Tax Reform 2017–What you need to know
The proposed tax law “Tax Cuts and Jobs Act” has largely taken shape at a breakneck speed over a two-month period. It is generally expected that the measure will be approved in both the House and Senate this week, followed by President Trump’s expected signature. It will be the largest major tax reform in over three decades.
There are many changes within the “Tax Cuts and Job Act” which have created a lot of questions. We wanted to highlight one change that has an impact at year-end. Taxpayers who itemize should note these changes.
State and Local Tax Deduction Change
One major change in the proposed tax law is the limitation on the amount of deduction allowed for state and local taxes paid. Under the current law, all state and local taxes paid, including income taxes, real estate taxes, and personal property taxes are 100% deductible.
Unfortunately, under the proposed tax law, the maximum state and local tax deduction that will be allowed going forward will only be $10,000. This means that the deduction you receive now for your state income taxes and real estate taxes of more than $10,000 will no longer be available starting in 2018. These are the questions we are fielding from our clients:
a. Should I pay my 2017 state income taxes before year-end?
* YES unless you are in alternative minimum tax (AMT).
b. Should I pay my potential 2018 state income taxes before year-end?
* NO your 2018 state income tax is not considered an obligated expense in 2017, therefore not a deduction for 2017.
c. Should I pay my 2018 Minnesota Property Taxes before year-end?
* YES unless you are in AMT. Minnesota property taxes are assessed in the fall for the preceding year. You could have a potential tax benefit on your 2017 return if you would pay your 2018 property taxes before December 31, 2017.
There are many changes to the existing tax law included in the “Tax Cuts and Job Act” creating a lot of questions. We will continue to monitor and let you know when the law is passed. If you have additional questions please contact your AEM tax advisor.