Military Relevant Aspects of The Tax Cuts and Jobs Act
The recently passed Tax Cuts and Jobs Act is a major revision of the tax code. The most referenced and detailed analysis of it is available here, but the Military Officers Association of America posted a great summary of military-relevant aspects here. The highlights included:
- Exception to the repeal of the moving expense deduction: While the deduction is generally suspended through 2025, the provision retains the deduction for moving expenses and exclusions for in-kind moving and storage expenses (and reimbursements or allowances for these expenses) for members of the armed forces (or their spouse or dependents) on active duty moving pursuant to a military order and incident to a PCS.
- Striking the change to the exclusion of gain of sale of a principal residence: This provision would have lengthened the time requirements for principal residency in a home such that service members, who move more frequently than civilian counterparts, would not have any reasonable expectation of benefiting from tax-preferred gains on the sale of a home. The provision was dropped from the bill.
- Striking the repeal of the Work Opportunity Tax Credit (WOTC): The WOTC has been a critically important tool assisting in solving the problem of veteran unemployment. Department of Labor statistics show 35,904 veterans were certified for WOTC during the three-year period before the Veterans Opportunity to Work Act of 2011. By contrast, 278,611 veterans were certified during FYs 2013-15, an increase of nearly 700 percent. The provision repealing WOTC was dropped from the bill.
- Adjustments to and extension of the medical expense deduction: Contrary to the original proposal to completely eliminate the medical expense deduction, the deduction floor will be decreased from 10 percent of adjusted gross income to 7.5 percent for 2017 and 2018. After that, it will return to the 10-percent floor.
- The repeal of the deduction for alimony payments: The divorce rate of service members, and ongoing debate over the fairness of the Uniformed Services Former Spouse Protection Act, warrants mention of this provision. Alimony payments no longer will be deductible for the payer spouse. The payments, however, will remain as tax-free income for the recipient. Note that this only applies to divorce or separation instruments executed after Dec. 31, 2018.
- Adjustment of mortgage interest rate deduction: The bill reduces limit on deductible mortgage debt to $750,000 for new purchases and refinancings (principal residence or otherwise) entered into after Dec. 15, 2017, and repeals deduction for interest paid on home equity debt, through 2025. The reduction might add just another reason for a current or former service member not to purchase a home.