirement of this safe harbor is that the employee be prohibited from making elective deferrals
and employee contributions to the plan and all other plans maintained by the employer for at
least six months after receipt of the hardship distribution.
The provision directs the Secretary of the Treasury is directed to modify the applicable
regulations within one year of the date of enactment to (1) delete the requirement that an
employee be prohibited from making elective deferrals and employee contributions for six
months after the receipt of a hardship distribution in order for the distribution to be deemed
necessary to satisfy an immediate and heavy financial need, and (2) make any other
modifications necessary to carry out the purposes of the rule allowing elective deferrals to be
distributed in the case of hardship. Thus, under the modified regulations, an employee would not
be prevented for any period after the receipt of a hardship distribution from continuing to make
elective deferrals and employee contributions. The regulations as revised by the provision shall apply to plan years beginning after December 31, 2018.

Section 41114. Modification of Rules Relating to Hardship Withdrawals from Cash or
Deferred Arrangements. Under current law, defined contribution plans are generally not
permitted to allow in-service distributions (distributions while an employee is still working for
the employer) attributable to elective deferrals if the employee is less than 591⁄2 years old. One
exception is for hardship distributions, which plans have the option of offering to
participants. Hardship distributions may be allowed only for amounts actually contributed by the
employee and may not include account earnings or amounts contributed by the employer.
Under the provision, employers may choose to allow hardship distributions to also include
account earnings and employer contributions. The provision would be effective for plan years
beginning after 2018.

Section 41115. Opportunity Zones Rule for Puerto Rico. The Tax Cuts and Jobs Act created
certain Opportunity Zones in the mainland United States. This provision would expand the areas
that could qualify for Opportunity Zone designation to include all census tracts within Puerto
Rico.

Section 41116. Tax Home of Certain Citizens or Residents of the United States Living
Abroad. At the election of the individual, section 911 excludes from gross income certain
foreign earned income of the individual. Generally, to receive such exclusion, the individual
must have a “tax home” outside the United States.

According to the provision, if an individual is serving in area designated by the President as a
combat zone, then such individual has a tax home outside the United States.

Section 41117. Treatment of Foreign Persons for Returns Relating to Payments Made In
Settlement of Payment Card and Third Party Network Transactions. The provision
modifies section 6050W(d)(1)(B) reporting requirements with respect to participating payees
with only a foreign address.

Section 41118. Repeal of Shift in Time Of Payment Of Corporate Estimated Taxes. In the
case of a corporation with assets of at least $1 billion (determined as of the end of the preceding
taxable year), the amount of the required installment of estimated tax otherwise due in July,
August, or September of 2020 is increased by 8 percent of that amount (determined without
regard to any increase in such amount not contained in the Internal Revenue Code) (i.e., the
installment due in July, August or September of 2020, is increased to 108 percent of the payment
otherwise due). The next required installment is reduced accordingly (i.e., the payment due in
October, November, or December of 2020.

The provision repeals this increased corporate estimated tax installment rate in section 808 of the
Trade Preferences Extension Act of 2015.

Section 41119. Enhancement of Carbon Dioxide Sequestration Credit. Section 45Q
provides a credit for carbon dioxide (CO2) sequestration and is available to taxpayers that capture
qualified CO2 at a qualified facility – such as a coal power plant or manufacturing facility – and
dispose of the CO2 in secure geological storage or use it as an injectant in an enhanced oil or
natural gas recovery project. The provision amends Section 45Q by: allowing facilities that have
commenced construction within 7 years of enactment to qualify; allowing qualified taxpayers to
claim the credit for 12 years; expanding the credit to include CO2 disposed of through utilization
in another end product; and increasing the credit amounts for geologic storage and enhanced oil
recovery.
Tax Cutsand Jobs Act

On December 22, President Trump signed into law the “Tax Cuts and Jobs Act” (P.L. 115-97). Here are some of the key provisions of the new tax bill.

Standard Deduction Increased (Code Sec. 63)


New Law: For tax years beginning after December 31, 2017 and before January 1, 2026, the standard deduction is increased to $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other taxpayers, adjusted for inflation in tax years beginning after 2018. No changes are made to the current-law additional standard deduction for the elderly and blind.


Personal Exemptions Suspended (Code Sec. 151)


New Law: For tax years beginning after December 31, 2017 and before January 1, 2026, the deduction for personal exemptions is effectively suspended by reducing the exemption amount to zero.

Alimony Deduction by Payor/Inclusion by Payee Suspended


New Law: For any divorce or separation agreement executed after December 31, 2018, or executed before that date but modified after it (if the modification expressly provides that the new amendments apply), alimony and separate maintenance payments are not deductible by the payor spouse and are not included in the income of the payee spouse. Rather, income used for alimony is taxed at the rates applicable to the payor spouse.


Child Tax Credit Increased (Code Sec. 24)


New Law: For tax years beginning after December 31, 2017 and before January 1, 2026, the child tax credit is increased to $2,000, and other changes are made to phase-outs and refundability during this same period. Phase-out. The income levels at which the credit phases out are increased to $400,000 for married taxpayers filing jointly ($200,000 for all other taxpayers) (not indexed for inflation).
Non-child dependents. In addition, a $500 nonrefundable credit is provided for certain non-child dependents.

Refundability.

The amount of the credit that is refundable is increased to $1,400 per qualifying child, and this amount
is indexed for inflation, up to the base $2,000 base credit amount. The earned income threshold for the refundable portion of the credit is decreased from $3,000 to $2,500.


