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Pearson’s Federal Taxation 2018 Edition

Tax Legislative Update for The Tax Cut and Jobs Act of 2017 (TCJA)

Individuals, chapters 1-18

Introduction

On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act of 2017 (TCJA) into law. This legislation represents a major reform of the federal income tax system, with changes that affect many areas of the tax law. Among the changes are reduced rates for individuals and corporations, modifications to many of the itemized deductions that individual taxpayers traditionally included on their returns, elimination of the personal and dependency exemptions for individuals, an increased standard deduction, and a new deduction for qualified business income from pass-through entities. Most of the provisions apply to tax years beginning in 2018 and will be incorporated into the 2019 edition of Pearson’s Federal Taxation series. However, given the scope of these changes, many instructors will want to address the reform in their current classes. To aid instructors in this process, we offer the following summary of the tax reform legislation as these changes correspond to the existing chapter material.

Summary of Important New Legislation from

the Tax Cuts and Jobs Act of 2017 for Chapters 1-18

Chapter I:1: An Introduction to Taxation Individual Income Tax Rates: One of the most significant changes that the TCJA made was a reduction in the individual income tax rates. Included in the legislation was a sunset provision that makes these reduced rates effective for tax years that begin in 2018 and continue through 2025. The new rate structures contain seven brackets that range from 10% to 37%. The tax rates for 2018 for each filing status are shown below (these rate schedules will be adjusted for inflation in future years): 2018 Tax Rate Schedules Individual Taxpayers Single: If taxable income is: The tax is: Not over $9,525 10% of taxable income Over $9,525 but not over $38,700 $952.50, plus 12% of the excess over $9,525 Over $38,700 but not over $82,500 $4,453.50, plus 22% of the excess over $38,700 Over $82,500 but not over $157,500 $14,089.50, plus 24% of the excess over $82,500

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Over $157,500 but not over $200,000 $32,089.50, plus 32% of the excess over $157,500 Over $200,000 but not over $500,000 $45,689.50, plus 35% of the excess over $200,000 Over $500,000 $150,689.50, plus 37% of the excess over $500,000 Head of Household: If taxable income is: The tax is: Not over $13,600 10% of taxable income Over $13,600 but not over $51,800 $1,360.00, plus 12% of the excess over $13,600 Over $51,800 but not over $82,500 $5,944.00, plus 22% of the excess over $51,800 Over $82,500 but not over $157,500 $12,698.00, plus 24% of the excess over $82,500 Over $157,500 but not over $200,000 $30,698.00, plus 32% of the excess over $157,500 Over $200,000 but not over $500,000 $44,298.00, plus 35% of the excess over $200,000 Over $500,000 $149,298.00, plus 37% of the excess over $500,000 Married, Filing Joint and Surviving Spouse: If taxable income is: The tax is: Not over $19,050 10% of taxable income Over $19,050 but not over $77,400 $1,905.00, plus 12% of the excess over $19,050 Over $77,400 but not over $165,000 $8,907.00, plus 22% of the excess over $77,400 Over $165,000 but not over $315,000 $28,179.00, plus 24% of the excess over $165,000 Over $315,000 but not over $400,000 $64,179.00, plus 32% of the excess over $315,000 Over $400,000 but not over $600,000 $91,379.00, plus 35% of the excess over $400,000 Over $600,000 $161,379.00, plus 37% of the excess over $600,000 Married, Filing Separate: If taxable income is: The tax is: Not over $9,525 10% of taxable income Over $9,525 but not over $38,700 $952.50, plus 12% of the excess over $9,525 Over $38,700 but not over $82,500 $4,453.50, plus 22% of the excess over $38,700 Over $82,500 but not over $157,500 $14,089.50, plus 24% of the excess over $82,500 Over $157,500 but not over $200,000 $32,089.50, plus 32% of the excess over $157,500 Over $200,000 but not over $300,000 $45,689.50, plus 35% of the excess over $200,000 Over $300,000 $80,689.50, plus 37% of the excess over $300,000 Corporate Income Tax Rates: In a significant change in the corporate tax rate structure, the TCJA revised the corporate tax rates from a graduated rate structure with rates ranging from 15% to 35% to a flat rate of 21%. This revised corporate rate structure applies to tax years beginning after December 31, 2017. Estate and Trusts Income Tax Rates: In addition to the rate reduction for individuals and corporations, the TCJA also reduced the income tax rates for estates and trusts, with a sunset provision that makes these reduced rates effective for tax years that begin in 2018 and continue through 2025. The new rate structure contains four brackets that range from 10% to 37%. The tax rates for 2018 are shown below:

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Estates and Trusts: If taxable income is: The tax is: Not over $2,550 10% of taxable income Over $2,550 but not over $9,150 $255.00, plus 24% of the excess over $2,550 Over $9,150 but not over $12,500 $1,839.00, plus 35% of the excess over $9,150 Over $12,500 $3,011.50, plus 37% of the excess over $12,500 Estate Tax Exclusion: TCJA doubled the estate tax exclusion, so fewer estates would be subject to taxation. The basic exclusion provided by the Tax Relief Act of 2010 was $5 million, so the new tax law doubles that to $10 million. This amount then is indexed for inflation from 2011 to the current year. The indexed amount was scheduled to be $5.6 million for 2018, so the assumption is that the new exclusion amount will be $11.2 million (See Analysis of the Tax Cuts and Jobs Act by RIA Checkpoint—Paragraph 2801). However, it should be noted that some commentators have suggested that the new indexing method prescribed by TCJA will result in an amount slightly less—for example, $11.18 million. (See article by Lang and Nason in The National Law Review, December 28, 2017). This increased exclusion amount is scheduled to be in effect for the tax years 2018 to 2025. Qualified Business Income Deduction: TCJA adds a new deduction for qualified business income (also sometimes referred to as the “pass through deduction”). The deduction reduces taxable income (instead of adjusted gross income) but taxpayers can take the deduction regardless of whether they take the standard deduction or itemized deductions. The deduction is 20% of the taxpayer’s qualified business income from a partnership, S corporation, or sole proprietorship. The purpose of the deduction is to bring the tax rates on these types of businesses more in line with the reduced rates that Congress provided with the new tax law. In general, the deduction is limited to the lesser of: (1) the combined qualified business income (QBI) of the taxpayer, or (2) 20% of the excess of taxable income over any net capital gain. Qualified business income is defined as the net amount of items of income, gain, deduction, and loss for the trade or business. Excluded from this definition are investment-related items like capital gains and losses, dividends, and interest income as well as any employee compensation and guaranteed payments that the taxpayer receives from the entity. Generally, QBI only includes income from a U.S. trade or business. In addition, taxpayers in service-related businesses (like law, accounting, healthcare and consulting) are only eligible for the deduction if their taxable income is less than a threshold amount ($157,500 for single and $315,000 for married filing jointly). Beyond this guidance, the law doesn’t provide a great deal of detail about what constitutes a qualifying trade or business that will be eligible for this deduction (for example, how does rental property fit under the framework of this new law?), so additional guidance will be necessary.

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Limitations based on W-2 wages—The QBI deduction is limited to the lesser of: (1) 20% of qualified business income, or (2) The greater of the following:

a. 50% of W-2 wages allocable to the taxpayer by the business, or b. 25% of allocable W-2 wages plus 2.5% of the allocable share of the

unadjusted basis of qualified property immediately after it has been acquired. The W-2 limitations do not apply to those businesses that meet the same taxable income thresholds as those for service-related businesses covered in the previous paragraph (that is, $157,500 for single and $315,000 for married filing jointly). Chapter I:2: Determination of Tax Increase in Standard Deduction: TCJA substantially increases the basic standard deduction for individual taxpayers, nearly doubling the amounts. For 2018, the standard deduction amounts will be: $24,000 for married filing joint and surviving spouse $18,000 for head of household $12,000 for single and married filing separate These increased amount are scheduled to begin in 2018 and continue through 2025, at which time, the provision is scheduled to sunset. Beginning in 2019, these amounts will be indexed for inflation each year (the tax reform legislation changed the measure used to index for inflation). TCJA retains the additional standard deduction amounts for elderly and blind taxpayers as under pre-TCJA tax law. For 2018, the following amounts are added to the increased standard deduction for these conditions: $1,300 per condition for married taxpayers who are blind and/or age 65 or over $1,600 per condition for unmarried taxpayers who are blind and/or age 65 or over TCJA also retains the limitation on the standard deduction for dependents as under pre-TCJA tax law. For 2018, the limitation is the greater of: (1) the dependent’s earned income plus $350 or (2) $1,050. These dollar amounts are the same as for 2017. Personal and Dependency Exemptions Suspended: In conjunction with the increased standard deduction amount, the Tax Cuts and Jobs Act reduces the personal exemption amount to $0 for tax years from 2018 through 2025, effectively suspending the exemptions for these years. In its Committee Reports, Congress clarified that they kept the personal exemption rules in Code Sec. 151 so that other provisions that refer to this Code section are not affected. (For example, Sec. 24, which authorizes the child tax credit, refers to Sec. 151 in terms of defining who qualifies for the child tax credits).

