The Foreign Service Journal, April 2018

80 APRIL 2018 | THE FOREIGN SERVICE JOURNAL AFSA NEWS costs and expenses incurred for: (1) Travel to and from post; (2) Authorized or required home leave; (3) Family members to accompany a member on tempo- rary duty; (4) Representational travel within the host country to which a member is assigned; (5) Obtaining necessary medical care for an illness, injury or medical condition while abroad under certain circum- stances; (6) R&R travel of family members; (7) Removal of family members, furniture and household and personal effects (including automobiles) from post where there is imminent danger; (8) Trips by a member of the Service, and members of his or her family, for purposes of family visitation in certain situations; (9) Transporting the furniture, household and personal effects of a member of the Service (and of his or her family) to successive posts of duty and, on separation of a member from the Service, to the place where the member will reside; (10) Packing and unpacking, transporting to and from a place of storage, and storing the furniture and household and personal effects of a member of the Service (and of his or her family); (11) Transporting, for or on behalf of a member of the Ser- vice, a privately owned motor vehicle under certain conditions; (12) Travel and relocation of members of the Service, and members of their families, assigned to or within the United States and some territories; (13) A round-trip to post each year for each child who is under 21; and (14) Several other expenses. AFSA recommends reading IRC Section 912 in its entirety for full details on each of these expenses, which have been simplified here. AFSA requested additional input from Charleston Gen- eral Financial Services on this issue. Based on an unof- ficial opinion from the IRS, CGFS confirms that all travel authorized under Section 901 of the Foreign Service Act, which includes Permanent Change of Station (PCS), R&R, emergency visitation travel, medevacs, etc., is exempt from taxation under the terms of IRC Section 912. There were no changes to the exclusion of lodging benefits furnished to employees for the convenience of the employer despite an earlier House proposal to limit this benefit. • Deduction for state and local taxes capped at $10,000 A new $10,000 limit ($5,000 married filing separately, not indexed for inflation) on the deduction for state and local taxes is one of the more controversial elements of H.R. 1. Prior to the amendment, which expires at the end of 2025, there was no aggregate limit to the deduction allowed for state, local and foreign real property taxes; state and local personal property taxes; state, local and foreign income taxes; and state and local sales taxes (in lieu of income taxes). Foreign real property taxes may no longer be deducted, though foreign income tax is still deductible. Foreign value added taxes (VAT) have never been deductible under this provision. • Home mortgage interest deduction Somewhat unexpectedly, the new law reins in the deduc- tion for home mortgage interest. For all acquisition indebt- edness incurred after Dec. 15, 2017, a taxpayer may only deduct the mortgage interest on up to $750,000 of acquisi- tion debt ($350,000 married filing separately). The interest on home equity loans is no longer deductible. Both the House and Senate versions of H.R. 1 would have extended the amount of time homeowners had to own and occupy their principal residences to exclude up to $250,000 ($500,000 married filing jointly), but the conference com- mittee dropped the change. No changes were made to the definition of a residence that qualifies for the home mortgage interest deduction. The mortgage interest deduction may be applied to a prin- cipal residence and up to one other residence that is also used by a taxpayer as a residence during the year. • 1031s apply to domestic real estate only The new law places new limits on Section 1031 like-kind exchanges. Only exchanges of like-kind real property held for the production of income may be traded without recog- nizing gain. Property within the United States may not be exchanged for property in another country. The new rules apply beginning in 2018, but exchanges already underway are grandfathered in with transition rules. Other Changes to Tax Law Applicable to the 2018 Tax Year (filed in April 2019) Below we highlight other changes to the Internal Revenue Code that will affect fewer Foreign Service members but which are nevertheless important to keep in mind for finan- cial decisions in 2018 and beyond. As always, we encourage readers to consult a tax professional for more details on their specific situation. Changes to the law and its interpretation (possibly even corrective legislation) should be expected as its effects and meaning become clear over the year.