Besides all the decorating, shopping, and singing that many of us will enjoy doing this holiday season, we also have to do some house cleaning as we prepare for great family and friends. Well, that house cleaning is exactly what Kevin Brady, Chairman of House Ways and Means, is doing in his proposed tax bill. The tax bill includes lots of different things from modernizing the IRS to tax extenders. However, it is the five technical corrections to the Tax Cuts and Jobs Act (TCJA) that may add holiday magic to our tax year end. These corrections relate to the following areas:
- Excess Toll Charge Remittance (Section 965)
- Settlement Fees as Related to Sexual Harassment Nondisclosure Agreements
- Qualified REIT Dividends
- NOL Effective Date
- Qualified Improvement Property
While the first three are specific to certain types of business, the last two affect many more businesses and is where we will focus our attention.
NOL Effective Date
This correction would make the new rules for NOL effective for taxpayers with year ends after December 31, 2017.
Under Pre TCJA, NOLs were allowed to be carried forward 20 years and carried back 2 years. TCJA allowed NOLs to no longer be carried back and made them able to be carried forward indefinitely, however, those losses were limited to 80% of taxable income. However, when the bill was passed, it negatively affected taxpayers whose year end was after December 31, 2017. That wording prevented all fiscal year filers who had NOLs from using them. This small change would allow all fiscal year filers the ability to carryback their 2017 NOLs as well as use them 100% against future income, just like calendar year filers could.
Qualified Improvement Property
This correction would make all qualified improvement property 15-year property under MACRS and 20-year property under ADS.
This was one of the most glaring mistakes that had been made when the TCJA was passed. This would be a really nice present for most businesses. Under Pre TCJA, qualified improvement property was broken up into three smaller designations (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) and all of them were 15-year property. However, when the bill was passed, it grouped them all into qualified improvement property but never assigned them a life of 15 years. This change not only allows taxpayers to take more depreciation expenses but makes the property eligible for 100% bonus depreciation. That could make for some huge tax savings on people’s 2018 tax returns.
These tax corrections would be nice because they would fix some of the issues that were created due to the speed at which this law was passed. However, this bill is trying to go through a Lame Duck Congress that is seeing the other party take power and would require 60 votes in the Senate. So, we will have to wait and see if taxpayers get something extra in their stocking this holiday season.
If you have questions about this article, please do not hesitate to reach out to Charles Eisenhart, Tax Manager with McKonly & Asbury at firstname.lastname@example.org.