Tax Law Changes Started or Continuing in 2017
IR-2016-139, Oct. 25, 2016
WASHINGTON — The Internal Revenue Service today announced the tax year 2017 annual inflation adjustments for more than 50 tax provisions, including the tax rate schedules, and other tax changes. Revenue Procedure 2016-55 provides details about these annual adjustments. The tax year 2017 adjustments generally are used on tax returns filed in 2018.
The tax items for tax year 2017 of greatest interest to most taxpayers include the following:
Estates of decedents who die during 2017 have a basic exclusion amount of $5,490,000, up from a total of $5,450,000 for estates of decedents who died in 2016.
Social Security Wage Base
The Social Security wage base remains $127,200.
Individual Responsibility Penalties
Penalties are assessed for each month that any individual does not have the minimum essential health insurance coverage. In 2017 the penalty remains at $695 per adult, or 2.5% of income with a family maximum of $2,085.
Premium Tax Credits for Health Coverage
Some taxpayers who obtain health insurance coverage through a qualified marketplace may qualify for health premium tax credits to subsidize the cost of coverage.
Deduction for State and Local Income Taxes
State and local income taxes remains an itemized deduction.
Exclusion From Income of Canceled Debt on Qualified Principal Residence
Debt cancelled from the short sale, foreclosure, or mortgage modification for Qualified Principal Residences is no longer excludable from income under the Mortgage Forgiveness Debt Relief Act. This was extended to the end of 2016. This could also apply to debt that was discharged in 2017 provided that there was a written agreement entered into in 2016.
Standard & Itemized Deductions – Schedule A
The standard deduction for married filing jointly rises to $12,700 for tax year 2017, up $100 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $6,350 in 2017, up from $6,300 in 2016, and for heads of households, the standard deduction will be $9,350 for tax year 2017, up from $9,300 for tax year 2016.
The limitation for itemized deductions to be claimed on tax year 2017 returns of individuals begins with incomes of $287,650 or more ($313,800 for married couples filing jointly).
Personal Exemption Amount Increases
The personal exemption for tax year 2017 remains as it was for 2016: $4,050. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $261,500 ($313,800 for married couples filing jointly). It phases out completely at $384,000 ($436,300 for married couples filing jointly.)
Tuition and Fees Deduction
The deduction for tuition and fees is no longer available. The American Opportunity Credit and Lifetime Learning Credit are both still available to qualified taxpayers.
Deduction for Medical Expenses
Starting in 2017, all taxpayers, including those over 65, are now subject to the 10% of Adjusted Gross Income (AGI) threshold for deducting medical expenses.
Earned Income Credit
The tax year 2017 maximum Earned Income Credit amount is $6,318 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,269 for tax year 2016. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
Medical Savings Accounts
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.
The Alternative Minimum Tax
The 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).
Foreign Earned Income
For tax year 2017, the foreign earned income exclusion is $102,100, up from $101,300 for tax year 2016.