SSN required. No credit will be allowed to a taxpayer with respect to any qualifying child unless the taxpayer provides the child's SSN.


Kiddie Tax Modified


Under pre-Act law, under the “kiddie tax” provisions, the net unearned income of a child was taxed at the parents' tax rates if the parents' tax rates were higher than the tax rates of the child. The remainder of a child's taxable income (i.e., earned income, plus unearned income up to $2,100 (for 2018), less the child's standard deduction) was taxed at the child's rates.


The kiddie tax applied to a child if: (1) the child had not reached the age of 19 by the close of the tax year, or the child was a full-time student under the age of 24, and either of the child's parents was alive at such time; (2) the child's unearned income exceeded $2,100 (for 2018); and (3) the child did not file a joint return.

New Law: For tax years beginning after December 31, 2017, the taxable income of a child attributable to earned income is taxed under the rates for single individuals, and taxable income of a child attributable to net unearned income is taxed  according to the brackets applicable to trusts and estates. This rule applies to the child's ordinary income and his or her income taxed at preferential rates.


Capital Gains Provisions Conformed


New Law: The Act generally retains present-law maximum rates on net capital gains and qualified dividends. It retains the breakpoints that exist under pre-Act law, but indexes them for inflation using C-CPI-U in tax years after December 31, 2017. For 2018, the 15% breakpoint is: $77,200 for joint returns and surviving spouses (half this amount for married taxpayers filing separately), $51,700 for heads of household, $2,600 for trusts and estates, and $38,600 for other unmarried
individuals. The 20% breakpoint is $479,000 for joint returns and surviving spouses (half this amount for married taxpayers filing separately), $452,400 for heads of household, $12,700 for estates and trusts, and $425,800 for other unmarried individuals.


Repeal of Obamacare Individual Mandate


Under pre-Act law, the Affordable Care Act (also called the ACA or Obamacare) required that individuals who were not covered by a health plan that provided at least minimum essential coverage were required to pay a “shared responsibility payment” (also referred to as a penalty) with their federal tax return. Unless an exception applied, the tax was imposed for any month that an individual did not have minimum essential coverage.

New Law: For months beginning after December 31, 2018, the amount of the individual shared responsibility payment is reduced to zero. This repeal is permanent.
Note: The Act leaves intact the 3.8% net investment income tax and the 0.9% additional Medicare tax, both enacted by Obamacare.


State and Local Tax Deduction Limited (Code Sec. 164)


New Law: For tax years beginning after December 31, 2017 and before January 1, 2026, a taxpayer may claim an itemized deduction of up to $10,000 ($5,000 for a married taxpayer filing a separate return) for the aggregate of State and local property taxes, and State and local income, (or sales taxes in lieu of income, etc. taxes) paid or accrued in the tax year.

Foreign real property taxes may not be deducted.


Prepayment provision. For tax years beginning after December 31, 2016, in the case of an amount paid in a tax year beginning before January 1, 2018 with respect to a State or local income tax imposed for a tax year beginning after December 31, 2017, the payment will be treated as paid on the last day of the tax year for which such tax is so imposed for purposes of applying the above limits. In other words, a taxpayer who, in 2017, pays an income tax that is imposed for a tax year after 2017, can't claim an itemized deduction in 2017 for that prepaid income tax.

Mortgage and Home Equity Indebtedness Interest Deduction (Code Sec. 163)


Under pre-Act law, taxpayer could deduct as an itemized deduction qualified residence interest, which included interest paid on a mortgage secured by a principal residence or a second residence. The underlying mortgage loans could represent acquisition indebtedness of up to $1 million ($500,000 in the case of a married individual filing a separate return), plus home equity indebtedness of up to $100,000.


New Law: For tax years beginning after December 31, 2017 and before January 1, 2026, the deduction for interest on home equity indebtedness is suspended, and the deduction for mortgage interest is limited to underlying indebtedness of up to $750,000 ($375,000 for married taxpayers filing separately). For tax years after December 31, 2025, the prior $1 million/$500,000 limitations are restored, and a taxpayer may treat up to these amounts as acquisition indebtedness  regardless of when the indebtedness was incurred. The suspension for home equity indebtedness also ends for tax years beginning after December 31, 2025. Treatment of indebtedness incurred on or before December 15, 2017. The new lower limit doesn't apply to any acquisition indebtedness incurred before December 15, 2017.

“Binding contract” exception. A taxpayer who has entered into a binding written contract before December 15, 2017 to close on the purchase of a principal residence before January 1, 2018, and who purchases such residence before April 1, 2018, shall be considered to incur acquisition indebtedness prior to December 15, 2017.

Refinancing.

The $1 million/$500,000 limitations continue to apply to taxpayers who refinance existing qualified
residence indebtedness that was incurred before December 15, 2017, so long as the indebtedness resulting from the refinancing doesn't exceed the amount of the refinanced indebtedness.

Medical Expense Deduction Threshold Temporarily Reduced (Code Sec. 213)


New Law: For tax years beginning after December 31, 2016 and ending before January 1, 2019, the threshold on medical expense deductions is reduced to 7.5% for all taxpayers.
In addition, the rule limiting the medical expense deduction for AMT purposes to 10% of AGI doesn't apply to tax years beginning after December 31, 2016 and ending before January 1, 2019.
Charitable Contribution Deduction Limitation Increased
New Law: For contributions made in tax years beginning after December 31, 2017 and before January 1, 2026, the 50% limitation under Code Sec. 170(b) for cash contributions to public charities and certain private foundations is increased to 60%. Contributions exceeding the 60% limitation are generally allowed to be carried forward and deducted for up to five years, subject to the later year's ceiling.

