Income Tax Service
5200 W Market St
Greensboro, NC 27409
Unless Congress passes legislation to extend them, the following individual provisions will not apply on 2018 returns:
Tax Cuts and Jobs Act Changes and Related Form Changes
The Tax Cuts and Jobs that was signed into law in December 2017 contained many changes that went into effect in 2018.
The following is an explanation of the changes to the 2018 federal forms and details on the Tax Cuts and Jobs Act provisions that will affect most taxpayers in 2018. For a more complete listing of the new provisions see the Tax Cuts and Jobs Act page.
Changes Affecting and Redesign of 2018 Form 1040
The following lines were added to Form 1040 due to the new tax law:
- New line 9 for the 20% deduction for qualified business income
- New check boxes to indicate a dependent qualifies for the $500 nonrefundable credit for other dependents
- New line 63 (Schedule 4) for Section 965 tax liability installment from Form 965-A
The following lines were removed due to the new tax law:
- Exemption boxes for taxpayer, spouse and dependents and Line 42 for the total exemption amount
- Line 35 for domestic production activities deduction
The Standard Deduction was increased as follows:
- $12,000 - Single
- $24,000 - Married Filing Joint
- $18,000 - Head of Household
The Additional Standard Deduction for the Aged and Blind is still applicable.
Personal and dependent Exemptions were eliminated.
Child Tax Credit was changed as follows:
- A child must now have a Social Security Number to be eligible for the child tax credit.
- Increased to $2,000 per child of which $1,400 is eligible to be refundable
- New $500 nonrefundable credit (credit for other dependent) for children that are 17, 18, or are a student and other qualifying dependents which includes eligible children with ITINs.
- The earned income threshold for the refundable portion of the child tax credit has been lowered to $2,500.
- Both credits are reported on Form 1040, line 12a. The credit amount is calculated on the new Child Tax Credit and Credit for Other Dependents Worksheet which is included in the draft of the 2018 Form 1040 instructions on page 42 and 43
Although not directly related to the new tax law the IRS took the opportunity to redesign the Form 1040 and eliminated the Forms 1040A and 1040EZ.
Form 1040 was redesigned as follows :
- Page 1
- Name, SSN and address of taxpayer and spouse
- Filing Status - Only includes boxes for MFS, Head of Household and Qualifying widow(er). The single filing status is assumed if only the taxpayer information is included and Married Filing Joint is assumed if the taxpayer and spouse information is included.
- Dependent information - a new checkbox to indicate a dependent qualifies for the new credit for other dependents.
- Signature for taxpayer, spouse and paid preparer. Also, it now includes field to show the Spouse's IPPIN if it is applicable.
- New checkbox to indicate the paid preparer is the third party designee.
- Page 2
- Wages, Interest, Dividends, IRAs/Pensions and Social Security Benefits are the only income items that remain on the main 1040 form. All other income items were moved to the new Schedule 1.
- All Adjustments to Income were moved to new Schedule 1.
- Standard Deduction/Total Itemized Deductions, a new line for qualified business income deduction, Earned income tax credit, additional child tax credit and the education credit are included on Form 1040, page 2.
- Alternative minimum tax and Excess advance premium tax credit repayment (Schedule 2), most nonrefundable credits (Schedule 3), all other taxes (Schedule 4), most refundable credits and other payments (including estimated taxes) (Schedule 5) have been moved to new Schedules 2, 3, 4 and 5.
- If a foreign address or the Third Party designee information is entered they will appear on new Schedule 6.
For more details see the following drafts on the IRS website:
- Form 1040 (U.S. Individual Income Tax Return)
- Schedule 1 (Additional Income and Adjustments to Income)
- Schedule 2 (Tax)
- Schedule 3 (Nonrefundable Credits)
- Schedule 4 (Other Taxes)
- Schedule 5 (Other Payments and Refundable Credits)
- Schedule 6 (Foreign Address and Third Party Designee)
Schedule A (Itemized Deductions)
The following changes to Schedule A have been made:
- Taxes You Paid
- Line 5a - 5e: Includes Real Estate taxes, State and Local income taxes/General Sales tax and Personal Property tax with a subtotal line and a total deductible line for the lesser of the total of these taxes or $10,000.
- Line 6 - For other deductible taxes that are not limited.
- Interest You Paid
- Eliminated the Job Expenses and Certain Miscellaneous Deductions subject to 2% of AGI section.
