Monday, December 18, 2017

Federal Legislative Report 115-07


On Friday evening, Conference Committee members released the final version of the tax code rewrite, which reconciles differences between the House and Senate bills. It is anticipated the House and Senate will vote on the final version as early as Tuesday. The Joint Committee on Taxation's preliminary budget estimate of the Conference Committee bill for H.R. 1 indicates that the measure would add $1.456 trillion to the federal deficit over Fiscal Years 2018-2027. According to The Washington Post, the "measure curtails the federal deduction for state and local taxes. Advocates worry that states, counties and cities will have a tougher time raising money for schools - which get nearly all of their money from state and local tax revenues - because those taxes will no longer be fully deductible."

The following are provisions, applicable to education, included in the final version:

Tuition Tax Credits for Non-Public Schools
This provision modifies section 529 plans to allow the plans to distribute not more than $10,000 in expenses for tuition incurred during the taxable year in connection with the enrollment or attendance of the designated beneficiary at a public, private, or religious elementary or secondary school. This limitation applies on a per-student basis, rather than a per-account basis.

The provision also modifies the definition of higher education expenses to include certain expenses incurred in connection with a homeschool. Those expenses are (1) curriculum and curricular materials; (2) books or other instructional materials; (3) online educational materials; (4) tuition for tutoring or educational classes outside of the home (but only if the tutor or instructor is not related to the student); (5) dual enrollment in an institution of higher education; and (6) educational therapies for students with disabilities.

State and Local Tax Deductibility (SALT)
Currently, individuals are permitted a deduction for certain taxes paid or accrued, whether or not incurred in a taxpayer's trade or business. These taxes are: ... property taxes; (ii) state and local personal property taxes; ... At the election of the taxpayer, an itemized deduction may be taken for state and local general sales taxes in lieu of the itemized deduction for state and local income taxes.

Under this provision a taxpayer may claim an itemized deduction of up to $10,000 ($5,000 for married taxpayer filing a separate return) for the aggregate of (i) state and local property taxes not paid or accrued in carrying on a trade or business, or an activity described in section 212, and (ii) state and local income, war profits, and excess profits taxes (or sales taxes in lieu of income, etc. taxes) paid or accrued in the taxable year. This provision applies to taxable years beginning after Dec. 31, 2017, and beginning before Jan. 1, 2026.  The language prohibits an individual from claiming an itemized deduction in 2017 on a pre-payment of income tax for a future taxable year in order to avoid the dollar limitation applicable for taxable years beginning after 2017.

Click here to read the entire Federal Legislative Report 115-07, including additional information on the tax reform proposal, net neutrality, and the Every Student Succeeds Act.