The Tax Cuts and Jobs Act - What Applies in 2017?

A few parts of the new tax law apply in 2017--and most of them can save you money on your 2017 taxes.

The Tax Cuts and Jobs Act (H.R. 1, “TCJA”) has been signed into law. Almost all of the provisions in the new law take effect in 2018, thus they have no impact on your 2017 taxes. However, there a few parts of the law that apply in 2017 or even earlier. Most of these can save you money on your 2017 taxes.

Medical Expense Deduction

Taxpayers who itemize their personal deductions on IRS Schedule A may deduct their medical expenses for themselves and their dependents. However, under prior law, such expenses were deductible only if, and to the extent, the exceeded 10% of the taxpayer’s adjusted gross income (income minus certain deductions). For example, if your AGI was $100,000, you could only deduct your medical expenses to the extent they exceeded $10,000 (10% x $100,000 = $10,000). This made it impossible for most people to take the deduction at all, and greatly reduced it for those who could take it.

The TCJA reduces the AGI threshold to take this deduction to 7.5% of AGI for 2017 and 2018. This will enable more people to deduct more medical expenses during these years. The threshold will return to 10% of AGI in 2019 and later.

Casualty Losses for 2016 and 2017 Disasters

Under prior law, taxpayers who suffered uninsured property losses due to federally declared disasters, such as the 2017 hurricanes, could take a casualty loss to the extent such losses exceeded 10% of their adjusted gross income. Additionally, the first $100 of each loss was not deductible.

The TCJA changes these rules for federally declared disasters during 2016 and 2017. Now, such disaster losses are deductible to the extent they exceed $500 and there is no 10% of AGI limitation. For individuals who do not itemize deductions, the standard deduction is increased by the amount of the casualty loss attributable to the disaster. These changes greatly increase these deductions for most taxpayers.

100% Bonus Depreciation

Bonus depreciation allows a business owner to deduct a substantial amount of a long-term asset’s cost in a single year, instead of depreciating the cost over many years. Under prior law, the bonus depreciation amount was 50%--that is, 50% of the cost of an asset could be deducted in the first year, with the remaining cost deducted over several years. The TCJA increases the bonus depreciation amount to 100%. The increase goes into effect for long-term assets acquired and placed in service after September 27, 2017.

An asset does not qualify for 100% bonus depreciation during 2017 if you entered into a binding written contract to purchase it prior to September 28, 2017. Such property is subject to the 50% bonus depreciation if it is placed in service during 2017. The bonus rate goes down to 40% if the property is placed in service during 2018 (these were the bonus depreciation rates in effect prior to the new law).

Documentation for Over $250 Charitable Contributions

Ordinarily, taxpayers who make charitable contributions over $250 must obtain a written acknowledgement from the charity. However, prior law contained an exception relieving taxpayers from obtaining an acknowledgment if the charity organization reported the required information to the IRS. The TCJA repeals this exception effective for 2017 and later. Thus, make sure to obtain a written acknowledgment for all over $250 contributions over $250.

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