Which TCJA Changes for Individuals Are Permanent Under Current Tax Law?
The landmark Tax Cuts and Jobs Act (TCJA) was passed in late 2017, but the law is still in the headlines today. Most TCJA provisions that affect individual taxpayers are scheduled to expire after 2025. However, there are six noteworthy exceptions that will remain on the books after 2025, unless Congress passes additional legislation to override them.
1. Disallowed charitable deductions to colleges for sports tickets. Before the TCJA, you could treat 80% of a payment as a charitable donation if the payment:
Was to or for the benefit of a college, and
Would be treated as a deductible charitable donation except for the fact that the payment entitled you to receive (directly or indirectly) the right to buy tickets to athletic events of the college.
Starting in 2018, the TCJA permanently eliminated charitable deductions under such arrangements.
2. No deductions for paying alimony. For alimony payments required by divorce or separation instruments executed after 2018, the TCJA eliminated deductions for alimony payers that were allowed under prior law. The TCJA also wiped out the requirement for recipients of such alimony payments to include them in taxable income.
More specifically, the TCJA treatment of alimony payments applies to payments required under divorce or separation instruments that are:
Executed after December 31, 2018, or
Modified after December 31, 2018, if the modification specifically states that the TCJA treatment of alimony payments now applies.
As a result of this change, divorcing spouses can no longer shift income from the payer, who is typically in a higher tax bracket, to the recipient, who is usually in a lower tax bracket.
Important: The TCJA generally did not change the treatment of alimony payments required by pre-2019 divorce agreements.
3. Elimination of favorable treatment for personal property like-kind exchanges. Under the TCJA, for like-kind exchanges completed after December 31, 2017, tax-deferred Section 1031 treatment is allowed only for qualifying exchanges of real property. The law got rid of Sec. 1031 treatment for exchanges of personal property, such as vehicles or collectibles.
4. Elimination of Roth conversion reversals. Starting in 2018, the TCJA stipulates that you can no longer reverse the conversion of a traditional IRA into a Roth account. Before the TCJA, you had until October 15 (adjusted for weekends) of the year after an ill-advised conversion to reverse it and avoid the tax hit on the conversion.
5. Elimination of the ACA individual mandate penalty. The TCJA permanently repealed the penalty for failure to have “minimum essential coverage” under the Affordable Care Act (ACA) for months beginning in 2019 and beyond.
6. Tax-free 529 account distributions for K-12 school expenses. The TJCA allows taxpayers to take distributions from Section 529 plans of up to $10,000 per year for the account beneficiary’s tuition at a public, private or religious elementary or secondary school.
It is hard to keep track of which TJCA changes are permanent and which ones are scheduled to expire at the end of 2025. And it will only get more confusing as Congress decides which (if any) of the expiring changes it will extend or make permanent in future legislation. For now, you can count on these six changes to remain in effect. For the latest tax law developments, contact your tax advisor to develop tax-saving strategies for 2024 and beyond.
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