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Child Tax Credit Increased: See summary of changes for Chapter I:14 for changes to the child tax credit Kiddie Tax: TCJA changes the kiddie tax so that the marginal tax rates used are no longer based on the tax rates of the parents, but instead are based on the estate and trust tax rates. The new law does not change the definition of taxpayers that are subject to the kiddie tax rules or the distinction between the tax implications of earned income or unearned income. It also continues to tax the child’s earned income at the child’s tax rate. However, the new law affects the rates that apply to the unearned income of the child for the tax years 2018 through 2025, essentially applying a modified version of the estate and trust tax rates to the unearned income of a child taxpayer. The law sets the rates as follows for 2018:

The maximum amount of taxable income taxed at a rate below 24% can’t exceed the child’s earned taxable income plus $2,550. The maximum amount of taxable income taxed at a rate below 35% can’t exceed the child’s earned taxable income plus $9,150 And the maximum taxable income taxed at a rate below 37% can’t exceed the child’s earned taxable income plus $12,500.

Earned taxable income is the child’s taxable income minus net unearned income (but not less than zero). TCJA retains the definition of net unearned income as under pre-TCJA tax law. For 2018, net unearned income typically equals unearned income minus $2,100 (but not less than zero), which uses the same dollar amount as for 2017. Limitation on Itemized Deductions for High Income Taxpayers Suspended: As explained in Chapter I:2, prior to the passage of the Tax Cuts and Jobs Act of 2017, high income taxpayers were subject to an additional limitation on their itemized deductions. These taxpayers generally had to reduce their itemized deductions by an additional 3% of their excess AGI over threshold amounts based on filing status. The new tax law suspends this limitation so that it no longer applies for tax years from 2018 through 2025. Who must file: Because of the increased standard deduction amounts and the elimination of personal exemptions, the gross income filing levels for taxpayers under age 65 are changed as follows:

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2017 2018 Single $10,400 $12,000 Married, filing jointly 20,800 24,000 Surviving spouse 16,750 24,000 Married, filing separately 4,050 0 Married, living separately from spouse at year-end 4,050 0 Head of household 13,400 18,000

Chapter I:3: Gross Income: Inclusions Changes in the Treatment of Alimony: Alimony payments will no longer be included in the gross income of the recipient or deducted by the paying ex-spouse. Prior to the tax reform legislation, a taxpayer who received alimony from an ex-spouse had to include the alimony payments in gross income while the ex-spouse who paid the alimony could treat the payments as a deduction for AGI. TCJA changes the treatment of alimony for any divorce or legal separation agreements executed after 2018. Expansion on the Use of the Cash Method: TCJA expands the group of taxpayers who are allowed to use the cash method. To qualify under these new rules, a C corporation (or a partnership with a C corporation as a partner) can use the cash method if its average annual gross receipts for the three previous tax years is less than $25 million. This new limit is indexed for inflation for years after 2018. Dividends Received from a Foreign Corporation: TCJA fundamentally changes the tax treatment of dividends that a U.S. corporation receives from a foreign corporation. Essentially, the new law adopts a territorial tax system that allows domestic corporations to claim a 100% dividend-received deduction for dividends received from 10% or greater foreign subsidiaries with only foreign earnings. This change recognizes that host countries tax income earned locally. The dividend-received deduction is prorated in the case of foreign subsidiaries with both domestic and foreign source earnings. This change applies to distributions made after December 31, 2017. See Chapter C:16 for additional details. Chapter I:4: Gross Income: Exclusions Qualified bicycle commuting reimbursement: As noted in Chapter I:4, Sec. 132 of the IRC provides guidance for the tax treatment of certain fringe benefits. TCJA suspends the exclusion for qualified bicycle commuting reimbursement for tax years 2018 through 2025. Student Loan Forgiveness: As noted in Chapter I:4, student loan forgiveness could be excluded from the gross income if the discharge was contingent on the taxpayer performing

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certain public services. TCJA expands the provision to allow taxpayers to exclude forgiveness of student loans that result from the death or disability of the taxpayer. This provision applies to tax years from 2018 through 2025. Uses for 529 Plans: TCJA expands the definition of qualified higher educational expenses so that the definition now includes tuition at elementary and secondary schools. Prior to this change, eligible educational institutions included only post-secondary educational institutions. Chapter I:5: Property Transactions: Capital Gains and Losses Lower Rates for Adjusted Net Capital Gain (ANCG): The tax rate that applies to a noncorporate taxpayer’s ANCG can be zero, 15% or 20%. Prior to TCJA, it was easy to determine when the different rates applied. Taxpayers with a rate of 15% or less used a zero rate while taxpayers whose ordinary income tax rate was greater than 15% but less than 39.6% used 15%. Taxpayers with a 39.6% rate used 20%. With TCJA, Congress changed the individual income tax rates to include seven different percentage rates (10, 12, 22, 24, 32, 35 and 37), but they wanted to retain the maximum preferential rates on ANCG and qualified dividends. Breakpoints comparable to taxable income that would have been taxed at less than 25% before TCJA are used to determine the breakpoints for the zero percent preferential rate under the new law. Refer to Table 5-1 below for 2018 rates. Note that the preferential rate is zero for taxpayers filing a joint return (and a surviving spouse) with taxable income equal to or less than $77,200. When the taxable income is more than $77,200 but not more than $479,000, the preferential rate is 15%. The preferential rate becomes 20% when taxable income exceeds $479,000. TABLE 5-1 Taxable Income Breakpoints for Preferential Rates Applicable to Adjusted Net Capital Gain (ANCG) and Qualified Dividends Pref. Rate Single Filing Jointly* Head of Household 0% Up to $38,600 Up to $77,200 Up to $51,700 15% > $38,600 but < $425,800 > $77,200 but < $479,000 >$51,700 but < $452,400 20% Over $425,800 Over $479,000 Over $452,400 * The corresponding amounts if married filing separately are half the amounts for filing jointly. The preferential rate is zero for taxable income up to $38,600 if married filing separately.

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The breakpoint amounts in Table 5-1 will be adjusted annually for inflation. The breakpoint amounts in TCJA were implemented with a sunset provision that ensures this approach for tax years from 2018 through 2025. Patents Excluded from the Definition of a Capital Asset: Prior to the TCJA, Congress had a clear distinction between a patent and other intangible assets held by their creators. Most intangible assets such as a copyright were not capital assets in the hands of their creator or a taxpayer who obtained his or her basis from the creator. Starting in 2018, patents have been added to the list of self-created intangible assets that are not capital assets. Thus, the benefits of Sec. 1235 discussed in Chapter I:5 may be more limited after TCJA. Chapter I:6: Deductions and Losses Deduction for Lobbying Local Government Eliminated: As noted in Chapter I:6, under prior law, taxpayers could deduct costs associated with lobbying at the local government level. TCJA eliminates the deduction for lobbying costs at the local government level. Chapter I:7: Itemized Deductions Change in AGI Floor for Medical Expenses: TCJA makes a retroactive change in the AGI floor for medical expenses. Previously, medical expenses were subject to a 10% of AGI floor for most taxpayers. TCJA reduces the floor to 7.5% for all taxpayers for 2017 and 2018. The floor is scheduled to increase to 10% in 2019. Limitation on Deduction for State and Local Taxes: For tax years 2018 through 2025, the new tax law limits the itemized deduction for state and local real property taxes, state and local personal property taxes, and state and local income taxes (or state and local sales tax, if elected instead of income taxes) to a total amount of $10,000 ($5,000 for married separate). Mortgage Interest Limited and Home Equity Loan Interest Suspended: For tax years 2018 through 2025, the amount of indebtedness on the acquisition of a residence for which interest can be deducted is limited to $750,000. However, if the taxpayer incurred the indebtedness before December 15, 2017, the limitation remains at $1 million (the pre-TCJA amount). In addition to the reduced limit on acquisition indebtedness, TCJA also eliminates the deduction for home equity loan interest for tax years from 2018 through 2025. Personal Casualty and Theft Loss Deduction for Individuals Eliminated: For tax years 2018 through 2025, any personal casualty and theft losses of an individual are disallowed, with two exceptions. First, if the casualty loss is associated with a federally declared disaster, the taxpayer can deduct the loss subject to the $100-per-casualty and 10% of AGI floor limitations that applied pre-TCJA. Second, if the taxpayer has personal casualty losses not associated with a

