This column first appeared in the San Antonio Express News on November 6, 2017.
President Trump’s tax bill – the “Tax Cuts and Jobs Act” (HR 1) is now before Congress. It must be debated and considered by both the people and by Congress before it becomes law. You have an opportunity to examine the 429 page proposal and to express your opinion to your representatives. What are some provisions that may affect Seniors?
Estate and Gift Taxes
HR 1’s provision on Estate Tax and Gift Tax proposes to double the current exemption amount from $5 million to $10 million per individual, adjusted upward for inflation. The exemption would hold at that level (plus inflation) until 2024, when the Estate Tax would be repealed entirely. Billionaires would then have the burden of the estate tax lifted from the shoulders of their heirs. However, the Gift Tax will remain in effect with the $10 million inflation-adjusted lifetime exemption.
On the Income Tax side, HR 1 proposes to eliminate a variety of itemized deductions including the deduction for medical expenses. This could have a severely negative impact on Seniors who must live in nursing homes. Right now, chronically ill individuals can deduct “qualified long-term care expenses” like nursing home and personal care services. They often use their retirement income, or use retirement accounts like IRAs, to pay for those costs.
Retirement income and IRA withdrawals are subject to income taxation. Under current law, when the funds are spent on medical care, the itemized deduction offsets the income tax. Under HR 1, the medical deduction would be eliminated, taxes would increase, and a Senior in a nursing home may have less money to pay for long-term care.
For example, compare the tax situation for an older married man with $60,000 of annual income (half from Social Security and Pension, and half from IRA withdrawals). He is in a nursing home which costs $60,000 per year. Under current law, he would offset his income with the medical deduction, resulting in no income tax. His $60,000 income would all be available to pay the nursing home bill.
Under HR 1 there is no medical deduction. He would have only a standard deduction of $12,000 and the tax-break for Social Security income. This leaves $45,750 taxable income and about $11,250 income tax paid to the IRS. He would only have $48,750 left to pay his $60,000 nursing home bill, so he would have to spend his savings (or if he has no savings, he might be evicted from the nursing home).
Other major provisions in HR 1 include elimination of the Alternative Minimum Tax, lower corporate taxes, a partial tax reduction for some small business owners, and elimination of most other deductions except for property taxes not to exceed $10,000 and mortgage interest so long as the mortgage is smaller than $500,000.
Charities would also be affected. Currently, all charities are forbidden to endorse political candidates, unless they give up their tax exemption. All charities (except churches) have to file income and expense reports with the IRS to ensure their income is used for charitable purposes. HR 1 proposes to single out churches, allowing them to fund political candidates and campaigns while paying no taxes and making no accounting for these non-charitable expenditures. This would allow churches to be clandestine super-PACs. The proposal is unwise and violates fundamental Constitutional principles many Seniors fought to preserve, like equal protection and keeping government and religion in separate spheres.
Paul Premack is a Certified Elder Law Attorney with offices in San Antonio and Seattle, handling Wills and Trusts, Probate, and Business Entity issues. View past legal columns or submit free questions on legal issues via www.TexasEstateandProbate.com or www.Premack.com.