Tax reform Q&A Thread 3 - Itemized and business deductions

[Michael Plaks]

Colleagues and friends,

The original GOP reform thread started by @Brandon Hall is well over 200 posts by now. This is one of the follow-up threads specifically for discussion of personal itemized (Schedule A) deductions and general business (Schedules C/E) deductions. PLEASE POST OTHER QUESTIONS IN THE OTHER TAX REFORM THREADS.

There are dedicated threads for the new 20% pass-through deduction and for depreciation. Section 179.

Here is a start.

1. Personal itemized deductions changed dramatically.

Here is a very good and illustrated explanation of the Schedule A changes from Forbes.

2. Business and real estate investment deductions are NOT affected. You can still deduct 100% of mortgage interest and property taxes on all your investment properties.

There're lots of questions left, and nobody has all the answers. We all expect more rules from the IRS that will change the game. Meanwhile - let's debate it here. As long as it's on topic, please. There are other threads for other tax reform topics.

[Michael Plaks]

Originally posted by @Buddy Holmes:

@Mark Lucido

Somewhat a small group perhaps, but if you are 70.5 Years and under the Minimum Required Distribution (MRD) clause...

You can transfer your MRD directly to the Charity so in addition to NOT having the MRD add to your income, it would not be a concern in your new standard deduction and SALT issues.

Cheers,

Buddy

Excellent point! 

Just to make the strategy clear. Let's say you need to take a $5,000 MRD, and you also want to make a $5,000 donation. You normally do this as two separate transactions. The $5,000 MRD will be taxable income. The $5,000 donation may or may not be deductible, depending on whether or not you can itemize and the size of other itemized deductions. In other words, these two transactions may end up cancelling each other - or they may not, especially after the tax reform.

What Buddy described (officially known as QCD - qualified charitable distribution) is a win-win strategy that merges these two transactions into one. You transfer money directly from your IRA into a charitable organization. Instead of $5,000 income and $5,000 deduction you have $0 income and $0 deduction. Itemized deductions do not matter.

It's a great strategy, but you must follow the rules. Here is a rather technical article about these rules and restrictions.