Smart tax moves for seniors

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The new federal tax code passed in December of 2017, dubbed the Tax Cuts and Jobs Act, has stimulated a great deal of media attention, and concern for how it will affect the individual taxpayer.  

While it’s time to start planning for the new regulations, bear in mind that taxes for 2017, and filed in 2018, will be calculated under the previously existing code.  

While you are preparing your 2018 tax return and planning for the future, consider some of the most common tax matters, new and old, that commonly impact seniors. 

The new tax code still assigns tax rates among seven tax brackets, but at slightly lower rates and adjusted income ranges than previously. Most tax rates dropped 3 percent to 4 percent, and income brackets shifted upward. 

Instead of a standard deduction plus personal exemptions, there is now one standard deduction of $12,000 for single filers, $18,000 for head of household, and $24,000 for joint filers. Since itemized deductions would need to exceed that amount to be beneficial, fewer taxpayers will benefit from itemizing their tax return. 

And that personal exemption is gone. In previous years, you could claim a $4,050 personal exemption for yourself, your spouse, and each of your dependents. Now it has all been lumped together under the standard deduction. 

Most seniors already take the standard deduction, stated Wayne Rivers, CPA, of Battle Ground, since many seniors no longer pay mortgage interest, or their payments are below the threshold. 

Charitable contributions are only deductible if they exceed the amount of the standard deduction. In order to continue itemizing those contributions, one strategy is to cluster donations into a larger amount in a single year, said Rivers.  

Donor-advised funds are one strategy to maximize tax benefits from donations. A single sizeable contribution can be made to a fund, with instructions to disburse it over future years. 

For early retirees, Rivers suggested taking advantage of those years of not having an income to pull taxable withdrawals from funds at lower rates. 



There is still a deduction for state and local taxes. For example, if you paid sales tax on a new car or property tax on real estate owned, those taxes are deductible. Where that deduction was previously unlimited, it is now capped at $10,000. 

The cap on mortgage interest deductions has been reduced for new mortgages. You will be able to deduct the interest on debt up to $750,000, down from $1 million previously allowed. Deductions for interest on existing and new home equity loans are no longer allowed. 

Though tax rates on capital gains have not changed, they still present a significant tax planning decision for seniors who are seeking to divest themselves of long-held real estate, said Rivers. 

The gain in value of a property over many years can lead to a high tax bill when it is sold. There are strategies to mitigate this cost, which should be discussed with your accountant.  

One common mistake Rivers sees is a parent gifting real property during their lifetime. The recipient then acquires the property with the tax basis, or initial cost, set at what the parent once paid, a value which may have risen substantially. When property is transferred after death, the tax basis is revised to the current value for the recipient, resulting in lower capital gains taxes when it is sold. 

Rivers pointed out that the impact of a large taxable event can go beyond the immediate cost in taxes. That higher income can affect the cost of Medicare Part B premiums in the following year, a cost which can amount to several thousand dollars. 

The amount of money exempt from the estate tax will temporarily increase from $5.49 million to $11.2 million per person. This increase is scheduled to revert back to current levels in 2025 unless it is extended by Congress. Fewer than 0.01 percent of Americans will benefit from this change. 

You can still deduct itemized medical expenses, and, temporarily, more of them. For the next two years, expenses exceeding 7.5 percent of income can be deducted, after which the threshold will then return to 10 percent. This will continue to include the cost of skilled nursing care. 

And as far as the assistance you are going to use to prepare your new tax return? It was previously deductible, but no longer.