No Deduction for Amounts Paid for College Athletic Seating Rights

New Law: For contributions made in tax years beginning after December 31, 2017, no charitable deduction is allowed for any payment to an institution of higher education in exchange for which the payor receives the right to purchase tickets or seating at an athletic event.


Miscellaneous Itemized Deductions Suspended


New Law: For tax years beginning after December 31, 2017 and before January 1, 2026, the deduction for miscellaneous itemized deductions that are subject to the 2% floor is suspended.


Deduction for Personal Casualty & Theft Losses Suspended


New Law: For tax years beginning after December 31, 2017 and before January 1, 2026, the personal casualty and theft loss deduction is suspended, except for personal casualty losses incurred in a Federally-declared disaster. However, where a taxpayer has personal casualty gains, the loss suspension doesn't apply to the extent that such loss doesn't exceed the gain.

Gambling Loss Limitation Modified


In general, taxpayers can claim a deduction for wagering losses to the extent of wagering winnings. However, under preAct law, other deductions connected to wagering (e.g., transportation, admission fees) could be claimed regardless of


New Law: For tax years beginning after December 31, 2017 and before January 1, 2026, the limitation on wagering losses under Code Sec. 165(d) is modified to provide that all deductions for expenses incurred in carrying out wagering transactions, and not just gambling losses, are limited to the extent of gambling winnings.

Overall Limitation (“Pease” Limitation) on Itemized Deductions Suspended


Under pre-Act law, higher-income taxpayers who itemized their deductions were subject to a limitation on these deductions (commonly known as the “Pease limitation”). For taxpayers who exceed the threshold, the otherwise allowable amount of itemized deductions was reduced by 3% of the amount of the taxpayers' adjusted gross income exceeding the threshold. The total reduction couldn't be greater than 80% of all itemized deductions, and certain itemized deductions were exempt
from the Pease limitation.

New Law: For tax years beginning after December 31, 2017 and before January 1, 2026, the “Pease limitation” on itemized deductions is suspended.


Exclusion for Moving Expense Reimbursements Suspended


New Law: For tax years beginning after December 31, 2017 and before January 1, 2026, the exclusion for qualified moving expense reimbursements is suspended, except for members of the Armed Forces on active duty (and their spouses and dependents) who move pursuant to a military order and incident to a permanent change of station.

Student Loan Discharged on Death or Disability


New Law: For discharges of indebtedness after December 31, 2017 and before January 1, 2026, certain student loans that are discharged on account of death or total and permanent disability of the student are also excluded from gross income.

Moving Expenses Deduction Suspended


New Law: For tax years beginning after December 31, 2017 and before January 1, 2026, the deduction for moving expenses is suspended, except for members of the Armed Forces on active duty who move pursuant to a military order and incident to a permanent change of station.


AMT Retained, with Higher Exemption Amounts


New Law: For tax years beginning after December 31, 2017 and before January 1, 2026, the Act increases the AMT exemption amounts for individuals as follows:
- For joint returns and surviving spouses, $109,400.
- For single taxpayers, $70,300.
- For marrieds filing separately, $54,700.
Under the Act, the above exemption amounts are reduced (not below zero) to an amount equal to 25% of the amount by which the alternative taxable income of the taxpayer exceeds the phase-out amounts, increased as follows:
- For joint returns and surviving spouses, $1 million.
- For all other taxpayers (other than estates and trusts), $500,000.
For trusts and estates, the base figure of $22,500 and phase-out amount of $75,000 remain unchanged. All of the above amounts will be adjusted for inflation after 2018 under the new C-CPI-U inflation measure.

ABLE Account Changes (Code Sec 529A)


ABLE Accounts under Code Sec. 529A provide individuals with disabilities and their families the ability to fund a tax preferred savings account to pay for “qualified” disability related expenses. Contributions may be made by the person with a disability (the “designated beneficiary”), parents, family members or others. Under pre-Act law, the annual limitation on contributions is the amount of the annual gift-tax exemption ($15,000 in 2018).


New Law: Effective for tax years beginning after the enactment date and before January 1, 2026, the contribution limitation to ABLE accounts with respect to contributions made by the designated beneficiary is increased, and other changes are in effect as described below. After the overall limitation on contributions is reached (i.e., the annual gift tax exemption amount; for 2018, $15,000), an ABLE account's designated beneficiary can contribute an additional amount, up to the lesser of:
A. The Federal poverty line for a one-person household; or
B. The individual's compensation for the tax year. Saver's credit eligible. Additionally, the designated beneficiary of an ABLE account can claim the saver's credit under
Code Sec. 25B for contributions made to his or her ABLE account.


Recordkeeping requirements.

The Act also requires that a designated beneficiary (or person acting on the 
beneficiary's behalf) maintain adequate records for ensuring compliance with the above limitations.


Expanded Use of 529 Account Funds


New Law: For distributions after December 31, 2017, “qualified higher education expenses” include tuition at an elementary or secondary public, private, or religious school, up to a $10,000 limit per tax year.

Certain Self-Created Property Not Treated as Capital Asset


Under pre-Act law, property held by a taxpayer (whether or not connected with the taxpayer's trade or business) is generally considered a capital asset under Code Sec. 1221(a). However, certain assets are specifically excluded from the definition of a capital asset, including inventory property, depreciable property, and certain self-created intangibles (e.g., copyrights,
musical compositions).