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federally declared disaster, the losses can be deducted to the extent of any personal casualty gains. Increase in Percentage Limit on Cash Charitable Contributions: TCJA increased the AGI percentage ceiling on cash charitable contributions from 50% to 60% for tax years 2018 through 2025. Limitation on Itemized Deductions for High Income Taxpayers Suspended: See the summary for Chapter I:2 for more information about this limitation. Chapter I:8: Losses and Bad Debts Personal Casualty and Theft Loss Deduction for Individuals Eliminated: See summary in Chapter I:7 for more details on the rules related to Personal Casualty and Theft Losses. New Limits on NOL Deductions: TCJA added an additional limit to an NOL deduction that is being carried over to another year. The deduction cannot exceed 80% of the taxable income for the year. The limit applies to any losses for tax years beginning after 2017. (This means that if the taxpayer had an NOL from 2017 that is carrying forward to 2018, it would not be subject to this limit). Change in the Carryover for NOLs: Under pre-TCJA law, NOLs could generally be carried back 2 years and forward 20 years. TCJA changes these rules, so that taxpayers are no longer able to carry NOLS back, but may carry them forward indefinitely. (An exception still allows farming business to carry NOLs back 2 years). This change in the carryover rules for NOLs applies for losses for tax years beginning after 2017. Chapter I:9: Employee Expenses and Deferred Compensation Elimination of Miscellaneous Itemized Deductions: TCJA eliminates miscellaneous itemized deductions for tax years 2018 through 2025. Therefore, many of the expenses discussed in the first part of Chapter I:9 are no longer deductible if they are unreimbursed employee business expenses because these expenses were part of the miscellaneous itemized deductions. However, these business expenses generally continue to be deductible for AGI for those taxpayers who are self-employed. Elimination of Entertainment Expenses: TCJA eliminates the deduction for any entertainment, amusement, or recreation expenses that met the “directly related to” or “associated with” tests for a trade or business. Taxpayers can still deduct meals directly related to or associated with a trade or business with a 50% limit (for example, the Committee Reports note that meals while an employee is traveling for work would still qualify). Increased Limits for Employer-operated Feeding Facility: TCJA applies limits the deduction for any food or beverages provided by an employer-operated feeding facility for employees to

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50% for tax years from 2018 through 2025. For tax years after 2025, no deduction will be allowed. Elimination of Deduction for Moving Expenses: TCJA eliminates the deduction for moving expenses for most taxpayers. Under pre-TCJA law, moving expenses related to employment could be taken as a deduction for AGI. For tax years 2018 through 2025, the moving expense deduction is eliminated (except for some members of the armed forces). Chapter I:10: Depreciation, Cost Recovery, Amortization, and Depletion Useful Life of Building Improvement: TCJA provides that qualified improvement property has a 15-year useful life and will be depreciated using the straight-line method. This new category replaces the more restricted categories of qualified leasehold improvement property, qualified retail improvement property, and qualified restaurant property that previously had a 15-year useful life. Qualified improvement property under TCJA also qualifies for immediate expensing under Sec. 179 (see section below for further explanation). Depreciation Limits on Passenger Automobiles Increased: TCJA increased the limits on the depreciation that can be taken each year on passenger automobiles. Under the new law, the limits increase to the following amounts:

Year 1: $10,000* Year 2: $16,000

Year 3: $9,600 Any year after: $5,760

*Note that the Year 1 amount is increased if the taxpayer uses bonus depreciation on the care (see summary in bonus depreciation section below).

These increased limits apply to any passenger auto placed in service after 2017. These dollar amounts correspond to the first- through fifth-year MACRS deductions for $50,000 of 5-year property. Computers No Longer Considered to be Listed Property: Prior to TCJA, computers and related equipment were considered to be listed property and were, therefore, subject to limitations on the amount of depreciation that could be claimed. TCJA removes computers and peripheral equipment from the definition of listed property for tax years beginning after 2017. Increase in Sec. 179 Immediate Expensing Amount: TCJA increases the amount that can be immediately expensed under Sec. 179 to $1 million (under pre-TCJA law, the 2018 amount was scheduled to be $520,000). TCJA also increases the start of the phase-out for the immediate expensing to $2.5 million (prior to TCJA, this threshold for 2018 was scheduled to be $2.07 million). The new increased amounts will be adjusted for inflation for tax years after 2018.

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Expansion of the Definition of Qualifying Property for Sec 179: Under pre-TCJA law, limited real property qualified for immediate expensing. Essentially, these rules limited immediate expensing to qualified leasehold improvement property, qualified retail improvement property, and qualified restaurant property. TCJA expands the types of property that are eligible by changing the requirement to be that the property needs to be “qualified improvement property.” The law defines qualified improvement property as any improvement to the interior portion of any non-residential real property as long as the improvement occurred after the property was placed in service and is not related to the enlargement of the building, an elevator or escalator, or the internal structure of the building. TCJA also makes certain structural components (like roofs and HVAC property) eligible for immediate expensing. TCJA also allows tangible personal property used in some residential rental property to be included in the definition of qualifying property for Sec. 179. This change allows items like furniture and appliances used in furnished apartment buildings or dormitories to be immediately expensed. Limit on Sec. 179 of SUVs Indexed for Inflation: TCJA indexes for inflation the limitation on the amount of immediate expensing of SUVs, beginning for tax years after 2018. Prior to this change, the limitation on the amount of the cost of an SUV that could be immediately expensed was $25,000. Bonus Depreciation increased to 100%: TCJA increased the percentage for bonus depreciation to 100% (thereby essentially allowing complete expensing immediately) for qualified property that was acquired and placed in service after September 27, 2017 and extending through 2022. Beginning in 2023, the percentage used for bonus depreciation gradually drops by 20 percentage points each year, until it is eliminated in 2027. (Note that the timing of this phase-down is slightly different for some long production period property and aircrafts.) TCJA also modifies the definition of property that qualifies for bonus depreciation. Most notably, prior to TCJA, property had to be brand new to qualify. TCJA modifies this requirement by allowing used property to also qualify for bonus depreciation. In addition, TCJA adds some qualified film and television productions and some qualified live theatrical productions to the list of qualifying property. Extension of Increase in Limitation for Bonus Depreciation for Qualifying Automobiles: Under pre-TCJA rules, passenger automobiles had a limit on the amount of depreciation that a taxpayer could take under Sec. 280F. This amount was increased by $8,000 for automobiles on which the taxpayer claimed bonus depreciation. This amount was scheduled to be reduced in 2018 under the pre-TCJA rules. TCJA extends this $8,000 increase in the limit through tax year 2026. Amortization of Research and Experimental Expenditures and Computer Software: TJCA requires research and experimental expenditures to be capitalized and amortized over a five-year period. This provision is effective beginning in tax year 2022. Similarly, TCJA requires that any costs associated with the development of computer software will be subject to the research and

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experimental expenditure requirements that may be capitalized and amortized over a five-year period, beginning in tax year 2022. Chapter I:11: Accounting Periods and Methods Expansion on the Use of the Cash Method: TCJA expands the group of taxpayers who are allowed to use the cash method. To qualify under these new rules, a C corporation (or a partnership with a C corporation as a partner) can use the cash method if its average annual gross receipts for the three previous tax years is less than $25 million. This new limit will be indexed for inflation for years after 2018. Change in Limitations for Application of the UNICAP Rules for Inventory: The Uniform Capitalization (UNICAP) rules require taxpayers to include overhead items specified in Sec. 263A to be included in the cost of inventory. Prior to TCJA, taxpayers with average gross receipts of less than $10 million for the previous three years were not required to include these overhead costs in inventory. TCJA increases the limit on average annual gross receipts to $25 million, effective for tax year 2018. Change in Limitations for Requirement to Use Percentage of Completion Method: Under the pre-TCJA rules, smaller companies (defined as those with average gross receipts of less than $10 million for the previous three years) were allowed to use completed contract, instead of percentage of completion, for certain construction contracts. TCJA increases the limitation on average annual gross receipts to $25 million, effective for tax year 2018. Chapter I:12: Property Transactions: Nontaxable Exchanges New Restrictions on Like-kind Exchanges: TCJA changes the definition of like-kind property for purposes of being able to defer the recognition of gain or loss on a like-kind exchange. After 2017, like-kind property is restricted to real property that is held for use in a trade or business or held for investment. Real property that is held for sale, personal property, and intangible property no longer qualify as like-kind property. In addition, real property has to be located in the U.S. to qualify as like-kind property. Chapter I:13: Property Transactions: Section 1231 and Recapture No specific changes related to TCJA Chapter I:14: Special Tax Computation Methods, Tax Credits, and Payment of Tax Increase in AMT Exemption Amounts for Individuals: For tax years 2018 through 2025, TCJA increases the AMT exemption amounts and the AMT phase-out thresholds as follows:

