Interest Expenses, Taxes & Losses
• IRS agrees that the qualified residence interest $1 million acquisition indebtedness limitation and the $100,000 home equity debt limitation are applied on a per-taxpayer basis rather than a per-residence basis.
• The treatment of mortgage insurance premiums as qualified residence interest was extended through 2016.
• Real property taxes may be deducted under a safe harbor method by homeowners who receive HFA’s Hardest Hit Fund payments.
The standard deduction amounts are: for joint filers and surviving spouses, $12,600 for 2016 ($12,700 for 2017); for heads of household, $9,300 for 2016 ($9,350 for 2017); for singles, $6,300 for 2016 ($6,350 for 2017); and for marrieds filing separately, $6,300 for 2016 ($6,350 for 2017). For 2016 and 2017, the basic standard deduction of individuals who can be claimed as dependents by another taxpayer can’t exceed the greater of:
- $1,050 or
- $350 plus the individual’s earned income; and it can’t be more than the regular basic standard deduction amount.
• The inflation-adjusted threshold amounts for 2016 at which the limitation on itemized deductions (the “Pease” limitation) begins are: $311,300 for joint returns or surviving spouses ($313,800 for 2017), $285,350 for heads of household ($287,650 for 2017), $259,400 for single filers ($261,500 for 2017), and $155,650 for married individuals filing separately ($156,900 for 2017).
• For 2016 and 2017, the personal exemption amount is $4,050.
• The inflation-adjusted threshold amounts for 2016 and 2017 at which the personal exemption phaseout (PEP) begins are: $311,300 for joint returns or surviving spouses ($313,800 for 2017), $285,350 for heads of household ($287,650 for 2017), $259,400 for single filers ($261,500 for 2017), and $155,650 for married individuals filing separately ($156,900 for 2017).
• For 2016 and 2017, under the kiddie tax, the parents’ highest tax rate applies to a child’s unearned income over $2,100.
• For 2016, the dollar thresholds for the optional methods of computing net earnings from self-employment are $5,457 and $7,560 ($5,630.75 and $7,800 for 2017).
Retirement Plans
• For 2016 and 2017, the limit on 401(k) plan elective deferrals is $18,000.
• For 2016 and 2017, the catch-up contribution limit for 401(k), Code Sec. 457, and most Code Sec. 403(b) participants is $6,000.
• For 2016 and 2017, an individual who isn’t an active participant in certain employer-sponsored retirement plans and whose spouse isn’t an active participant may make an annual deductible cash contribution to an IRA up to the lesser of:
1. 5,500 (with an additional $1,000 for those age 50 or older) or
2. 100% of the compensation that’s includible in his gross income for that year.
• For 2016, the otherwise allowable deduction will be phased out ratably for MAGI between: $98,000 and $118,000 for joint filers ($99,000 and $119,000 for 2017); $61,000 and $71,000 for single taxpayers and heads of household ($62,000 and $72,000 for 2017); and $0 and $10,000 for married taxpayers filing separate returns (same for 2017). For a married taxpayer who is not an active plan participant but whose spouse is such a participant, the otherwise allowable deductible contribution will be phased out ratably for 2016 for MAGI between $184,000 and $194,000 ($186,000 and $196,000 for 2017).
• For 2016, the allowable Roth IRA contribution phaseout amounts have increased for 2016 and 2017.The maximum annual contribution that can be made to a Roth IRA is phased out for taxpayers with MAGI: between $184,000 and $194,000 ($186,000 and $196,000 for 2017) for taxpayers filing joint returns; $117,000 and $132,000 ($118,000 and $133,000 for 2017) for single taxpayers and heads of household; and $0 and $10,000 for married taxpayers filing separate returns (same for 2017).
• Final regs encourage qualified plans to provide a “split annuity option” by simplifying the calculation of the bifurcated benefits.
• For 2016 and 2017, the compensation amount used in determining “highly compensated employee” status under the qualified plan coverage and eligibility rules is $120,000.
• For 2016, annual additions under a participant’s defined contribution plans cannot exceed $53,000 ($54,000 for 2017).
• For 2016, the annual benefit provided under a defined benefit plan cannot exceed $210,000 ($215,000 for 2017).
• After 2016, IRS will limit the issuance of determination letters for individually designed plans.
• Generally effective for requests submitted on or after Jan. 1, 2017, more retirement plan determination letter requests will be exempt from the user fee requirement.
• Forthcoming regs will ban replacing defined benefit plan lifetime income with a lump sum payment.
• The rule allowing up to $100,000 in distributions from IRAs to be tax-free if distributed directly to a charity was made permanent.
• IRS has established a program allowing taxpayers to self-certify that there was reasonable cause for their missing the 60-day IRA rollover window.