New Law: Effective for dispositions after December 31, 2017, the Act amends Code Sec. 1221(a)(3), resulting in the exclusion of patents, inventions, models or designs (whether or not patented), and secret formulas or processes, which are held either by the taxpayer who created the property or by a taxpayer with a substituted or transferred basis from the taxpayer who created the property (or for whom the property was created), from the definition of a “capital asset.”


Estate and Gift Tax Increased Exemption Amount


New Law: For estates of decedents dying and gifts made after December 31, 2017 and before January 1, 2026, the Act doubles the base estate and gift tax exemption amount from $5 million to $10 million. The $10 million amount is indexed for inflation occurring after 2011 and is expected to be approximately $11.2 million in 2018 ($22.4 per married couple).
Note: There is no change to the asset basis step-up for heirs of estates of any size.


Due Diligence Requirements for Claiming Head of Household


Any person who is a tax return preparer for any return or claim for refund, who fails to comply with certain regulatory due diligence requirements imposed by regulations with regard to determining the eligibility for, or the amount of, an earned income credit, a child tax credit, an additional child tax credit, or an American opportunity tax credit, must pay a penalty. The base amount of the penalty is $500; for 2018, as adjusted for inflation under Code Sec. 6695(h), the penalty is $520.

New Law: Effective for tax years beginning after December 31, 2017, the Act expands the due diligence requirements for paid preparers to cover determining eligibility for a taxpayer to file as head of household. A penalty of $500 (adjusted for inflation) is imposed for each failure to meet these requirements.

Repeal of the Rule Allowing Recharacterization of IRA Contributions

Under pre-Act law, if an individual makes a contribution to an IRA (traditional or Roth) for a tax year, the individual is allowed to recharacterize the contribution as a contribution to the other type of IRA (traditional or Roth) by making a trustee-totrustee
transfer to the other type of IRA before the due date for the individual’s income tax return for that year. In the case of a recharacterization, the contribution will be treated as having been made to the transferee IRA (and not the original, transferor IRA) as of the date of the original contribution. Both regular contributions and conversion contributions to a Roth IRA can be recharacterized as having been made to a traditional IRA.

New Law: For tax years beginning after December 31, 2017, the rule that allows a contribution to one type of IRA to be recharacterized as a contribution to the other type of IRA does not apply to a conversion contribution to a Roth IRA. Thus, recharacterization cannot be used to unwind a Roth conversion.

New Tax Rates for 2018


The new law keeps seven tax brackets, but with different rates and break points.

 Tax Rates
 Single Head of Houshold Married Filing Separately Married Filing Jointly/Qualifying Widow or Widower
 Ordinary Income Taxable Income over to Taxable Income over to Taxable Income over to Taxable Income over to
10% $0 $9,525 $0  $13,600  $0 $9,525 $0 $19,050
12% $9,525 $38,700 $13,600 $51,800 $9,525 $38,700 $19,050 $77,400
22%  $38,700 $82,500 $51,800 $82,500 $38,700 $82,500 $77,400 $165,000
24% $85,500 $157,500 $82,500 $157,500 $82,500 $157,500 $165,000 $315,000
32% $157,500 $200,000 $157,500 $200,000 $157,500 $200,000 $315,000 $400,000
35% $200,000 $500,000 $200,000 $500,000 $200,000 $300,000 $400,000 $600,000
37% $500,000 greater $500,000 greater $300,000 greater $600,000 greater



Business Provisions


Corporate Tax Rates


Under pre-Act law, corporations are subject to graduated tax rates of 15% (for taxable income of $0-$50,000), 25% (for taxable income of $50,001-$75,000), 34% (for taxable income of $75,001-$10,000,000), and 35% (for taxable income over $10,000,000). Personal service corporations pay tax on their entire taxable income at the rate of 35%.

New Law: For tax years beginning after December 31, 2017, the corporate tax rate is a flat 21%.
The 21% tax rate also applies to personal service corporations. It appears that the rate will be pro-rated for fiscal year filers if the taxable year includes January 1, 2018.


Dividends-Received Deduction Percentages Reduced


Under pre-Act law, corporations that receive dividends from other corporations are entitled to a deduction for dividends received. If the corporation owns at least 20% of the stock of another corporation, an 80% dividend received deduction is allowed. Otherwise, a 70% deduction is allowed.


New Law: For tax years beginning after December 31, 2017, the 80% dividends received deduction is reduced to 65%, and the 70% dividends received deduction is reduced to 50%.


Alternative Minimum Tax Repealed


Under pre-Act law, the corporate alternative minimum tax (AMT) is 20%, with an exemption amount of up to $40,000. Corporations with average gross receipts of less than $7.5 million for the preceding three tax years are exempt from the AMT. The exemption amount phases out starting at $150,000 of alternative minimum taxable income.


New Law: For tax years beginning after December 31, 2017, the corporate AMT is repealed.
For tax years beginning after 2017 and before 2022, the AMT credit is refundable and can offset regular tax liability in an amount equal to 50% (100% for tax years beginning in 2021) of the excess of the minimum tax credit for the tax year over the amount of the credit allowable for the year against regular tax liability. Accordingly, the full amount of the minimum tax credit will be allowed in tax years beginning before 2022.

Increased Code 179 Expensing


New Law: For property placed in service in tax years beginning after December 31, 2017, the maximum amount a taxpayer may expense under Code Sec. 179 is increased to $1 million, and the phase-out threshold amount is increased to $2.5 million. For tax years beginning after 2018, these amounts are indexed for inflation. Property is not treated as acquired after the date on which a written binding contract is entered into for such acquisition.

“Qualified real property.”

