Update: Halfway There – Tax Cuts and Jobs Act Guidance Catching Up

Planning for the 2019 tax season is in full swing now that the November 15 tax-exempt organization filing deadline has passed. In stark contrast to last year, which saw professionals navigating many interpretations of new tax reform provisions, 2019 has more guidance to support tax positions.

According to David Kautter, Assistant Secretary of the Treasury for Tax Policy, guidance has been released for 60% of 2018’s Tax Cuts and Jobs Act (“TCJA”) provisions. At the AICPA’s recent National Tax Conference in Washington, Mr. Kautter said we should expect that number to increase an additional 10% by January.

Guidance the Treasury hopes to publish by year end, according to Kristen Parillo, an editor for Tax Notes Today Federal, include:

• Carried interest proposed regulations under Internal Revenue Code (“IRC”) §1061;
• Proposed regulations related to the $10,000 limit on deductions for state and local taxes under IRC §164;
• Final regulations on the increased basic exclusion amount under IRC §2010;
• Final regulations on qualified opportunity zones under IRC §’s1400Z-1 and 1400Z-2;
• Proposed regulations on computing UBI under IRC §512 for tax-exempt organizations’ separate trades and businesses;
• Proposed regulations on withholding under IRC §3402; and
• Final regulations on the business interest limitation under IRC §163(j).

Proposed regulations for carried interest and the state and local tax deduction are worth noting as they will directly impact 1040 filers. Carried interest, as detailed in a previous Our Thoughts On post, IRS Reacts to Perceived Loopholes Under the Tax Cuts and Jobs Act, represents the portion of an investment fund's return paid to managers of the fund. This return is taxed at a preferential capital gains rate to the managers. The TCJA modified the carried interest rules such that, in order to receive the preferential tax rate, managers must hold the investments for at least three years. The requirement re-characterizes long-term capital gains from either 15% or 20% to ordinary rates, which can reach up to 37%.

Many Americans who historically itemize their deductions felt the impact of the TCJA change, which limited state and local tax deduction to $10,000. The Tax Foundation estimates the dollar benefit of the SALT deduction fell from $28 billion in 2017 to $7 billion in 2018.

Schneider Downs tax advisors will continue to monitor additional proposals, changes and technical corrections to the Act. If you have questions, please contact us.