The Foreign Service Journal, January-February 2020

70 JANUARY-FEBRUARY 2020 | THE FOREIGN SERVICE JOURNAL AFSA NEWS and do not double dip. Business income earned outside the United States is not QBI—the income must be earned in a U.S. trade or business. Some trusts and estates may be eligible, as well; but income earned as an employee of a C Corporation does not qualify. For specified trades and businesses, which are specifically identified by code and include many services businesses such as law firms, accounting firms and consult- ing businesses, the QBID is prohibited for taxpayers whose taxable income (before the deduction and excluding capital gain) is $160,700 for individual filers or $321,400 married filing jointly. Other complicated limits and requirements apply to nonspecified trades or businesses. Adjustments and Basis As of early December 2019, the calculation of basis in assets such as a home, increases for investments and decreases for depreciation or damage, has not changed. Please refer to Tax Topic 703, Publication 551, 1040 Schedule D with instructions, IRC Sections 1011, 1012 and 1014 through 1017, and associ- ated tax regulations beginning at 26 CFR Sec. 1.1012-1. Recent iterations of the annual tax seminar offered by Christine Elsea- Mandojana through the Foreign Service Institute have illus- trated how mistakes in tracking basis can result in incorrectly reported gain or loss from the sale of a principal residence. Federal Estate & Gift Taxes In 2019 the first $11.4 million of a decedent’s aggregate estate (up to $22.8 million for a surviving spouse with a portability election on Form 1041) was exempt from the federal estate tax. That amount will increase to $11.58 million for decedents who pass away in 2020. The same amounts would apply to (and are reduced by) lifetime gift-giving over the annual tax- free gift exclusion. The limit on the exclusion for gifts given in 2020 is $15,000 ($30,000 for gifts split by married couples on Form 709). Retirement Savings in TSP, 401(k)s and IRAs The standard contribution and catchup contribution limits for all three methods of retirement savings increase by $500 in 2020. For 401(k)s and the Thrift Savings Plans, individual participant may contribute $19,500 during the year. Those 50 and older may make 401(k) and TSP catchup contribu- tions of $6,500. Finally, the IRA contribution limits increase to $6,000 for those under 50 and $7,000 for those 50 and over. The 2019 tax year deadline is April 15, 2020 for contributing to a Roth IRA or traditional IRA (at the $5,500/$6,500 limits). Deposits to a 401(k) may only be made via payroll deductions, the last of which is possible Dec. 31, 2019. The 2019 ROTH and IRA contribution limits are $6,000 for under age 50 and $7,000 for age 50 and over. Itemized Deductions Still Allowed via Schedule A Although the Tax Cuts and Jobs Act of 2017 removed the over- all cap for itemized deductions, it suspended miscellaneous itemized deductions, to the extent they exceed two percent of AGI, through 2025. Schedule A and the instructions are the best guide for what remains deductible for itemizers. In other words, many Schedule A deductions remain available but only those subject to the two percent floor, like home leave as an employee expense, were eliminated. Medical and Dental: Deduct for Expenses Over 10 Percent of AGI The deduction for unreimbursed medical and dental expenses is possible only to the extent qualifying expenses exceed 10 percent of a taxpayer’s AGI (changed from 7.5 percent in 2018). AFSA recommends that members claiming these deductions read IRS Publication 502, Tax Topic 502 and IRC Section 213. Note that the referenced IRS publications continue to list 7.5 percent of AGI as the deduction threshold, which only applies for 2017 and 2018. Taxes, including State & Local Property The IRS recently adopted new regulations relating to tax credits that affect deductions for charitable contributions. The new regulations require a reduction in a taxpayer’s federal charitable contribution deduction (including estates and trusts) by an amount equal to all state and local tax credits the taxpayer expects on their return. An example offered by the IRS illustrates the effect of the new regulation well: “If a state grants a 70 percent state tax credit pursuant to a state tax credit program, and an item- izing taxpayer contributes $1,000 pursuant to that program, the taxpayer receives a $700 state tax credit. A taxpayer who itemizes deductions must reduce the $1,000 federal chari- table contribution deduction by the $700 state tax credit, leaving a federal charitable contribution deduction of $300.” Refer to IRS Notice 2019-12, Treasury Decision 98-64, 26 CFR Sec. 1-170A-1(h)(3), Tax Topic 503 and IRC Sections 164, 170(c) for more on these provisions. This new regulation prevents taxpayers from sidestepping the $10,000 cap on the deduction for state and local taxes by instead contributing the excess to the state or local jurisdiction and claiming it as a charitable contribution. Selling a Principal Residence, Military Families Tax Relief Act Unchanged A taxpayer may still exclude up to $250,000 ($500,000 if married filing jointly) of long-term capital gain (but not the repayment of mandatory rental depreciation) from the sale of a principal residence. To qualify for the full exclusion amount,