The definition of Code Sec. 179 property is expanded to include certain depreciable tangible personal property used predominantly to furnish lodging or in connection with furnishing lodging. The definition of qualified real property eligible for Code Sec. 179 expensing is also expanded to include the following improvements to nonresidential real property after the date such property was first placed in service: roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems.


Temporary 100% Cost Recovery of Qualifying Business Assets


New Law: A 100% first-year deduction for the adjusted basis is allowed for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023 (after September 27, 2017, and before January 1, 2024, for certain property with longer production periods). Thus, the phase-down of the 50% allowance for property placed in service after December 31, 2017, and for specified plants planted or grafted after that date, is repealed. The additional first-year depreciation deduction is allowed for new and used property.


In later years, the first-year bonus depreciation deduction phases down, as follows:
80% for property placed in service after December 31, 2022 and before January 1, 2024.
60% for property placed in service after December 31, 2023 and before January 1, 2025.
40% for property placed in service after December 31, 2024 and before January 1, 2026.
20% for property placed in service after December 31, 2025 and before January 1, 2027.


For certain property with longer production periods, the beginning and end dates in the list above are increased by one year. For example, bonus first-year depreciation is 80% for long-production-period property placed in service after December 31, 2023 and before January 1, 2025.
First-year bonus depreciation sunsets after 2026.


For productions placed in service after September 27, 2017, qualified property eligible for a 100% first-year depreciation allowance includes qualified film, television and live theatrical productions. A production is considered placed in service at the time of initial release, broadcast, or live staged performance (i.e., at the time of the first commercial exhibition, broadcast, or live staged performance of a production to an audience).

For certain plants bearing fruit or nuts planted or grafted after September 27, 2017, and before January 21, 2023, the 100% first-year deduction is also available.


For the first tax year ending after September 27, 2017, a taxpayer can elect to claim 50% bonus first-year depreciation (instead of claiming a 100% first-year depreciation allowance).


The election to accelerate AMT credits in lieu of bonus depreciation is repealed.


Luxury Automobile Depreciation Limits Increased


New Law: For passenger automobiles placed in service after December 31, 2017, in tax years ending after that date, for which the additional first-year depreciation deduction under Code Sec. 168(k) is not claimed, the maximum amount of allowable depreciation is increased to: $10,000 for the year in which the vehicle is placed in service, $16,000 for the second year, $9,600 for the third year, and $5,760 for the fourth and later years in the recovery period. For passenger automobiles placed in service after 2018, these dollar limits are indexed for inflation. For passenger autos eligible for bonus first-year depreciation, the maximum first-year depreciation allowance remains at $8,000.
In addition, computer or peripheral equipment is removed from the definition of listed property, and so isn't subject to the heightened substantiation requirements that apply to listed property.
For passenger automobiles acquired before September 28, 2017, and placed in service after September 27, 2017, the preAct phase-down of the Code Sec. 280F increase amount in the limitation on the depreciation deductions applies.


New Farming Equipment and Machinery is 5-Year Property


New Law: For property placed in service after December 31, 2017, in tax years ending after that date, the cost recovery period is shortened from seven to five years for any machinery or equipment (other than any grain bin, cotton ginning asset, fence, or other land improvement) used in a farming business, the original use of which commences with the taxpayer. In addition, the required use of the 150% declining balance depreciation method for property used in a farming business (i.e., for 3-, 5-, 7-, and 10-year property) is repealed. The 150% declining balance method continues to apply to any 15-year or 20-year property used in the farming business to which the straight-line method does not apply, and to property for which the taxpayer elects the use of the 150% declining balance method.


Recovery Period for Real Property Shortened


The cost recovery periods for most real property are 39 years for nonresidential real property and 27.5 years for residential rental property. The straight-line depreciation method and mid-month convention are required for such real property. Under pre-Act law, qualified leasehold improvement property was an interior building improvement to nonresidential real property, by a landlord, tenant or subtenant, that was placed in service more than three years after the building is and that meets other requirements. Qualified restaurant property was either (a) a building improvement in a building in which more than 50% of the building's square footage was devoted to the preparation of, and seating for, on-premises consumption of prepared meals (the more-than-50% test), or (b) a building that passed the more-than-50% test. Qualified retail improvement property was an interior improvement to retail space that was placed in service more than three years after the date the building was first placed in service and that meets other requirements. Qualified improvement property is any improvement to an interior portion of a building that is nonresidential real property if such improvement is placed in service after the date such building was first placed in service. Qualified improvement property does not include any improvement for which the expenditure is attributable to the enlargement of the building, any elevator or escalator, or the internal structural framework of the building.
If a taxpayer elected the ADS, residential rental property had a recovery period of 40 years. ADS is principally a straightline depreciation system under which one depreciation period (generally longer than any other) is prescribed for each class of recovery property.

New Law: For property placed in service after December 31, 2017, the separate definitions of qualified leasehold improvement, qualified restaurant, and qualified retail improvement property are eliminated, a general 15-year recovery period and straight-line depreciation are provided for qualified improvement property, and a 20-year ADS recovery period is provided for such property.
Thus, qualified improvement property placed in service after December 31, 2017, is generally depreciable over 15 years using the straight-line method and half-year convention, without regard to whether the improvements are property subject to a lease, placed in service more than three years after the date the building was first placed in service, or made to a restaurant building. Restaurant building property placed in service after December 31, 2017, that does not meet the definition of qualified improvement property, is depreciable as nonresidential real property, using the straight-line method and the mid-month convention. For property placed in service after December 31, 2017, the ADS recovery period for residential rental property is shortened from 40 years to 30 years.
For tax years beginning after December 31, 2017, an electing farming business - i.e., a farming business electing out of the limitation on the deduction for interest - must use ADS to depreciate any property with a recovery period of 10 years or more (e.g., a single purpose agricultural or horticultural structures, trees or vines bearing fruit or nuts, farm buildings, and certain
land improvements).

