2017 IRS Income Tax Changes

Besides changing the 2017 Income Tax Brackets and the 2017 Earned Income Credit, the IRS announced other inflation linked changes to amounts in the tax code. These other deduction and credit amounts are important in 2017 and can affect how much taxes are paid. The tax items for tax year 2017 of greatest interest to most taxpayers include the following dollar amounts

 

Restrictions on Itemized Deductions – Pease Limitation

If the Pease limitations apply, the total of all your itemized deductions is reduced by the lesser of:

3% of AGI above the applicable threshold; or 80% of the amount of itemized deductions otherwise allowable for the tax year.

Pease limitations apply to charitable donations, the home mortgage interest deduction, state and local tax deductions and miscellaneous itemized deductions. They do not apply to medical expenses, investment expenses, gambling losses, and certain theft and casualty losses.

Keep in mind that the floor for medical expenses in 2017 is 10% of adjusted gross income (AGI) for all taxpayers. Taxpayers over the age of 65 could use the 7.5% floor through 2016: in 2017, the favored tax rate disappears and all taxpayers are subject to the 10% floor

 

2017 Kiddie Tax

The kiddie tax applies to unearned income for children under the age of 19 and college students under the age of 24. For 2017, the threshold for the kiddie tax – meaning the amount of unearned net income that a child can take home without paying any federal income tax – is $1,050. All unearned income in excess of $2,100 is taxed at the parent’s tax rate.

 

2017 AMT (2017 Alternative Minimum Tax)

The Alternative Minimum Tax exemption amount for tax year 2017 is $54,300 and begins to phase out at $120,700 ($84,500, for married couples filing jointly for whom the exemption begins to phase out at $160,900). The 2016 exemption amount was $53,900 ($83,800 for married couples filing jointly).  For tax year 2017, the 28 percent tax rate applies to taxpayers with taxable incomes above $187,800 ($93,900 for married individuals filing separately).

2017 Child & Dependent Care Credit Amount

For 2017, the value used to determine the amount of credit that may be refundable is $3,000. Keep in mind that this is the value of the expenses used to determine the credit and not the actual amount of the credit.

 

2017 Transportation Fringe Benefit Limit

For tax year 2017, the monthly limitation for the qualified transportation fringe benefit is $255, as is the monthly limitation for qualified parking,

 

2017 Adoption Credit Amount

The credit allowed for an adoption of a child with special needs is $13,570, and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $13,570. Phaseouts do apply beginning at taxpayers with modified adjusted gross income (MAGI) in excess of $203,540 and completely phased out for taxpayers with MAGI of $243,540 or more.

 

2017 Hope Scholarship Credit Amount

The Hope Scholarship Credit for 2017 will remain an amount equal to 100% of qualified tuition and related expenses not in excess of $2,000 plus 25% of those expenses in excess of $2,000 but not in excess of $4,000. That means that the maximum Hope Scholarship Credit allowable for 2017 is $2,500. As with the Hope Scholarship Credit, income restrictions apply to the Lifetime Learning Credit. For 2017, the adjusted gross income amount used to determine the reduction in the Lifetime Learning Credit is $56,000 ($112,000 for joint filers).

 

2017 Student Loan Interest Deduction.

The maximum amount that you can take as a deduction for interest paid on student loans remains at $2,500. Phaseouts apply for taxpayers with modified adjusted gross income (MAGI) in excess of $65,000 ($135,000 for joint returns) and is completely phased out for taxpayers with modified adjusted gross income (MAGI) of $80,000 or more ($165,000 or more for joint returns).

 

2017 Estate Tax Limits

For 2017, the estate and gift tax exemption is $5.49 million per individual, up from $5.45 million in 2016. That means an individual can leave $5.49 million to heirs and pay no federal estate or gift tax. A married couple will be able to shield just shy of $11 million ($10.98 million) from federal estate and gift taxes. The annual gift exclusion remains at $14,000 for 2017.

 

2017 Health Savings Account Limits

For tax year 2017 participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,250 but not more than $3,350; these amounts remain unchanged from 2016. For self-only coverage the maximum out of pocket expense amount  is $4,500, up $50 from 2016. For tax year 2017 participants with family coverage, the floor for the annual deductible is $4,500, up from $4,450 in 2016, however the deductible cannot be more than $6,750, up $50 from the limit for tax year 2016. For family coverage, the out of pocket expense limit is $8,250 for tax year 2017, an increase of $100 from  tax year 2016.