The Tax Cuts and Jobs Act (TCJA) has made some changes to qualified tuition programs (“QTPs,” also commonly known as “529 plans”) that you might be interested in. These changes take effect for 529 plan distributions after 2017.

As you know, a 529 plan distribution is tax-free if it is used to pay “qualified higher education expenses” of the beneficiary (student). Before the TCJA made these changes, tuition for elementary or secondary schools wasn’t a “qualified higher education expense,” so students/529 beneficiaries who had to pay it couldn’t receive tax-free 529 plan distributions.

The TCJA provides that qualified higher education expenses now include expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school. Thus, tax-free distributions from 529 plans can now be received by beneficiaries who pay these expenses, effective for distributions from 529 plans after 2017.

There is a limit to how much of a distribution can be taken from a 529 plan for these expenses. The amount of cash distributions from all 529 plans per single beneficiary during any tax year can’t, when combined, include more than $10,000 for elementary school and secondary school tuition incurred during the tax year.

As you can see, the new 529 plan rules might be beneficial to you. If you wish to discuss the impact of them on your particular situation, please give us a call.

Under the pre-TCJA rules, you could deduct interest on up to a total of $1 million of mortgage debt used to acquire your principal residence and a second home, i.e., acquisition debt. For a married taxpayer filing separately, the limit was $500,000. You could also deduct interest on home equity debt, i.e., debt secured by the qualifying homes. Qualifying home equity debt was limited to the lesser of $100,000 ($50,000 for a married taxpayer filing separately), or the taxpayer’s equity in the home or homes (the excess of the value of the home over the acquisition debt). The funds obtained via a home equity loan did not have to be used to acquire or improve the homes. So you could use home equity debt to pay for education, travel, health care, etc.

Under the TCJA, starting in 2018, the limit on qualifying acquisition debt is reduced to $750,000 ($375,000 for a married taxpayer filing separately). However, for acquisition debt incurred before December 15, 2017, the higher pre-TCJA limit applies. The higher pre-TCJA limit also applies to debt arising from refinancing pre-December 15, 2017 acquisition debt, to the extent the debt resulting from the refinancing does not exceed the original debt amount. This means you can refinance up to $1 million of pre-December 15, 2017 acquisition debt in the future and not be subject to the reduced limitation.

And, importantly, starting in 2018, there is no longer a deduction for interest on home equity debt. This applies regardless of when the home equity debt was incurred. Accordingly, if you are considering incurring home equity debt in the future, you should take this factor into consideration. And if you currently have outstanding home equity debt, be prepared to lose the interest deduction for it, starting in 2018. (You will still be able to deduct it on your 2017 tax return, filed in 2018.)

Lastly, both of these changes last for eight years, through 2025. In the absence of intervening legislation, the pre-TCJA rules come back into effect in 2026. So beginning in 2026, interest on home equity loans will be deductible again, and the limit on qualifying acquisition debt will be raised back to $1 million ($500,000 for married separate filers).

If you would like to discuss how these changes affect your particular situation, and any planning moves you should consider in light of them, please give us a call.

According to a Reuters/Ipsos poll released on January 29, two percent of U.S. adults said they received a raise, bonus or other additional benefits due to the tax law enacted a month ago. The Reuters/Ipsos online poll of over 5,200 U.S. adults was conducted Jan. 12 through 23 and offers a look into public opinions of the tax reform. The poll provided information such as which class the participants thought the tax reform would benefit the most, if the participants expected to pay more or less, if the participants tried to consult with a tax professional, if the participants expect to itemize deductions, and if the tax law would change the participant’s interest in voting.

The full economic impact of the law will not be known for some time since the tax reform begins with 2018 income tax returns, which won’t be filed until 2019. President Donald Trump and House Speaker Paul Ryan assured the tax bill’s benefits would become evident in February when employee net paychecks increase after the IRS tax withholding tables were updated for new tax rates.  Employees may be advised by their employer to complete an updated Form W-4 to ensure proper withholding.

While the Internal Revenue Service implements the law, Republicans in the U.S. Congress have been praising businesses for announcing wage and benefit increases in response to the tax plan. As of January 26, 40 companies on the S&P 500 have publicly announced wage increases, bonuses, or other special investments based on the lower tax rate and more may follow suit, according to CNBC.