Limits on Deduction of Business Interest


New Law: For tax years beginning after December 31, 2017, every business, regardless of its form, is generally subject to a disallowance of a deduction for net interest expense in excess of 30% of the business's adjusted taxable income. The net interest expense disallowance is determined at the tax filer level. However, a special rule applies to pass-through entitles, which requires the determination to be made at the entity level, for example, at the partnership level instead of the partner
level. For tax years beginning after December 31, 2017 and before January 1, 2022, adjusted taxable income is computed without regard to deductions allowable for depreciation, amortization, or depletion and without the former Code Sec. 199 deduction. An exemption from these rules applies for taxpayers (other than tax shelters) with average annual gross receipts for the three-tax year period ending with the prior taxable year that do not exceed $25 million. The business-interest-limit provision
does not apply to certain regulated public utilities and electric cooperatives. Real property trades or businesses can elect out of the provision if they use ADS to depreciate applicable real property used in a trade or business. Farming businesses can also elect out if they use ADS to depreciate any property used in the farming business with a recovery period of ten years or more.
An exception from the limitation on the business interest deduction is also provided for floor plan financing (i.e., financing for the acquisition of motor vehicles, boats or farm machinery for sale or lease and secured by such inventory).


Modification of Net Operating Loss Deduction


Under pre-Act law, a net operating loss (NOL) may generally be carried back two years and carried over 20 years to offset taxable income in such years. However, different carryback periods apply with respect to NOLs arising in different circumstances.

New Law: For NOLs arising in tax years ending after December 31, 2017, the two-year carryback and the special carryback provisions are repealed, but a two-year carryback applies in the case of certain losses incurred in the trade or business of farming. For losses arising in tax years beginning after December 31, 2017, the NOL deduction is limited to 80% of taxable income (determined without regard to the deduction). Carryovers to other years are adjusted to take account of this limitation, and,
except as provided below, NOLs can be carried forward indefinitely. However, NOLs of property and casualty insurance companies can be carried back two years and carried over 20 years to
offset 100% of taxable income in such years.

Domestic Production Activities Deduction (DPAD) Repealed (Code Sec. 199)

New Law: For tax years beginning after December 31, 2017, the DPAD is repealed for non-corporate taxpayers. For tax years beginning after December 31, 2018, the DPAD is repealed for C corporations.


Like-Kind Exchange (Code Sec. 1031)


New Law: Generally effective for transfers after December 31, 2017, the rule allowing the deferral of gain on like-kind exchanges is modified to allow for like-kind exchanges only with respect to real property that is not held primarily for sale. Note: Under a transition rule, the pre-Act like-kind exchange rules apply to exchanges of personal property if the taxpayer has either disposed of the relinquished property or acquired the replacement property on or before December 31, 2017.


Five-Year Write-off of Specified R&E Expenses


Under pre-Act law, taxpayers may elect to deduct currently the amount of certain reasonable research or experimentation (R&E) expenses paid or incurred in connection with a trade or business. Alternatively, taxpayers may forgo a current deduction, capitalize their research expenses, and recover them ratably over the useful life of the research, but in no case over a period of less than 60 months. Or, they may elect to recover them over a period of 10 years.

New Law: For amounts paid or incurred in tax years beginning after December 31, 2021, “specified R&E expenses” must be capitalized and amortized ratably over a 5-year period (15 years if conducted outside of the U.S.), beginning with the midpoint of the tax year in which the specified R&E expenses were paid or incurred. Specified R&E expenses subject to capitalization include expenses for software development, but not expenses for land or for depreciable or depletable property used in connection with the research or experimentation (but do include the depreciation and depletion allowances of such property). Also excluded are exploration expenses incurred for ore or other minerals (including oil and gas). In the case of retired, abandoned, or disposed property with respect to which specified
R&E expenses are paid or incurred, any remaining basis may not be recovered in the year of retirement, abandonment, or disposal, but instead must continue to be amortized over the remaining amortization period.

Employer's Deduction for Fringe Benefit Expenses Limited


Under current law, a taxpayer may deduct up to 50% of expenses relating to meals and entertainment. Housing and meals provided for the convenience of the employer on the business premises of the employer are excluded from the employee's gross income. Various other fringe benefits provided by employers are not included in an employee's gross income, such as qualified transportation fringe benefits.


New Law: For amounts incurred or paid after December 31, 2017, deductions for entertainment expenses are disallowed, eliminating the subjective determination of whether such expenses are sufficiently business related; the current 50% limit on the deductibility of business meals is expanded to meals provided through an in-house cafeteria or otherwise on the premises of the employer; and deductions for employee transportation fringe benefits (e.g., parking and mass transit) are
denied, but the exclusion from income for such benefits received by an employee is retained. In addition, no deduction is allowed for transportation expenses that are the equivalent of commuting for employees (e.g., between the employee's home and the workplace), except as provided for the safety of the employee. For tax years beginning after December 31, 2025, the Act will disallow an employer's deduction for expenses associated with meals provided for the convenience of the employer on the employer's business premises, or provided on or near the employer's business premises through an employer-operated facility that meets certain requirements.

Nondeductible Penalties and Fines


Under pre-Act law, no deduction is allowed for fines or penalties paid to a government for the violation of any law.