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2018 Exemption 2018 Phase-out Amount Threshold Married filing joint $109,400 $1,000,000 Married filing separate 54,700 500,000 Single, Head of Household 70,300 500,000 All of these amounts are scheduled to be indexed for inflation for years after 2018. AMT Adjustment to Standard Deduction for Net Disaster Loss: TCJA provides that if an individual has a net disaster loss for 2016 or 2017, the typical AMT adjustment for the standard deduction doesn’t apply to the increase in the standard deduction that is due to the net disaster loss. Other AMT Adjustments: Due to changes that TCJA makes in the regular tax calculation, some common AMT adjustments are eliminated. Personal and dependency exemptions are no longer a deduction for regular tax and as a result are no longer AMT adjustments. The state and local tax deduction for individuals is limited to $10,000. Therefore, the AMT adjustment will not exceed $10,000 for state and local taxes paid. Increase in Child Tax Credit: TCJA increases the child tax credit to $2,000 for each qualifying child for tax years 2018 through 2025. The new law also increases the phase-out thresholds for these years. For married filing jointly the threshold increases to $400,000, while the threshold for single and head of household taxpayers is $200,000. TCJA also requires the taxpayer to include the social security number of each qualifying child to claim the credit. TCJA increases the refundable portion of the Child Tax Credit to $1,400. The new law also reduces the earned income threshold used to determine the refundable portion of the credit to $2,500 (prior to this change, this threshold was $3,000). TCJA provides a partial credit of $500 for each qualifying dependent who is not a qualifying child for purposes of the Child Tax Credit. This partial credit is non-refundable and applies to tax years 2018 through 2025. The qualifying dependent has to be a U.S. citizen, national, or resident to qualify. Shared Responsibility Payment Eliminated: For tax years after 2018, TCJA eliminates the shared responsibility payment that had previously been established by the Affordable Care Act. Chapter I:15: Tax Research No specific changes related to TCJA

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Chapter I:16: Corporations Dividends-Received Deduction: TCJA reduces the DRD percentage from 70% to 50% for less-than-20% owned corporations and to 65% for 20% or more owned corporations. The 100% DRD remains intact for members of affiliated corporations. The revised DRD percentages apply to tax years beginning after December 31, 2017. Net operating loss deduction: TCJA repeals the carryback of NOL deductions (although the two-year carryback is retained for farming business losses). Moreover, the NOL carryover is extended indefinitely rather than just for 20 years. The revised NOL rules apply to NOLs arising in tax years ending after December 31, 2017. NOLs arising before the effective date still will be subject to the two-year carryback and 20-year carryover rules. In addition, under the new rules, the deduction for an NOL carryover will be limited to 80% of taxable income before the NOL deduction in the carryover year. Thus, the NOL deduction is the lesser of the aggregate carryovers or 80% of taxable income computed without regard to the NOL deduction. Any amount of NOL carryover deduction disallowed because of the 80% limit carries over indefinitely. The 80% limitation rules apply to NOLs arising in tax years beginning after December 31, 2017. NOLs arising before the effective date will not be subject to the 80% limitation. Limitation on Deduction for Compensation: Section 162(m) limits the deduction for compensation to a “covered” employee to $1 million. Under TCJA, a covered employee includes the principal executive officer and the principal financial officer, plus the three highest compensated officers (other than the executive or financial officers) if the compensation of such other officers is required by the Securities Exchange Act of 1934 to be reported to shareholders. In addition, TCJA removes the exception to the $1 million limitation for performance-based compensation. This change is effective for tax years beginning after December 31, 2017, with exceptions for some pre-existing binding contracts. Limitation on Net Business Interest: TCJA limits the deductibility of business interest in a given year to the sum of the following amounts:

1. Business interest income. 2. 30% of adjusted taxable income (but not less than zero). 3. Floor plan financing interest.

Any amount disallowed because of the above limitation carries over to the next year. The carryover period is indefinite. Taxpayers meeting the $25 million gross receipts test for small businesses are exempt from this limitation. Business interest is that which is allocable to a trade or business and does not include investment interest. Business income it that which is allocable to a trade or business and does not include investment income. Adjusted taxable income means taxable income computed without regard to:

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1. Income, gain, deduction, or loss not allocable to a trade or business. 2. Business interest or business interest income. 3. Any NOL deduction. 4. The qualified business income deduction. 5. For years beginning before January 1, 2022, any deduction allowable for

depreciation, amortization, or depletion. 6. Any other adjustments provided by the Treasury Department.

Regarding items 1 and 4, a regular C corporation is usually deemed to be a trade or business, and the qualified business deduction does not apply to regular C corporations. The term trade or business does not include performing services as an employee, an electing real property trade or business, an electing farming business, or certain regulated utilities. Application to partnerships and S corporations will be summarized in Chapters C:9 and C:11. The limit on business interest applies to tax years beginning after December 31, 2017. U.S. (Domestic) Production Activities Deduction: TCJA repeals this deduction for years beginning after December 31, 2017. Corporate Income Tax Rates: TCJA revises the corporate tax rates from a graduated rate structure with rates ranging from 15% to 35% to a flat rate of 21%. The reduced rate applies to regular C corporations and to personal service corporations. The revised corporate rate structure applies to tax years beginning after December 31, 2017. Corporate Alternative Minimum Tax: TCJA repeals the corporate AMT for tax years beginning after December 31, 2017. In years beginning in 2018 through 2020, any minimum tax credit (MTC) carryover from prior AMT years will be allowed to the extent of the regular tax liability plus 50% of the excess of the MTC over the amount credited against the regular tax. This 50% excess is treated as a refundable tax credit. In years beginning in 2021, 100% of the excess will be allowed as a refundable credit. Chapter I:17: Partnerships and S Corporations Qualified Business Income Deduction: TCJA adds a new deduction for qualified business income (sometimes referred to as the “pass through deduction”). The deduction reduces taxable income (instead of adjusted gross income), but taxpayers can take the deduction regardless of whether they claim the standard deduction or itemized deductions. The deduction is 20% of the taxpayer’s qualified business income from a partnership, S corporation, or sole proprietorship. The purpose of the deduction is to bring the tax rates on these types of businesses more in line with the reduced rates for corporations that Congress provided with the new tax law. In general, the deduction is limited to the lesser of: (1) the combined qualified business income (combined QBI) of the taxpayer or (2) 20% of the excess of taxable income over any net capital gain. Qualified business income (QBI) is defined as the net amount of items of income, gain, deduction, and loss for the trade or business. Excluded from this definition are investment-related items such as capital gains and losses, dividends, and interest income as well as any employee compensation and guaranteed payments that the taxpayer receives from the entity.

16

Generally, QBI includes only income from a U.S. trade or business. In addition, taxpayers in service-related businesses (e.g., law, accounting, healthcare and consulting) are only eligible for the deduction if their taxable income is less than a threshold amount ($157,500 for single and $315,000 for married filing jointly). Beyond this guidance, the TCJA doesn’t provide a great deal of detail about what constitutes a qualifying trade or business that will be eligible for this deduction (for example, how does rental property fit under the framework of this new law?), so additional guidance will be necessary. The new law also provides limitations based on W-2 wages. Here, combined QBI is defined as the lesser of:

(1) 20% of qualified business income, or (2) The greater of the following:

a. 50% of W-2 wages allocable to the taxpayer by the business, or b. 25% of allocable W-2 wages plus 2.5% of the allocable share of the

unadjusted basis of qualified property immediately after it has been acquired. The W-2 limitations, however, do not apply to those businesses that meet the same taxable income thresholds as those for service-related businesses covered in the previous paragraph (that is, $157,500 for single and $315,000 for married filing jointly). For partnerships and S corporations, the deduction is applied at the partner or shareholder level. Accordingly, each partner or shareholder takes into account his or her share of entity levels of items. The business income deduction applies to tax years beginning after December 31, 2017. Loss Limitation: A partner’s distributive share of partnership losses is limited to the extent of the partner’s basis in his or her partnership interest (outside basis). For partnership tax years beginning after December 31, 2017, TCJA adds that, in determining any loss under this limitation, the parties must take into consideration a partner’s share of charitable contributions and foreign taxes paid or accrued. Thus, these two items reduce outside basis for purposes of the loss limitation and, apparently, are limited by outside basis as well, although the ordering of applying losses to the limitation is not entirely clear. Accounting Methods: The provisions concerning the cash method and gross receipts test discussed in the Chapter I:11 and C:3 summaries apply as well to a partnership having a C corporation as a partner. The change regarding inventories discussed in this same summary also applies to partnerships. Limitation on Net Business Interest: TCJA limits the deductibility of business interest in a given year to the sum of the following amounts:

1. Business interest income. 2. 30% of adjusted taxable income (but not less than zero). 3. Floor plan financing interest.

