If you haven’t already done so, it’s time to begin thinking about year-end tax planning, which is always important, but is all the more significant this year, in light of the potential tax changes ahead.
Proposed tax reforms, released last week, are generally planned for implementation in 2018. This makes year-end tax planning a bit more predictable. However, it’s wise to evaluate your 2017 tax planning with 2018 proposed changes in mind, as advance planning could allow you to capture opportunities that might disappear or change.
Tax reform discussions remain fluid, and we expect further changes to emerge in the coming weeks. While there are many layers of tax reform under discussion, SageVest Wealth Management offers insights based on current areas that have the widest potential impact.
State & Local Income Taxes
Current proposals suggest state and local income tax deductions will be eliminated, casting a potentially large impact on individuals in high income tax states, and high income earners in general.
Planning point: There could be an advantage to pre-paying state and local income taxes in 2017, unless you’re subject to Alternative Minimum Tax (AMT).
Property tax deductions are proposed to be capped at $10,000, reducing deduction potential for those living in high property tax areas, expensive and/or multiple homes.
Planning point: Again, there could be an advantage to pre-paying property taxes in 2017, unless you’re subject to Alternative Minimum Tax (AMT).
Medical deductions are proposed to be eliminated.
Planning point: If you have a foreseen medical need, it might be to your benefit to advance payment into 2017.
It’s proposed that mortgage interest deductions will be capped for loans up to $500,000, with the caveat that existing mortgages will be grandfathered with the existing $1,000,000 loan limit.
NOTE: This change could be limited to loans on new property purchases (as opposed to refinances on existing properties), and the change may have already gone into effect if the Bill is signed in its current format.
Planning point: If you’re planning on buying a new home, we recommend careful financial planning to ensure you can afford the payments, despite any potential mortgage interest deduction tax changes.
Personal Residence Capital Gains
The current bill curtails the use of capital gain exclusions on primary residences.
Planning point: Make sure you’re keeping thorough records about property improvements, which add to your cost basis and reduce potential tax exposure.
The bill in its current format reduces the current seven Federal tax brackets to four, including changes in the dollar amounts at which brackets apply. Depending upon your income level, your deductions and your exemptions, your tax rates could dramatically change.
Planning point: If you have the ability to advance or defer income and/or expenses, it could be worth engaging in some careful planning and decision-making, relative to timing choices.
In the weeks ahead, keeping abreast of tax reform discussions as they relate to potential tax planning opportunities will be key. SageVest Wealth Management encourages you to contact us and/or your tax preparer to discuss any changes in your income, deductions, or other factors that could impact your tax planning. As a reminder, virtually all tax planning opportunities are forfeited post-December 31st. The earlier you plan, the better chance you have to make and enact smart decisions. SageVest Wealth Management is here to help!