New Law: For amounts generally paid or incurred on or after the date of enactment, no deduction is allowed for any otherwise deductible amount paid or incurred (whether by suit, agreement, or otherwise) to, or at the direction of, a government or specified nongovernmental entity in relation to the violation of any law or the investigation or inquiry by such government or entity into the potential violation of any law. An exception applies to payments that the taxpayer establishes are either restitution (including remediation of property) or amounts required to come into compliance with any law that was violated or involved in the investigation or inquiry, that are identified in the court order or settlement agreement as restitution, remediation, or required to come into compliance. IRS remains free to challenge the characterization of an amount so identified; however, no deduction is allowed unless the identification is made. An exception also applies to any amount paid or incurred as taxes due.

New Credit for Employer - Paid Family and Medical Leave


Under pre-Act law, no credit is provided to employers for compensation paid to employees while on leave.


New Law: For wages paid in tax years beginning after December 31, 2017, but not beginning after December 31, 2019, the Act allows businesses to claim a general business credit equal to 12.5% of the amount of wages paid to qualifying employees during any period in which such employees are on family and medical leave (FMLA) if the rate of payment is 50% of the wages normally paid to an employee. The credit is increased by 0.25 percentage points (but not above 25%) for each percentage point by which the rate of payment exceeds 50%. All qualifying full-time employees have to be given at least two weeks of annual paid family and medical leave (all less-than-full-time qualifying employees have to be given a commensurate amount of leave on a pro rata basis).


 Cash Method of Accounting


Under pre-Act law, a corporation, or a partnership with a corporate partner, may generally only use the cash method of accounting if, for all earlier tax years beginning after Dec. 31, '85, the corporation or partnership met a gross receipts test— i.e., the average annual gross receipts the entity for the three-tax-year period ending with the earlier tax year does not exceed $5 million. Under current law, farm corporations and farm partnerships with a corporate partner may only use the cash method of accounting if their gross receipts do not exceed $1 million in any year. An exception allows certain family farm corporations to qualify if the corporation's gross receipts do not exceed $25 million. Qualified personal service corporations are allowed to use the cash method without regard to whether they meet the gross receipts test.

New Law: For tax years beginning after December 31, 2017, the cash method may be used by taxpayers (other than tax shelters) that satisfy a $25 million gross receipts test, regardless of whether the purchase, production, or sale of merchandise is an income-producing factor. Under the gross receipts test, taxpayers with annual average gross receipts that do not exceed $25 million (indexed for inflation for tax years beginning after December 31, 2018) for the three prior tax years are allowed to use the cash method. The exceptions from the required use of the accrual method for qualified personal service corporations and taxpayers other than C corporations are retained. Accordingly, qualified personal service corporations, partnerships without C corporation partners, S corporations, and other pass-through entities are allowed to use the cash method without regard to whether  they meet the $25 million gross receipts test, so long as the use of the method clearly reflects income.


 Accounting for Inventories


 Under pre-Act law, businesses that are required to use an inventory method must generally use the accrual accounting method. However, the cash method can be used for certain small businesses that meet a gross receipt test with average gross receipts of not more than $1 million ($10 million businesses in certain industries). These business account for inventory as non-incidental materials and supplies.

New Law: For tax years beginning after December 31, 2017, taxpayers that meet the $25 million gross receipts test are not required to account for inventories under Code Sec. 471, but rather may use an accounting method for inventories that either:
1. Treats inventories as non-incidental materials and supplies, or
2. Conforms to the taxpayer's financial accounting treatment of inventories.

Capitalization and Inclusion of Certain Expenses in Inventory Costs


 The uniform capitalization (UNICAP) rules generally require certain direct and indirect costs associated with real or tangible personal property manufactured by a business to be included in either inventory or capitalized into the basis of such property. However, under pre-Act law, a business with average annual gross receipts of $10 million or less in the preceding three years is not subject to the UNICAP rules for personal property acquired for resale. The exemption does not apply to real property (e.g., buildings) or personal property that is manufactured by the business.


 New Law: For tax years beginning after December 31, 2017, any producer or re-seller that meets the $25 million gross receipts test is exempted from the application of Code Sec. 263A.


 Accounting for Long-Term Contracts


 New Law: For contracts entered into after December 31, 2017 in tax years ending after that date, the exception for small construction contracts from the requirement to use the percentage-of-completion method (PCM) is expanded to apply to contracts for the construction or improvement of real property if the contract: (1) is expected (at the time such contract is entered into) to be completed within two years of commencement of the contract and (2) is performed by a taxpayer that (for the tax year in which the contract was entered into) meets the $25 million gross receipts test.


 New Deduction for Pass-Through Income


 Under pre-Act law, the net income of these pass-through businesses - sole proprietorships, partnerships, limited liability companies (LLCs), and S corporations - was not subject to an entity-level tax and was instead reported by the owners or shareholders on their individual income tax returns. Thus, the income was effectively subject to individual income tax rates.


 New Law: Generally, for tax years beginning after December 31, 2017 and before January 1, 2026, the Act adds a new section, Code Sec. 199A, “Qualified Business Income,” under which a non-corporate taxpayer, including a trust or estate, who has qualified business income (QBI) from a partnership, S corporation, or sole proprietorship is allowed to deduct:
1. The lesser of:
(a) the “combined qualified business income amount” of the taxpayer, or
(b) 20% of the excess, if any, of the taxable income of the taxpayer for the tax year over the sum of net capital gain and the aggregate amount of the qualified cooperative dividends of the taxpayer for the tax year; plus
2. The lesser of:
(a) 20% of the aggregate amount of the qualified cooperative dividends of the taxpayer for the tax year, or
(b) taxable income (reduced by the net capital gain) of the taxpayer for the tax year.