Any amount disallowed because of the above limitation carries over to the next year. The carryover period is indefinite. Taxpayers meeting the $25 million gross receipts test for small businesses are exempt from this limitation. Business interest is that which is allocable to a trade or business and does not include investment interest. Business income is that which is allocable

17

to a trade or business and does not include investment income. Adjusted taxable income means taxable income computed without regard to:

1. Income, gain, deduction, or loss not allocable to a trade or business. 2. Business interest or business interest income. 3. Any NOL deduction. 4. The qualified business income deduction. 5. For years beginning before January 1, 2022, any deduction allowable for

depreciation, amortization, or depletion. 6. Any other adjustments provided by the Treasury Department.

The term trade or business does not include performing services as an employee, an electing real property trade or business, an electing farming business, or certain regulated utilities. The limitation on net business interest applies to partnerships at the partnership level and is taken into account in computing partnership ordinary (non-separately stated) income or loss. At the partner level, a partner’s adjusted taxable income for computing the interest limitation for interest incurred outside the partnership does not include pass-through items from the partnership but the partner’s adjusted taxable income is increased by his or her share of the partnership’s “excess taxable income.” Excess taxable income arises when the interest limitation at the partnership level exceeds the partnership’s net interest and is a mechanism for increasing a partner’s adjusted taxable income to take advantage of the unused limitation at the partnership level. If net interest is limited at the partnership level, the excess interest does not carryover at the partnership level. Instead, each partner is allocated a share of the excess interest as a pass-through item to be carried to the partner’s succeeding tax year in which the partner is allocated excess taxable income. The limit on business interest applies to tax years beginning after December 31, 2017. Limitation on Excess Business Losses: For tax years beginning after December 31, 2017 and before January 1, 2026, TCJA imposes a limitation on excess business losses, applicable to noncorporate taxpayers. The new law (Sec. 461(l)) defines an excess business loss as the excess of:

(1) The aggregate deductions, for the year attributable to trades and businesses, over (2) The sum of aggregate gross income or gain attributable to such trades or business, plus

$250,000 ($500,000 for married filing jointly). The $250,000 ($500,000) is will be adjusted for inflation in tax years beginning after December 31, 2018. Any disallowed excess loss carries over as a net operating loss. For partnerships and S corporations, the limitation is applied at the partner or shareholder level, with each partner or shareholder taking into account his or her share of entity level items of income, gain, deduction, or loss. However, the new limitation applies after the application of the Sec. 469 passive activity loss limitation. Technical Termination Rule Repealed: Under Pre-TCJA law, a partnership terminated if (1) no partner continued to operate any business of the partnership through the same or another

18

partnership or (2) a sale of at least a 50% interest of the partnership occurs within a 12-month period. TCJA repeals the second, so-called technical termination condition, effective for partnership tax years beginning after December 31, 2017. Mandatory basis reduction: TCJA adds a second condition for requiring a mandatory basis reduction upon the sale or transfer of a partnership interest. For transfers occurring after December 31, 2017, Sec. 743(d) now defines a substantial built-in loss as existing when either (1) the partnership’s adjusted basis in its property exceeds the property’s FMV by more than $250,000 or (2) the transferee partner would be allocated loss of more than $250,000 if the partnership were to sell its assets for their FMV immediately after the transfer. Revocation of S election: TCJA adds a provision that, if an eligible terminated S corporation revokes it S election to become a C corporation, any Sec. 481 adjustment attributable to a required change from the cash to accrual method is taken into account ratably over the six-year period beginning with the year of change. An eligible terminated S corporation is a C corporation that (1) was an S corporation on the day before the enactment of TJCA (December 21, 2017), (2) during the two-year period beginning on the date of enactment (December 22, 2017) revokes its S election, and (3) on the revocation date has the same owners in the same proportion as on December 22, 2017. The new provision also prescribes how an eligible terminated S corporation allocates any cash distributions to the accumulated adjustments account and earnings and profits account in a prorated manner. Electing Small Business Trusts: Effective January 1, 2018, TCJA allows a nonresident alien to be a beneficiary of an ESBT. Also, for years beginning after December 31, 2017, ESBTs are subject to the same charitable contributions limitations as are individuals, that is, based on an AGI amount, rather than under previous trust rules based on gross income. Chapter I:18: Taxes and Investment Planning Tax Rates: TCJA reduces the corporate tax rate to a flat 21% and reduces individual tax rates. See the summary for Chapter I:1 for details.

2018 Edition Questions and

Problems

Impacted by the Tax Cuts and Jobs Act of 2017 Summary of the Changes

Chapter I:1

Discussion Questions:I:1-1I:1-2I:1-3I:1-4I:1-5I:1-6I:1-7I:1-8I:1-9I:1-10I:1-11I:1-12I:1-13I:1-14I:1-15I:1-16I:1-17

I:1-18 XIncrease in standard deduction; Elimination of personal and dependency exemptions

I:1-19 X Change in marginal tax rate

I:1-20I:1-21I:1-22I:1-23

I:1-24 XIncrease in standard deduction; Elimination of personal and dependency exemptions

I:1-25I:1-26I:1-27I:1-28I:1-29I:1-30I:1-31I:1-32

Summary of Question and Problems Impacted by the Tax Cuts and Jobs Act of 2017

Copyright © 2018 Pearson Education, Inc.I:SQR-1


Problems



I:1-33I:1-34I:1-35I:1-36I:1-37I:1-38

Problems:

I:1-39 XElimination of personal and dependency exemptions; changes in marginal tax rates



I:1-42I:1-43 X Change in estate tax exemption

I:1-44 X

Change in corporate tax rates; Elimination of personal and dependency exemptions; change in individual marginal tax rates; Addition of the qualified business income deduction

I:1-45I:1-46I:1-47I:1-48

Tax Strategy Problem:I:1-49 X Changes in tax rates for the kiddie tax

Case Study Problem:I:1-50

Tax Research Problem:I:1-51



Problems



Chapter I:2

Note to instructors: While we've indicated which problems in this chapter deal with the dependency exemption, instructors may still wish to include some of the problems that involve determining who qualifies as a dependent because this material will still be relevant for some related issues (e.g., qualifying for head of household, determining the child tax credit, etc.)

Discussion Questions:I:2-1I:2-2I:2-3I:2-4 X Elimination of personal and dependency exemptions

I:2-5 X Elimination of personal and dependency exemptions

I:2-6I:2-7I:2-8I:2-9 X Elimination of personal and dependency exemptions

I:2-10I:2-11I:2-12

I:2-13



I:2-16I:2-17I:2-18I:2-19 X Part B--Change in corporate tax rates

I:2-20 X Change in corporate tax rates

I:2-21 XPart B--change in thresholds for preferential rates for capital gains

I:2-22I:2-23I:2-24I:2-25



Problems



Issue Identification Questions:I:2-26 X Elimination of dependency exemption

I:2-27I:2-28

Problems:

I:2-29 XChange in the standard deduction amount; Elimination of personal exemptions; Change in tax rates

I:2-30 XChange in the standard deduction amount; Elimination of personal exemptions


I:2-32 XElimination of personal and dependency exemptions; Change in tax rates









I:2-41 XElimination of personal and dependency exemptions; Change in child tax credit

I:2-42 XChange in standard deduction amount; Elimination of personal and dependency exemptions; Change in tax rates

I:2-43 X

Filing thresholds change due to change in standard deduction amount and elimination of personal and dependency exemptions

I:2-44I:2-45

I:2-46 XChange in standard deduction amount; Elimination of personal and dependency exemptions

I:2-47 XChange in standard deduction amount; Change in allowable itemized deductions

I:2-48 X Change in kiddie tax rates

I:2-49 X

Change in itemized deductions; Change in the standard deduction amount; elimination of personal and dependency exemptions



Problems



I:2-50 X Change in kiddie tax rates

I:2-51 X

Elimination of personal and dependency exemptions; change in tax rates for individuals and corporations; possible addition of the pass-through deduction

