Tax Reform Proposal: Credits and Adjustments

November 8th, 2017 Posted by Tax Planning No Comment yet

There are a number of changes that will occur if Congress passes the tax reform bill that the Republican leadership in the House of Representatives proposed on November 2, 2017. Among these are changes to the deductibility to certain adjustments to income as well as changes to a number of tax credits.

Loss of Certain Deductions

Here are some items that will no longer be deducted as an adjustment to income:

  • Alimony (but only for divorce and separation agreements entered into after December 31, 2017);
  • Educator expenses (currently only $250 is allowed);
  • Interest on student loans;
  • Moving expenses; and
  • Tuition expenses.

Tax Credits

There are a number of tax credits that will be affected (positively or negatively) by the proposed changes to our tax system:

  • Adoption Tax Credit
    • This tax credit that partially offsets the cost of adopting a child will no longer be available.
  • Child Tax Credit
    • Currently, taxpayers under certain income thresholds are entitled to a $1,000 non-refundable tax credit per qualifying child.  The value of this tax credit will go up to $1,600.  Up to $1,000 of the credit will be refundable.
    • Under the tax reform bill, there will be an additional non-refundable tax credit for claiming other family members as dependents.
  • Credit for the Elderly and Permanently and Totally Disabled
    • This tax credit, which because of its restrictions, is not believed by the author to be widely used, will no longer be available.
  • Education Tax Credits
    • The three current education credits (i.e. American Opportunity, Hope, and Lifetime Learning) are combined into one tax credit that is worth up to $2,500.
  • Plug-in Electric Vehicle Tax Credit
    • This popular tax credit, which is worth up to $7,500 for purchasing a qualifying plug-in electric vehicle, will no longer be available.Tax Credits

The value of these deductions and credits greatly depends upon your personal situation. In our next post, we will provide examples of how how the changes in tax rates, deductions, exemptions, and credits comes together.

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