 Limitations. For pass-through entities, other than sole proprietorships, the deduction cannot exceed the greater of:
1. 50% of the W-2 wages with respect to the qualified trade or business (“W-2 wage limit”),
or
2. The sum of 25% of the W-2 wages paid with respect to the qualified trade or business plus 2.5% of the unadjusted basis, immediately after acquisition, of all “qualified property.” Qualified property is defined in Code Sec. 199A(b)(6) as meaning tangible, depreciable property which is held by and available for use in the qualified trade or business at the close of the tax year.
For a partnership or S corporation, each partner or shareholder is treated as having W-2 wages for the tax year in an amount equal to his or her allocable share of the W-2 wages of the entity for the tax year. A partner's or shareholder's allocable share of W-2 wages is determined in the same way as the partner's or shareholder's allocable share of wage expenses. For an S corporation, an allocable share is the shareholder's pro rata share of an item. However, the W-2 wage limit begins phasing-out in the case of a taxpayer with taxable income exceeding $315,000 for married individuals filing jointly ($157,500
for other individuals). The application of the W-2 wage limit is phased in for individuals with taxable income exceeding these thresholds, over the next $100,000 of taxable income for married individuals filing jointly ($50,000 for other individuals).


 Thresholds and exclusions.

 The deduction does not apply to specified service businesses (i.e., trades or businesses
described in Code Sec. 1202(e)(3)(A), but excluding engineering and architecture; and trades or businesses that involve the performance of services that consist of investment-type activities). However, the service business limitation begins phasing out in the case of a taxpayer whose taxable income exceeds $315,000 for married individuals filing jointly ($157,500 for other individuals), both indexed for inflation after 2018. The benefit of the deduction for service businesses is phased out
over the next $100,000 of taxable income for joint filers ($50,000 for other individuals).
The new deduction for pass-through income is also available to specified agricultural or horticultural cooperatives, in an amount equal to the lesser of (i) 20% of the co-op's taxable income for the tax year, or (ii) the greater of (a) 50% of the W2 wages of the co-op with respect to its trade or business, or (b) or the sum of 25% of the W-2 wages of the cooperative with respect to its trade or business plus 2.5% of the unadjusted basis immediately after acquisition of qualified property of the cooperative.


 Omitted Provisions


Here are some of the significant provisions that were included in either the version of the Act that was passed by the House or the version of the Act that was passed by the Senate, or that were included in both of those versions, that were not included in the Conference version.

Individual income tax provisions.

The following individual income tax provisions were not included in the Conference
version.
Repeal of credit for the elderly and permanently disabled.
Repeal of credit for plug-in electric drive motor vehicles.
Reform of AOTC and repeal of lifetime learning credit. A provision would have liberalized an AOTC rule and repealed the lifetime learning credit.
Repeals of other education-related provisions including:
- The deduction for student loan interest;
- The deduction for qualified tuition and related expenses;
- The exclusions from gross income and wages for qualified tuition reductions - generally available to teaching
and research assistants who are students at the graduate level;
- The exclusion for interest on United States savings bonds used for higher education expenses; and
- The exclusion for educational assistance programs (up to $5,250 annually of educational assistance provided by an employer to an employee).
Termination of deduction and exclusions for contributions to medical savings accounts. A provision would have caused contributions to Archer Medical Savings Accounts (MSAs) to not be deductible or excludible from gross income and wages.
Changes to above-the-line employee business expenses.
Limitation on exclusion for employer-provided housing.
Modification of exclusion of gain on sale of a principal residence. A provision would have extended the length of time a taxpayer must own and use a residence in order to qualify for the exclusion of gain on sale of a principal residence. It also would have limited the use of the exclusion to one sale or exchange during any five-year period.
Repeal of exclusion for dependent care assistance programs. The exclusion from the gross income of an employee of up to $5,000 annually for employer-provided dependent care assistance would have been repealed.
Repeal of exclusion for adoption assistance programs.
Exclusion from gross income of certain amounts received by wrongly incarcerated individuals. A provision would have extended the waiver on the statute of limitations with respect to filing a claim for a credit or refund of an overpayment of tax resulting from certain amounts received by wrongly incarcerated individuals being excluded from gross income.
Required use of FIFO for determining basis of securities. A provision would have required the use of the first-in-first-out (FIFO) method for determining the basis of most securities, including most shares of stock and most bonds, and not allowed basis to be determined by specific identification.


 Business provisions.


 The following business provisions were not included in the Conference version.
 Repeal of special rule for sale or exchange of patents.
 Treatment of expenses in contingency fee cases. A provision would have denied attorneys an otherwise-allowable deduction for litigation costs paid under arrangements that are primarily on a contingent fee basis, until the contingency ends.
 Repeal of employer-provided child care credit.
 Repeal of work opportunity tax credit.
 Repeal of deduction for certain unused business credits. A provision would have repealed Code Sec. 196 which allows a deduction to the extent that certain portions of the general business credit expire unused after the end of the carryforward period.
Termination of new markets tax credit.
Repeal of credit for expenditures to provide access to disabled individuals.
Modification of credit for portion of employer social security taxes paid with respect to employee tips.
Repeal of enhanced oil recovery credit and credit for producing oil and gas from marginal wells.
Retirement plan provisions.
The following retirement plan provisions were not included in the Conference version. Reduction in minimum age for allowable in-service distributions.Modification of rules governing hardship distributions.
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