IRS has released on its website a number of draft tax forms and instructions for the 2017 tax year, including Form 1040 and its related schedules.
This Practice Alert, which appears in two parts, highlights key changes made on the 2017 return. This first Part examines the draft Form 1040 itself. Part II will cover related draft forms and schedules.
FORM 1040—ITEMS THAT ARE NOT SPECIFIC TO SPECIFIC LINES ON THE FORM
Due date. Form 1040’s due date is Apr. 17, 2018.
Mailing address. Residents of Connecticut, the District of Columbia, Maryland, Pennsylvania, Rhode Island and West Virginia who mail their return will need to mail it to a different address this year. Mailing addresses are listed at “Where Do You File?” in the Form 1040 instructions.
FORM 1040—GROSS INCOME
Line 21. Other income. The exclusion from gross income where “qualified principal residence indebtedness” is discharged only applies to discharges that took place before Jan. 1, 2017 or were subject to an arrangement that was entered into and evidenced in writing before Jan. 1, 2017. As a result, unless Congress extends this provision, most discharge of “qualified principal residence indebtedness” in 2017 will not be excluded from gross income.
FORM 1040—ADJUSTED GROSS INCOME
Line 26. Moving expenses. The 2017 standard mileage rate for moving expenses is 17¢ per mile.
Line 32. IRA deduction. In general, an individual who isn’t an active participant in certain employer-sponsored retirement plans, and whose spouse isn’t an active participant, may make an annual deductible cash contribution to an IRA up to the lesser of: (1) a statutory dollar limit, or (2) 100% of the compensation that’s includible in his gross income for that year. For 2017, the statutory dollar limit is $5,500, plus an additional $1,000 for those age 50 or older. If the individual (or his spouse) is an active plan participant, the deduction phases out over a specified dollar range of modified AGI (MAGI). For 2017, a taxpayer may be able to take an IRA deduction if he was covered by a retirement plan and his 2017 MAGI is less than $72,000 ($119,000 if married filing jointly or qualifying widow(er)). If the taxpayer’s spouse was covered by a retirement plan, but the taxpayer was not, he may be able to take an IRA deduction if 2017 MAGI is less than $196,000.
Line 34. Reserved for future use. In prior years, line 34 was titled “Tuition and fees.” Unless Congress acts to extend it, the tuition and fees deduction has expired. Line 34 is now shown as “Reserved for future use” in case Congress extends the tuition and fees deduction for 2017.
Line 35. Domestic production activities deduction. The domestic production activities deduction (DPAD) is allowed for various trade or business activities conducted in the U.S. Unless Congress acts to extend it, the rule that allowed Puerto Rico to be considered part of the US for purposes of the DPAD expired effective Dec. 31, 2016.
FORM 1040—TAX AND CREDITS
Line 40. Itemized deductions or standard deduction. For 2017, the standard deduction is $6,350 for single filers and for married persons filing separately, $12,700 for joint filers and qualifying widow(er)s, and $9,350 for heads of household.
Line 42. Exemptions. The amount for each exemption for 2017 is $4,050. Exemptions are reduced for taxpayers with AGIs in excess of the “applicable amount” ($313,800 for joint filers or a surviving spouse, $287,650 for a head of household, $261,500 for a single individual who isn’t a surviving spouse, and $156,900 for marrieds filing separately).
Line 45. Alternative minimum tax. Under Code Sec. 55(d), the alternative minimum tax (AMT) exemption amount for 2017 is $54,300 ($84,500 if married filing jointly or a qualifying widow(er); $42,250 if married filing separately). The AMT exemption amount is reduced if alternative minimum taxable income is above statutorily-defined amounts that depend upon filing status.
Line 50. Education credits from Form 8863. In order to claim the American opportunity credit, a taxpayer must provide the educational institution’s employer identification number (EIN) on Form 8863. A taxpayer should be able to obtain this information from Form 1098-T (Tuition Statement) or the educational institution.
Line 53. Residential energy credit. As of the time this article was written, the residential energy credit had expired and thus, unless legislation is enacted to extend the credit, no entry should be made on this line.
Line 54. Other credits. For 2017, the maximum adoption credit is $13,570 per eligible child for both non-special needs adoptions and special needs adoptions. The amount begins to phase out if modified adjusted gross income (MAGI) is in excess of $203,540 and is completely phased out if MAGI is $243,540 or more.
A large series of energy credits expired at the end of 2016 and thus are not available for 2017 unless Congress takes action. Included among those credits are: the credit for certain nonbusiness energy property under Code Sec. 25C(g); the qualified fuel cell motor vehicle credit under Code Sec. 30B(k)(1); and the alternative fuel vehicle refueling property credit under Code Sec. 30C(g).
FORM 1040—OTHER TAXES
Line 57. Self-employment tax. The maximum amount of self-employment income subject to FICA tax is $127,200; there is no ceiling on Medicare wage base.
An individual may use the farm optional method only if (a) his gross farm income was not more than $7,560 or (b) his net farm profits were less than $5,631. Using this method, farm self-employment earnings equals the smaller of (1) two-thirds of gross farm income, or (2) $5,200.
An individual may use the nonfarm optional method only if (a) his net nonfarm profits were less than $5,631 and also less than 72.189% of his gross nonfarm income and (b) he had net earnings from self-employment of at least $400 in 2 of the prior 3 years. Individuals may compute their self-employment earnings as the smaller of two-thirds of gross nonfarm income or $5,200.
A self-employed individual with both farm and nonfarm incomes is allowed to use both optional computation methods if the farm income qualifies for the farm optional method and the nonfarm income qualifies for the nonfarm optional method. If both optional methods are used to compute net earnings from self-employment, the maximum combined total net earnings from self-employment for any tax year can’t be more than $5,200.
Line 61. Health care: individual responsibility. As was the case in 2016, a taxpayer must either:
- indicate on line 61 that he, his spouse (if filing jointly) and his dependents had health care coverage throughout 2017;
- claim an exemption from the health care coverage requirement for some or all of 2017 and attach Form 8965; or
- make a “shared responsibility payment” if, for any month in 2017, he, his spouse (if filing jointly) or his dependents did not have coverage and do not qualify for a coverage exemption.
And, the monthly shared responsibility payment amount is also the same as it was for 2016. For 2017, it is lesser of (i) the sum of the monthly penalty amounts for months in the tax year during which one or more failures occurs, or (ii) the sum of the monthly national average bronze plan premiums for the plan. The monthly penalty amount is equal to 1/12 of the greater of $695 per family member (up to a ceiling of $2,085) or 2.5% of the amount by which the taxpayer’s household income exceeds the filing threshold.
FORM 1040—PAYMENTS AND REFUNDS
Line 66. Earned income credit (EIC) A taxpayer who has a qualifying child for the EIC, where that child is claimed as a qualifying child by another taxpayer, may be able to qualify for the EIC under the rules for taxpayers without a qualifying child.
Line 71. Excess social security and RRTA tax withheld. The maximum Social Security (OASDI) tax for 2017 is $7,886.40 (computed on the first $127,200 of wages) for purposes of this credit for excess tax withheld.
Line 73. Credits. Line 73, box b is labeled as “Reserved.” The draft instructions contain no information on this box. The final version of 2016 Form 1040 also had this box labeled as “Reserved.”