3 planning strategies for the new tax landscape

By Brian Kristiansen, CPA, Partner and Jo Anna Fellon, CPA, Partner, Friedman LLP

Over the course of 2018, the topic of tax reform has become the highlight of most conversations amongst business owners and individual taxpayers.  There is much debate on whether tax reform has achieved simplified compliance or if it has actually created greater complexity and confusion for taxpayers.  While some deductions were repealed, others were introduced.  In addition, many existing laws were expanded, condensed or clarified. While some tax planning opportunities of the past may be gone – or on hold until tax reform sunsets at the end of 2015 – there are still tax savings strategies that could benefit many residents of New Jersey and nationwide.

1)      REVIEW GIFT AND ESTATE PLANNING OPPORTUNITIES

Tax reform has dramatically increased the gift and estate tax exemption amounts by essentially double through the end of 2025.  As a result, the next eight years will serve as an ideal time to consider various gifting and wealth preservation strategies.  When the estate and gift tax exemption was reduced in prior years, there was no clawback of excess gifts.  Also, many existing estate plans may need revision due to the increased exemption.

2)      LAY THE FOUNDATION ON HOME EQUITY LOANS

Again, effective through December 31, 2025, interest on  home equity loans used for personal expenses (i.e. vacations, cars, boats, etc.) are no longer deductible. Under the new law, interest is deductible on up to $750,000 of acquisition indebtedness. The additional $100,000 limit on home equity indebtedness is similarly suspended until 2026.

TAKE NOTE: The IRS recently issued a notice indicating that while loan proceeds used for personal expenses are not deductible, home equity indebtedness incurred to acquire or improve a residence is still deductible. The notice was silent, however, the deductibility of interest when proceeds are used to acquire business or investment assets. Until further guidance is issued, we believe such interest should still be deductible under the existing interest tracing rules.

3)      UNDERSTAND CHANGES TO THE ALIMONY RULES

Changes to the alimony rules – not deductible by the payor and not taxable to the payee – aren’t effective until 2019. Make sure you discuss these changes with your counsel if you are currently negotiating a divorce or separation, which will be finalized after December 31, 2018. While this is one of the “permanent” tax treatment changes included in the bill, it is wise to negotiate agreement clauses to accommodate any future amendments to the law.

Tax Reform was passed with the speed of a locomotive heading down Mount Everest. This caused numerous errors and left many topics begging for clarification from the drafters. The IRS has released many publications with many yet to come. Taxpayers should seek guidance from their tax advisors for any and all new tax planning opportunities that may arise.

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