Neither the author nor Colorado Senior Lobby has any expertise in federal income tax legislation. This should not be construed as in any way providing tax advice. We recommend you contact your financial advisor/CPA/attorney and your congressional representatives for advice on how legislation will impact you. Information presented herewith was obtained from published sources deemed reliable.
Relying on research by many individuals
The tax bill currently being considered by congress is fluid. So it is written, “so it may change”. But it is important to understand what is currently being considered, because it provides insight into the thinking of many members of congress. To the extent you are concerned about any provisions in the bill, it is your right and obligation to make your views known to your representatives in congress.
Impact on Medicare and Medicaid
Although there are wide variances in the estimated impact of the tax bill on the budget deficit, the most common estimate is $1.5 trillion over ten years. The general consensus is that much of the benefit will be recognized by the wealthy.
To help reduce the deficit, congress may, in the future, look at reducing the funding for Medicare and Medicaid. The increased deficit built into the current proposed tax bill is not sustainable over time. To reduce the deficit congress will most likely look at cuts to Medicare and Medicaid programs – mostly paid for by seniors – not only in dollars but also in deteriorating health caused by a reduction in available services.
For Medicaid, one-quarter of the program’s funding is used for older adults, mostly for nursing home care or personal assistance at home. In 2014, Medicaid spent as much as $150 billion on Long Term Services and Support (LTSS).
Impact on retirement investments
(Thanks to Robert Powell for an article in The Street)
- Impact on High-tax States. The bill puts limits on the deductibility of state income, sales and property taxes.
- Tax brackets are revised. It is important to be mindful of your potentially new tax bracket and consider this when planning for retirement.
- Saving For Retirement. The 401(k) (and other retirement plans) currently remains untouched. But as the apparent deficit impact of the bill becomes an issue this could be in jeopardy.
- Postpone Income, accelerate Deductions. It is not known what, if any, of the items being considered will impact 2017 taxes. In future years, the standard deduction will increase significantly. So it might be wise to accelerate charitable deductions in 2017 since many who now itemize will take the standard deduction in the future.
- Second Homes. There will be no mortgage interest deduction for new second homes.
- Should You Pay Off Your Mortgage? The proposed increase in the standard deduction needs to be considered. For many, the tax benefit of the mortgage may no longer be applicable. One effect: this may be an incentive to pay off the mortgage and move to adult communities.
- Sale of Home. Currently, for joint filers, when selling your home, $500,000 is excluded from gross income ($250,000 for other filers).The time for ownership of your principal residence is increased to five of the previous eight years to qualify for exclusion. Currently the time for residency is 2 of the last 5 years. (This exclusion is phased out for high-income taxpayers.)
- Alimony Payments – Repeal of Deduction. Elimination of this deduction is a major issue for those impacted. For individuals dealing with this situation, we encourage you to research the proposed bill and contract your congressional representatives.
- High Medical Expenses. This deduction is being eliminated.
- Roth IRA Recharacterization. This option is being eliminated, making recharacterization much less attractive.
- Funding of Education Accounts by Grandparents. New contributions to Coverdell Education Savings Accounts after 2017 (except rollover contributions) would be prohibited, but tax-free rollovers from Coverdell accounts into section 529 plans would be allowed. This could affect the desire of grandparents to contribute.