Some examples of employee business, including moving, and other income producing expenses you can no longer deduct defy logic and may cost you mucho megabucks. Let’s discuss some tax changes that were enacted at warp speed late last year.
Can I deduct investment fees I pay this year?
No. The Schedule A write-off for these costs, IRA custodial fees paid directly by the account owner, and the rest of the popular miscellaneous deductions subject to the 2%-of-AGI threshold are now gone.
My employer paid for my cross-country move. Is the amount taxable to me?
Generally, yes. It used to be that when you relocated for a new job, you could deduct moving costs, or if your employer reimbursed you, the payment was tax-free. Well, not anymore, except for active-duty military personnel who move pursuant to military orders.
Is the new opportunity zone program up and running yet?
In part. This program, which is included in the new tax law, lets taxpayers defer capital gains from the sale or exchange of business or personal property, including stocks, by investing the proceeds in opportunity funds to help low-income communities. Those who opt to take advantage of this break have 180 days from the date of the sale to invest all or part of the gain proceeds in a so-called qualified opportunity fund. IRS is set to release proposed regulations on how this tax break will work. An open question is whether gain deferral will automatically end in 2026, when the break is set to expire. Tax and investment advisers hope the guidance will address this concern plus provide clarity on key definitions and other issues.
Is Schedule E rental income eligible for the 20% pass-through deduction?
It depends on whether the activity rises to the level of a trade or business. The new tax break applies to qualified business income from a trade or business. In proposed rules, IRS refers to the standard under the federal tax code that generally govern the deductibility of trade or business expenses. Unfortunately, this standard is unclear in the context of a rental activity. That’s because it’s based on facts and circumstances that are specific to each taxpayer, and the issue hasn’t been resolved by case law. Some aspects considered important: Type of property that is leased, extent of day-to-day involvement by the lessor or the lessor’s agents, number of properties rented and specific terms of the lease. Tax pros and others are pleading with IRS to address this in final regulations. If the agency does not, then it will be up to the courts to resolve it later.
Will Congress make permanent the individual tax provisions in the new law?
Not this year. Most off the changes affecting individuals and small businesses expire after 2025. House Republicans will act on a bill to make the changes permanent. But the effort will die in the Senate. This won’s stop GOPers from touting tax cuts, which some see as a campaign message to entice voters in the midterm elections.