I:2-52 X Change in child tax credit

I:2-53 X Change in tax rates


I:2-55


I:2-57 X Change in kiddie tax rates; Change in child tax credit


Tax Strategy Problems:

I:2-59 X

Change in standard deduction amount; Elimination of personal and dependency exemptions; Change in tax rates for individuals and corporations; possible addition of the pass-through deduction

I:2-60 X Change in tax rates

Tax Form/Return Preparation Problems:

I:2-61 XThe tax forms will likely change significantly to reflect the new law



Case Study Problems:I:2-64 X Change in tax rates and kiddie tax rates

I:2-65

Tax Research Problems:I:2-66 X Elimination of dependency exemptions

I:2-67 X Elimination of dependency exemptions

I:2-68



Problems



Chapter I:3

Discussion Questions:I:3-1I:3-2I:3-3I:3-4I:3-5I:3-6I:3-7I:3-8I:3-9I:3-10I:3-11 X Changes in kiddie tax rates

I:3-12I:3-13I:3-14I:3-15I:3-16I:3-17I:3-18I:3-19I:3-20I:3-21I:3-22I:3-23 X Change in the taxation of alimony

I:3-24I:3-25I:3-26I:3-27I:3-28I:3-29I:3-30



Problems



Issue Identification Questions:I:3-31I:3-32I:3-33

Problems:I:3-34I:3-35I:3-36I:3-37I:3-38 X Change in the taxation of alimony

I:3-39 X Part D: Change in the taxation of alimony

I:3-40I:3-41I:3-42I:3-43I:3-44I:3-45I:3-46I:3-47I:3-48I:3-49I:3-50I:3-51I:3-52 X Change in marginal tax rates

I:3-53 X Change in marginal tax rates

I:3-54 X Changes in kiddie tax rates

Comprehensive Problems:I:3-55

I:3-56 XChange in standard deduction amounts: Elimination of personal exemptions



Problems




I:3-57 X

Change in the standard deduction amount; Elimination of the personal and dependency exemptions; Change in kiddie tax rates

I:3-58 X Change in marginal tax rates

Tax Form/Return Preparation Problem:


Case Study Problems:I:3-60 X Change in the taxation of alimony

I:3-61I:3-62


Chapter I:4

Discussion Questions:I:4-1I:4-2I:4-3I:4-4I:4-5I:4-6I:4-7I:4-8I:4-9I:4-10I:4-11I:4-12I:4-13I:4-14I:4-15I:4-16I:4-17I:4-18



Problems



I:4-19 XElimination of the 2% floor miscellaneous itemized deductions

I:4-20I:4-21


I:4-23I:4-24I:4-25I:4-26I:4-27I:4-28

Issue Identification Questions:I:4-29I:4-30I:4-31I:4-32

Problems:I:4-33I:4-34I:4-35I:4-36I:4-37I:4-38I:4-39I:4-40


I:4-42I:4-43I:4-44I:4-45I:4-46I:4-47 X Change in meals and entertainment deduction

I:4-48I:4-49



Problems




I:4-51I:4-52I:4-53I:4-54 X Change in marginal tax rates

I:4-55

Comprehensive Problem:

I:4-56 X

Change in the taxation of alimony; Change in allowable itemized deductions; Elimination of the personal and dependency exemptions

Tax Strategy Problems:I:4-57I:4-58 X Change in marginal tax rates

Tax Form/Return Preparation Problems:I:4-59


Case Study Problems:I:4-61 X Change in floor for medical expenses

I:4-62

Tax Research Problems:I:4-63I:4-64I:4-65I:4-66

Chapter I:5

Discussion Questions:I:5-1I:5-2I:5-3I:5-4I:5-5



Problems



I:5-6 X Change in estate tax exemption

I:5-7I:5-8I:5-9I:5-10I:5-11I:5-12I:5-13I:5-14I:5-15I:5-16I:5-17I:5-18I:5-19I:5-20I:5-21I:5-22I:5-23I:5-24I:5-25I:5-26I:5-27I:5-28


Problems:I:5-33I:5-34I:5-35I:5-36I:5-37I:5-38



Problems



I:5-39I:5-40I:5-41I:5-42I:5-43 X Change in the preferential rates for capital gains

I:5-44 X Change in the income tax rates


I:5-46 XElimination of the personal and dependency exemptions; Change in income tax rates


I:5-48I:5-49I:5-50I:5-51I:5-52I:5-53I:5-54I:5-55I:5-56I:5-57I:5-58I:5-59I:5-60

Comprehensive Problem:I:5-61

Tax Strategy Problems:I:5-62I:5-63I:5-64 X Change in the income tax rates

I:5-65





Problems



Case Study Problems:I:5-68I:5-69

Tax Research Problems:I:5-70I:5-71I:5-72I:5-73

Chapter I:6

Discussion Questions:I:6-1I:6-2I:6-3I:6-4 X Elimination of the deduction for alimony

I:6-5 XChange in standard deduction amounts, elimination of the personal and dependency exemptions

I:6-6I:6-7I:6-8I:6-9I:6-10I:6-11I:6-12

I:6-13 XElimination of miscellaneous deductions subject to the 2% floor

I:6-14 XElimination of deduction for local government lobbying expenses

I:6-15I:6-16 X Elimination of deduction for entertainment expenses

I:6-17I:6-18I:6-19I:6-20I:6-21I:6-22



Problems



I:6-23I:6-24I:6-25I:6-26I:6-27I:6-28


Problems:


I:6-34 X

Elimination of deduction for alimony, change in limitation for medical expense deduction; elimination of casualty and theft loss deduction; elimination of miscellaneous itemized deductions subject to the 2% floor; elimination of personal and dependency exemptions

I:6-35

I:6-36 XElimination of deduction for local government lobbying expenses


I:6-38 X Possible deduction for qualified business income

I:6-39I:6-40I:6-41I:6-42I:6-43I:6-44I:6-45I:6-46I:6-47I:6-48I:6-49I:6-50



Problems



I:6-51



I:6-54I:6-55I:6-56

Comprehensive Problems:

I:6-57 XElimination of miscellaneous deductions subject to the 2% floor; elimination of personal and dependency exemptions

I:6-58 X

Change in standard deduction amounts; elimination of personal and dependency exemptions; Possible deduction for qualified business income

Tax Strategy Problems:I:6-59I:6-60

Tax Form/Return Preparation Problems:I:6-61I:6-62I:6-63


Tax Research Problems:I:6-65

I:6-66 XElimination of miscellaneous itemized deductions subject to the 2% floor

Chapter I:7




Problems



I:7-6I:7-7I:7-8I:7-9 X Change in floor for medical expenses

I:7-10I:7-11 X The amount of state taxes deducted are limited

I:7-12I:7-13I:7-14 X Elimination of deduction for home equity loans

I:7-15I:7-16I:7-17

I:7-18 XElimination of deduction for miscellaneous itemized deductions

I:7-19 X Elimination of deduction for home equity loans

I:7-20I:7-21I:7-22I:7-23I:7-24I:7-25 X Change in standard deduction amount

I:7-26 X Change in limit for cash contributions

I:7-27I:7-28

I:7-29 XElimination of miscellaneous itemized deductions subject to the 2% floor

I:7-30 X

Change in floor for medical expenses; Elimination of miscellaneous itemized deductions; elimination of deduction for personal casualty and theft losses, Elimination of the 3% reduction in itemized deduction for high income taxpayers




Problems



Problems:

I:7-35 XChange in standard deduction amount; change in floor for medical expenses; elimination of personal exemptions

I:7-36 XChange in standard deduction amount; change in floor for medical expenses; elimination of personal exemptions

I:7-37I:7-38 X Change in floor for medical expenses

I:7-39 X

Change in floor for medical expenses; Elimination of personal and dependency exemption; Increase in standard deduction amount

I:7-40 XChange in floor for medical expenses; Elimination of personal and dependency exemption

I:7-41 XChange in floor for medical expenses; Elimination of personal and dependency exemption

I:7-42I:7-43I:7-44

I:7-45 X

Elimination of miscellaneous itemized deductions subject to the 2% floor; Change in standard deduction; Elimination of personal exemptions

I:7-46 XChange in mortgage interest deduction; Elimination of the deduction for home equity loan interest

I:7-47 XChange in mortgage interest deduction; Elimination of the deduction for home equity loan interest

I:7-48I:7-49

I:7-50 XChange in floor for medical expenses; Change in standard deduction amount; Elimination of personal exemptions

I:7-51 X

Change in floor for medical expenses; Elimination of miscellaneous itemized deductions; Elimination of personal exemptions