- The checkboxes for limited itemized deductions have been removed.
For more details see the draft of the 2018 Schedule A on the IRS website.
Here is a summary of changes to itemized deductions for 2018:
- AGI threshold for medical expenses is 7.5% for 2018 for all taxpayers.
- Real estate and local income taxes are limited to $10,000.
- Home mortgage interest is deductible only on the taxpayer's principal residence.
- Home equity loan interest is only deductible if it is for improvements to the principal residence.
- Home mortgage interest is limited to $750,000 for homes purchased on or after 12/15/17. The limit remains at $1,000,000 for homes purchased before 12/15/17.
- Personal casualty losses are only deductible if the loss was incurred in a federally declared disaster area. The FEMA id number must be provided.
- Miscellaneous itemized deductions subject to the 2% AGI floor are no longer deductible.
- Limitation on itemized deductions for higher income individuals is no longer applicable.
Form 2106 (Employee Business Expense)
This form is no longer applicable for employee job expenses that were deductible as an itemized deduction. It will now only be used for the adjustment to income for certain business expenses of reservists, performing artists and fee-basis government officials.
The Form 2019EZ has been eliminated.
Other Tax Cuts and Jobs Act Provisions
The following changes relate to federal individual returns
ACA Penalty for Individuals not having Health Insurance
The shared responsibility payment (penalty) is still in effect for 2018.
Federal tax rates were changes as to - 10%, 12%, 22%, 24%, 32%, 35% and 37%.
The income brackets are when taxable income is over the amount listed in each column.
Married Filing Joint
Head of Household
Only members of the military may take a deduction (an adjustment to income) for moving expenses beginning in 2018.
Alternative Minimum Tax
The exemption amounts increased to $109,400 for joint returns and $70,300 for all other taxpayers for 2018.
Business related provisions
The following changes were made with the passage of the Tax Cuts and Jobs Act for sole proprietors, corporations and partnerships for 2018.
20% Deduction for Qualified Business Income (Section 199A)
For 2018 an individual may be able to deduct 20% of their domestic qualified business income from a partnership, S Corporation and/or sole proprietorship.
For more information on this deduction see the following:
- Draft of 2018 Form 1040 instructions - pages 34 - 37 (includes the simplified worksheet)
- Proposed Regulations for New 20 percent deduction for pass-through businesses page on the IRS website.
A deduction for entertainment expenses is no longer allowed.
100% Bonus Depreciation
100% bonus depreciation may be taken for qualifying new or used property purchased September 28, 2017 - December 31, 2022.
The definition of eligible property was expanded to include used property if all the following factors apply if:
- Taxpayer never used the property before acquiring it.
- Property was not acquired from related party or a component member of a controlled group of corporations.
- Taxpayer's basis is not figured in whole or in part by reference to the adjusted basis property in the hands of the seller or transferor.
- Basis of property is not figured under the provision for deciding the basis of property acquired from a decedent.
Depreciation Limits for Autos and Personal Use Property
The yearly limitations for passenger autos placed in service during 2018 are:
- $10,000 for year placed in service
- If bonus depreciation is elected the limit is $18,000.
- $16,000 for year 2
- $9,600 for year 3
- $5,760 for year 4 and later
Section 179 Expense
For 2018 the maximum amount that can be taken as a Section 179 expense is $1,000,000 which begins to phase out when total asset purchases reaches $2,500,000 for the year.
The following property now is eligible for Section 179 expensing:
- Qualified improvement property made to a building's interior with the exception if it is for the enlargement of the building, any elevator or escalator or the internal framework or the building
- Roofs, HVAC, fire protection systems, alarm systems and security systems
Depreciation of Improvements on business property
A new qualified improvement property category was created which replaces the old qualified leasehold improvement, qualified restaurant and qualified retail improvement property categories. This new category went into effect on January 1, 2018.
The new qualified improvement property has a general year CRS recovery period. However unless Congress makes a technical correction, qualified improvement property must be depreciated over 39 years and does not qualify for 100% bonus depreciation.
Farm Property Depreciation
Beginning in 2018 the recovery period for machinery and equipment used on a farm is 5 years (it was 7 years). This does not apply to grain bins, cotton ginning assets, fence or other land improvements.
The Tax Cuts and Jobs Act repealed the requirement to use the 150 percent declining balance method for property used in a farming business (i.e. for 3, 5, 7 or 10 year property).