New 2018 Tax Law Questions

Questions continue to pour in. Not surprisingly, most are on the new tax law. Now that the individual tax filing deadline has passed, people are starting to focus on their taxes for 2018. We’ll share some inquiries and our answers.

• Can I still deduct IRA custodial fees?
• No. The write-off for Schedule A miscellaneous deductions is gone, beginning with 2018 returns filed next year. These include investment account management fees, tax preparation fees and unreimbursed employee costs.
• I recently left my full-time job, and I’m now an independent freelance writer. Can I claim the new 20% deduction for pass-through income?
• Generally, Yes. It applies not only to individual owners of pass-through entities such as partnerships and LLCs, but also to self-employed individuals who file Schedule C with their returns. An important limitation applies to high earners in certain service fields. They include health, law, accounting, consulting, financial and brokerage services, performing arts, athletics, actuarial science, investing or trading in securities, or any business where the principal asset is the reputation or skill of its employees. If you’re in one of the affected fields and your total taxable income exceeds $315,000 for joint returns and $157,500 for all others, the 20% deduction begins to phase out. It’s zero once your taxable income exceeds $415,000 for couples…$207,500 for others.

• Did the new law end the deferral of 100% of gain through like-kind swaps?
• No. It survives, but only for exchanges of real estate not held primarily for sale. So, when investment or business real estate is exchanged for similar real property, any gain that would otherwise be triggered if the property was sold can be deferred. Prior to 2018, this break also applied to like-kind swaps of personal property such as heavy equipment, machinery, computers, railroad cars and airplanes.

• I converted a traditional IRA to a Roth IRA last year, and it has lost money. Do I still have to undo the switch?
• Yes, you have until Oct. 15, 2018, to eliminate the tax bill by transferring the converted funds back to a traditional IRA. This is called a recharacterization. If you’ve already filed your 2017 return and paid tax on the conversion, you can file an amended return on Form 1040-X to seek a refund. Roth conversions done after 2017 are irreversible. You still have the ability to convert your traditional IRA to a Roth, but you won’t be able to undo it later.

• I’m thinking of adding solar panels to my home. Can I still get a tax break?

Yes, you can claim a credit for 30% of the total cost. For solar energy systems installed in a residence, the full credit applies through 2019 and then phases out… 26% for 2020 and 22% for 2021…until it ends after 2021. Ditto for the breaks for geothermal heat pumps, residential wind turbines and fuel cell property. What if I put in energy-efficient windows or doors? You’re out of luck, for now. The limited tax credit for these residential energy-saving items lapsed after 2017.