I:7-52 X

Change in floor for medical expenses; Elimination of miscellaneous itemized deductions; Elimination of personal exemptions

I:7-53I:7-54I:7-55I:7-56



Problems



I:7-57 X Increase in percentage limit for cash contributions

I:7-58I:7-59 X Increase in percentage limit for cash contributions


I:7-60 X

Change in floor for medical expenses; Elimination of deduction for home equity loan interest; Elimination of miscellaneous itemized deductions; Elimination of personal exemptions






Tax Research Problems:I:7-67I:7-68 X Change in floor for medical expenses

Chapter I:8

Discussion Questions:I:8-1I:8-2I:8-3I:8-4I:8-5I:8-6I:8-7I:8-8I:8-9



Problems



I:8-10I:8-11I:8-12I:8-13I:8-14I:8-15I:8-16I:8-17I:8-18I:8-19 X Elimination of the personal casualty and theft loss deduction

I:8-20 X Elimination of the personal casualty and theft loss deduction

I:8-21I:8-22I:8-23I:8-24I:8-25I:8-26I:8-27I:8-28I:8-29I:8-30 X Change in NOL carryover rules

I:8-31 X Elimination of personal exemptions

I:8-32 X Change in NOL carryover rules

I:8-33I:8-34 X Change in NOL carryover rules

Issue Identification Questions:I:8-35I:8-36I:8-37 X Elimination of the personal casualty and theft loss deduction

I:8-38

Problems:I:8-39I:8-40I:8-41I:8-42



Problems



I:8-43I:8-44I:8-45I:8-46 X Change in income tax rates

I:8-47 XElimination of miscellaneous itemized deductions; Elimination of personal exemptions

I:8-48 X Elimination of personal casualty and theft loss deduction

I:8-49I:8-50 X Elimination of personal casualty and theft loss deduction



I:8-53I:8-54I:8-55






I:8-62 XChange in floor for medical expenses; Elimination of personal exemptions

I:8-63






Problems





Chapter I:9

Discussion Questions:I:9-1

I:9-2 XElimination of miscellaneous itemized deductions; Elimination of moving expense deduction

I:9-3 X Elimination of miscellaneous itemized deductions







I:9-10I:9-11I:9-12 X Elimination of miscellaneous itemized deductions

I:9-13 X Elimination of moving expense deduction



I:9-16 X Elimination of deduction for entertainment expenses




I:9-20 X Change in employer-provided meals




I:9-24I:9-25 X Elimination of miscellaneous itemized deductions

I:9-26I:9-27



Problems



I:9-28I:9-29I:9-30I:9-31I:9-32I:9-33I:9-34I:9-35I:9-36I:9-37I:9-38I:9-39I:9-40I:9-41I:9-42I:9-43I:9-44

Issue Identification Questions:I:9-45 X Elimination of miscellaneous itemized deductions


I:9-47I:9-48

Problems:

I:9-49 XElimination of moving expense deduction; Elimination of miscellaneous itemized deductions

I:9-50 X Part c: elimination of miscellaneous itemized deductions


I:9-52 XElimination of miscellaneous itemized deductions; Elimination of entertainment expense deduction



I:9-55 XElimination of miscellaneous itemized deductions; Elimination of moving expense deduction






Problems



I:9-59 X Elimination of entertainment expense deduction

I:9-60 X Elimination of entertainment expense deduction




I:9-64I:9-65I:9-66I:9-67I:9-68I:9-69I:9-70I:9-71I:9-72I:9-73I:9-74I:9-75I:9-76


I:9-77 X

Change in medical expense limitation; Elimination of miscellaneous itemized deductions; elimination of personal dependency exemptions; change in income tax rates

Tax Strategy Problem:I:9-78

Tax Form/Return Preparation Problems:I:9-79I:9-80


Tax Research Problem:I:9-83 X Elimination of miscellaneous itemized deductions



Problems



Chapter I:10


I:10-6 XChange in Sec. 179 amount; change in bonus depreciation percentage

I:10-7I:10-8 X Change in limits on depreciation for autos

I:10-9 X Change in income tax rates

I:10-10I:10-11

I:10-12 XChange in limits on depreciation for autos and computers are no longer listed property

I:10-13 XChange in definition of qualified property for bonus depreciation

I:10-14 XLease inclusion amounts presumably will change due to changes in limits on depreciation for autos

I:10-15I:10-16I:10-17I:10-18I:10-19I:10-20

Issue Identification Questions:I:10-21I:10-22 X Change in income tax rates

I:10-23I:10-24 X Change in Sec. 179 amount

Problems:I:10-25I:10-26I:10-27 X Change in bonus depreciation percentage



Problems



I:10-28I:10-29 X Change in Sec. 179 amount

I:10-30I:10-31

I:10-32 XChange in Sec. 179 amount and change in definition of qualifying property for bonus depreciation

I:10-33 XChange in Sec. 179 amount and change in definition of qualifying property for bonus depreciation

I:10-34

I:10-35 XChange in definition of listed property; Change in limitation on depreciation for autos

I:10-36 X Change in definition of listed property

I:10-37I:10-38 X Change in limitation on depreciation for autos

I:10-39 X Change in limitation on depreciation for autos

I:10-40 X Change in limitation on depreciation for autos

I:10-41 XLease inclusion amounts presumably will change due to changes in limits on depreciation for autos

I:10-42I:10-43 X Treatment of R&E expenditures changes starting in 2022

I:10-44 X Treatment of R&E expenditures changes starting in 2022

I:10-45I:10-46I:10-47


I:10-48 X

If the tax year is changed to 2018, change in medical expense limitation; elimination of personal and dependency exemptions; change in tax rates; claim standard deduction

Tax Strategy Problem:I:10-49 X Change in limitation on depreciation for autos

Tax Form/Return Preparation Problems:I:10-50 X amount

I:10-51 X

If the tax year is changed to 2018, change in medical expense limitation; elimination of personal and dependency exemptions; change in tax rates; claim standard deduction



Problems





Chapter I:11

Discussion Questions:I:11-1I:11-2I:11-3I:11-4I:11-5I:11-6I:11-7I:11-8I:11-9I:11-10I:11-11I:11-12 X Change in gross receipts test

I:11-13I:11-14I:11-15 X Change in gross receipts test

I:11-16I:11-17I:11-18I:11-19I:11-20I:11-21I:11-22I:11-23I:11-24I:11-25I:11-26I:11-27



Problems



I:11-28I:11-29I:11-30I:11-31I:11-32

Issue Identification Questions:I:11-33I:11-34I:11-35I:11-36 X Change in income tax rates

Problems:I:11-37I:11-38I:11-39

I:11-40 XElimination of personal exemptions; change in income tax rates

I:11-41I:11-42I:11-43I:11-44I:11-45I:11-46I:11-47I:11-48I:11-49I:11-50I:11-51I:11-52I:11-53I:11-54I:11-55I:11-56



Problems



Comprehensive Problem:I:11-57 X Elimination of personal exemption

Tax Strategy Problems:I:11-58 X Change in income tax rates


Tax Form/Return Preparation Problem:I:11-60

Case Study Problems:I:11-61I:11-62 X Change in income tax rates

I:11-63

Tax Research Problems:I:11-64I:11-65I:11-66

Chapter I:12

Discussion Questions:I:12-1I:12-2I:12-3 X Change in qualifying property for like-kind exchanges

I:12-4 X Change in qualifying property for like-kind exchanges


I:12-6


I:12-8I:12-9I:12-10I:12-11I:12-12I:12-13I:12-14I:12-15I:12-16



Problems



I:12-17I:12-18I:12-19I:12-20I:12-21I:12-22

Issue Identification Questions:I:12-23I:12-24I:12-25

Problems:I:12-26

I:12-27I:12-28 X Change in qualifying property for like-kind exchanges




I:12-32I:12-33I:12-34I:12-35I:12-36I:12-37I:12-38I:12-39I:12-40I:12-41I:12-42I:12-43I:12-44I:12-45I:12-46I:12-47I:12-48I:12-49



Problems



I:12-50I:12-51I:12-52


I:12-53 X

Elimination of miscellaneous deductions subject to the 2% floor of AGI; Elimination of the deduction for moving expenses; Elimination of deduction for home equity interest; elimination of personal and dependency exemptions


Tax Form/Return Preparation Problems:I:12-55I:12-56I:12-57


Tax Research Problems:I:12-59I:12-60I:12-61I:12-62I:12-63

Chapter I:13

Discussion Questions:I:13-1I:13-2I:13-3I:13-4I:13-5I:13-6I:13-7 X Change in the income tax rates

