Embrace Your Inner Tax Nerd: Key Insights from the Tax Planning Super Seminar

I’m here in Reno at the California Society of Enrolled Agents’ annual Super Seminar for three full days of intensive tax training and workshops. The Tax Cut and Jobs Act of 2017 (TCJA) is a major topic, as the new rules change key income tax laws and present new pitfalls and opportunities for tax planning. But I’m also learning about planning opportunities to reduce property tax in California, as well as new ways to use retirement accounts for estate planning.

I thought I would share some of my key learnings during these first two days. As most of you know, I’m the tax nerd at Aspire. This is almost like an annual pilgrimage for me—three full days of conference presentations from 8 a.m. to 5 p.m. Nothing but taxes, taxes, taxes. I love it.

First, some numbers that you may find illuminating:

  • The nonpartisan Tax Policy Center estimates that because of the TCJA, 80% of U.S. households will see a tax cut in 2018, 15% will see little or no change to their taxes, and 5% will pay more tax.
  • Because of the increased standard deduction, the White House Council of Economic Advisors estimates that the number of Americans claiming itemized deductions will drop from just over 26% to less than 8%. In other words, 92% of taxpayers will use the standard deduction!

Some of my “aha” moments over the past couple of days have been:

  • All HELOC interest is not non-deductible. Many people think that all interest on a home equity line of credit (HELOC) will no longer be deductible as an itemized deduction. The confusion hinges on the difference between acquisition debt and equity debt. Acquisition debt includes debt on first and second mortgages as well as HELOCs that is incurred in acquiring, constructing, or substantially improving (read “remodeling”) a qualified residence of the taxpayer that is secured by the residence. If the funds are used for that purpose, the interest will still be deductible as an itemized deduction.
  • The $1 million limit on acquisition debt is still available if you refinance a pre-2018 existing mortgage—as long as the amount refinanced does not exceed the balance of the current mortgage. So, if you took out a $1.2 million mortgage in 2012 and the balance is now $950,000, you can refinance the entire amount in 2018 and continue to deduct all the interest.
  • The deduction for equity debt is suspended through 2026. Equity debt is a loan secured by your home but not used to acquire, construct, or improve. Equity debt was not grandfathered. So people who took out HELOCs up to $100,000 to purchase cars or vacations, pay college expenses, etc., will no longer be able to deduct those interest expenses.
  • You can use 529 plans to pay for private school. This is another great incentive to start 529 plans early for children. Now you can take advantage of tax-free earnings and withdrawals and use the funds for K–12 tuition expenses. This is true for parents and grandparents!
  • Most taxpayers will no longer pay alternative minimum tax. The major cause for AMT after 2017 will be incentive stock options and depreciation adjustments. The Joint Committee on Tax estimates that the number of taxpayers paying AMT will drop by 95%!

I hope this information has interested you as much as it did me. Stay tuned for a separate blog post in the coming weeks about some interesting things I learned in a session called “Taking Full Advantage of Tax Attributes at Death.” It’s not as macabre as it sounds. And it opened my eyes to innovative ways for elders to plan ahead to reduce income taxes for a surviving spouse and/or their beneficiaries.

I guess it’s true—I really am a tax nerd.