I:13-8I:13-9



Problems



I:13-10I:13-11I:13-12I:13-13I:13-14I:13-15I:13-16I:13-17I:13-18I:13-19I:13-20 X Change in the income tax rates

I:13-21I:13-22I:13-23I:13-24I:13-25I:13-26I:13-27


Problems:I:13-32I:13-33I:13-34 X Change in the income tax rates

I:13-35I:13-36I:13-37I:13-38I:13-39I:13-40 X Change in the income tax rates

I:13-41I:13-42



Problems



I:13-43I:13-44 X Change in qualifying property for like-kind exchanges


I:13-46I:13-47I:13-48I:13-49 X Change in the income tax rates

I:13-50I:13-51I:13-52I:13-53I:13-54I:13-55 X Change in corporate tax rate

I:13-56I:13-57I:13-58 X Change in the income tax rates


I:13-60I:13-61I:13-62I:13-63




I:13-68 XSome of the tax forms will likely change significantly to reflect the new law




Problems




Chapter I:14

Discussion Questions:I:14-1I:14-2I:14-3I:14-4I:14-5I:14-6I:14-7I:14-8I:14-9 X Change in AMT exemption amount

I:14-10I:14-11I:14-12I:14-13I:14-14I:14-15 X Elimination of the shared responsibility payment




Problems



I:14-32I:14-33I:14-34I:14-35I:14-36I:14-37I:14-38

Issue Identification Questions:I:14-39I:14-40 X Exclusion of alimony

I:14-41 X Elimination of shared responsibility payment

Problems:

I:14-42 XElimination of personal and dependency exemptions; Change in income tax rates; Increase in AMT exemption

I:14-43 XElimination of personal and dependency exemptions; Change in income tax rates; Increase in AMT exemption

I:14-44 XElimination of personal and dependency exemptions; Increase in AMT exemption; Change in Child Tax Credit

I:14-45 X

Limits on state and local tax deduction; elimination of personal exemptions; change in income tax rates; change in AMT exemption

I:14-46I:14-47I:14-48I:14-49I:14-50I:14-51I:14-52I:14-53I:14-54I:14-55I:14-56I:14-57I:14-58I:14-59I:14-60



Problems



I:14-61 X Change in income tax rates; Change in child tax credit

I:14-62I:14-63I:14-64I:14-65 X Change in treatment of alimony

I:14-66I:14-67


I:14-68 X

Elimination of personal and dependency exemptions; change in income tax rates; change in state and local tax deduction; change in income tax rates; change in child tax credit





Case Study Problems:I:14-72 X Exclusion of alimony

I:14-73


Chapter I:15

Discussion Questions:I:15-1I:15-2I:15-3I:15-4I:15-5I:15-6I:15-7I:15-8



Problems



I:15-9I:15-10I:15-11I:15-12I:15-13I:15-14I:15-15I:15-16I:15-17I:15-18I:15-19I:15-20I:15-21I:15-22I:15-23I:15-24I:15-25I:15-26I:15-27I:15-28I:15-29I:15-30I:15-31I:15-32

Problems:I:15-33I:15-34I:15-35I:15-36I:15-37I:15-38I:15-39I:15-40I:15-41I:15-42I:15-43



Problems







Tax Research Problems:I:15-63I:15-64I:15-65I:15-66I:15-67

Chapter I:16

Discussion Questions:I:16-1I:16-2 X Change in corporate income tax rates

I:16-3



Problems



I:16-4I:16-5

I:16-6 XChange in DRD percentages, Change in corporate income tax rates


I:16-8I:16-9 X Change in compensation limitations for executives

I:16-10 X Change in compensation limitations for executives

I:16-11 X Change in corporate income tax rates


I:16-13 X Elimination of the domestic manufacturing deduction

I:16-14 X Elmination of the corporate AMT


I:16-16 XElmination of the corporate AMT; Change in AMT carryover rules

I:16-17I:16-18I:16-19I:16-20I:16-21 X Change in income tax rates

I:16-22I:16-23I:16-24I:16-25I:16-26 X New limitations on the deduction of business interest

I:16-27I:16-28 X New limitations on the deduction of business interest

I:16-29I:16-30I:16-31I:16-32I:16-33I:16-34I:16-35I:16-36I:16-37I:16-38



Problems



Issue Identification Questions:I:16-39I:16-40I:16-41 X New limitations on the deduction of business interest

Problems:I:16-42I:16-43I:16-44 X Change in corporate and individual income tax rates

I:16-45 X Change in DRD percentages










I:16-55I:16-56I:16-57I:16-58

I:16-59 XElimination of the domestic manufacturing deduction: Change income tax rates

I:16-60 XElimination of the domestic manufacturing deduction; Change in income tax rates

I:16-61I:16-62I:16-63I:16-64 X Change in income tax rates

I:16-65I:16-66I:16-67I:16-68



Problems



Tax Strategy Problems:I:16-69 X Change in NOL carryover rules; Change in income tax rates


I:16-71I:16-72 X Change in income tax rates





Tax Research Problems:I:16-77I:16-78I:16-79I:16-80I:16-81I:16-82

Chapter I:17Discussion Questions:

I:17-1 XReduced corporate tax rate; revised individual tax rates; business income deduction.

I:17-2

I:17-3 XReduced corporate tax rate; revised individual tax rates; business income deduction.

I:17-4I:17-5I:17-6I:17-7I:17-8I:17-9



Problems



I:17-10I:17-11I:17-12I:17-13 X Limitation on excess business losses.I:17-14I:17-15I:17-16I:17-17 X Business income deduction.I:17-18I:17-19I:17-20I:17-21I:17-22

I:17-23 X

Reduced corporate tax rate; revised individual tax rates; business income deduction; limitation on excess business losses.

I:17-24I:17-25I:17-26

I:17-27 XEligible terminated S corporation rules for cash to accrual changes.

I:17-28I:17-29I:17-30I:17-31 X Individual marginal tax rates revised.I:17-32I:17-33I:17-34I:17-35

Issue Identification Questions:I:17-36I:17-37 X Limitation on excess business losses.I:17-38

Problems:I:17-39



Problems



I:17-40I:17-41I:17-42 X Limitation on excess business losses.I:17-43I:17-44I:17-45I:17-46 X Limitation on excess business losses.I:17-47I:17-48 X Limitation on excess business losses.I:17-49I:17-50 X Business income deduction.I:17-51I:17-52I:17-53I:17-54

I:17-55 XEligible terminated S corporation rules for cash to accrual changes.

I:17-56 X Business income deduction.I:17-57I:17-58 X Limitation on excess business losses.I:17-59 X Limitation on excess business losses.I:17-60I:17-61I:17-62I:17-63I:17-64I:17-65 X Flat 21% corporate tax rate.


I:17-66 X

Business income deduction; limitation on state income taxes deductible; repeal of personal and dependency exemptions; revised individual tax rates.



Problems




I:17-67 X

Reduced corporate tax rate; revised individual tax rates; business income deduction.

I:17-68 X

Reduced corporate tax rate; revised individual tax rates; business income deduction; repeal of NOL

I:17-69 X Limitation on excess business losses.

Tax Form/Return Preparation Problems:I:17-70 -- 2017 tax forms will be subject to pre-TCJA tax

I:17-71 --2017 tax forms will be subject to pre-TCJA tax law.

Case Study Problems:

I:17-72 X

Business income deduction; revised corporate (including PSC) and individual tax rates; limitation on excess business losses.

I:17-73

Tax Research Problems:I:17-74I:17-75 X Limitation on excess business losses.I:17-76

Chapter I:18Discussion Questions:

I:18-1I:18-2I:18-3I:18-4I:18-5I:18-6I:18-7I:18-8I:18-9I:18-10I:18-11I:18-12



Problems



I:18-13I:18-14I:18-15 X Change in individual marginal tax rates.I:18-16I:18-17I:18-18

Problems:I:18-19 X Change in individual marginal tax rates.I:18-20 X Change in individual marginal tax rates.I:18-21 X Change in individual marginal tax rates.I:18-22 X Change in individual marginal tax rates.I:18-23 X Change in individual marginal tax rates.I:18-24 X Change in individual marginal tax rates.I:18-25 X Change in individual marginal tax rates.I:18-26 X Change in individual marginal tax rates.I:18-27 X Change in individual marginal tax rates.

I:18-28X

Change in individual and corporate marginal tax rates.

I:18-29X


I:18-30X


I:18-31X


I:18-32 X Change in individual marginal tax rates.

I:18-33X


I:18-34X


I:18-35 X Change in individual marginal tax rates.I:18-36 X Change in individual marginal tax rates.


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