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Bucci & Associates
May Newsletter 2019
A NEW OPPORTUNITY TO DEFER (AND THEN GREATLY REDUCE) 
CAPITAL GAINS TAX
One of the most interesting wrinkles of the Tax Cuts and Jobs Act, passed last December, was the creation of Opportunity Zones (https://www.cdfifund.gov/Pages/Opportunity-Zones.aspx).

According to the IRS, Opportunity Zones are particular distressed communities throughout the country in need of economic revitalization. Under a nomination process completed in June 2018, 8,761 communities in all 50 states, the District of Columbia, and five U.S. territories were designated as qualified Opportunity Zones. Investing in an Opportunity Zone can provide substantial tax benefits to an investor, namely deferral on capital gains tax. 

Investors may defer tax on almost any capital gain until Dec. 31, 2026 by making an appropriate investment in a zone, making an election after December 21, 2017, and meeting other requirements. 

Generally, to qualify for deferral, the amount of a realized capital gain to be deferred must be invested within 180 days into a Qualified Opportunity Fund (QOF), which must be an entity treated as a partnership or corporation for Federal tax purposes and organized in any of the 50 states, D.C. or five U.S. territories for the purpose of investing in qualified opportunity zone property.

The QOF must hold at least 90 percent of its assets in qualified Opportunity Zone property. Investors who hold their QOF investment for at least 10 years may qualify to increase their basis to the fair market value of the investment on the date it is sold, which would effectively eliminate any capital gains tax on the post-purchase appreciation.

Hold the QOF investment for 5 years prior to the earlier of the date you sell the investment, or December 31, 2026, and the taxable portion of the capital gain rolled into the QOF is reduced by 10%. Increase the holding period to 7 years and your gain exclusion jumps to 15%. Any realized capital gains rolled into a QOF will be taxable to you in 2026, reduced by either 10% or 15% based on the number of years the QOF was held.

Here is a list of FAQs (www.irs.gov/newsroom/...) regarding Opportunity Zones published by the IRS:

OPPORTUNITY ZONES FOR MA RESIDENTS

Massachusetts residents may be interested to know that in May 2018, Governor Baker's formal recommendation of 138 Opportunity Zones were all approved by the U.S Treasury Department. Here is a link to that press release, in additional to the list of approved Opportunity Zone municipalities in the Commonwealth:

Bucci & Associate Sayings:

Thank you for a wonderful tax season! We hope you have a wonderful summer.

Bucci & Associates
200 Broadway 
Suite 106 
Lynnfield, MA 01940

Testimonials
“Ken and his team are different than any other accountants we have ever worked with. They focus on more than just taxes. They learn exactly how our business operates in order to save us the most money. They work to understand our perspective and help us determine the risks of a decision. Last year they saved us several hundred thousand dollars alone! I not only hired Ken for my business, but also as my personal accountant. As an owner, it’s important for my accountant to understand both my personal and business finances and he makes it seamless to work in both areas.

I purchased Skipping Stone, LLC in 1999 and for the past 16 years we have grown substantially.We focus solely on energy markets and our specialty is collaborating with clients on strategies and problems and providing them the services required to turn the ideas and strategies into successes. We have clients in Europe, Asia, and the United States and we have worked with over 250 energy clients on thousands of initiatives. Our unique market makes it crucial that we have an accountant that knows the ins and outs of our business and Ken and his team far exceed our needs and expectations.”

Greg Lander
Owner, Skipping Stone, LLC

Team Member
Ken Bucci

Thank you for a wonderful tax season.
This Month's Articles:
  • A new opportunity to defer (and then greatly reduce) Capital Gains Tax
  • Backup withholding rate now 24%, bonuses 22%
  • Do you have a child who is a college graduate?
  • Are you turning 50?
  • Fast facts individual taxpayers
Backup Withholding Rate Now 24%, Bonuses 22%
The Internal Revenue Service is reminding small businesses that recent tax reform legislation lowered the backup withholding tax rate to 24 percent and the withholding rate that usually applies to bonuses and other supplemental wages to 22 percent. The agency is also recommending that employers encourage their employees to check their withholding using the IRS Withholding Calculator.
Do you have a child who is a college graduate?
If you have a child that will be graduating from college next spring and have been phased out of the tuition credit due to your income level? We recommend you consider paying for his or her final semester of college until 2020. If the graduate has taxable income in the year they graduate they may benefit from the tuition credit even if you cannot. Please contact us so we can run the numbers for you and your child to determine if this is the right move for you.

Are you turning 50?

For those turning 50 years old, we recommend you increase your 401(k) salary deferral to include the “catch up” amount of $6,000 making your total salary deferral for 2019 $25,000. There is a $1,000 catch up amount for IRAs as well, making the total you can contribute to an IRA in 2019 $7,000.
Fast Facts Individual Taxpayers
There are no personal or dependent exemptions under the new tax law.
Effective January 1, 2018 the standard deduction is:
$24,000 for married filing jointly
$18,000 for heads of household
$12,000 for all other taxpayers

Child tax credit – The new tax law increases the credit to $2,000 per qualifying child and increases the threshold at which the credit begins to phase out to $400,000 for married taxpayers filing joint and $200,000 for other taxpayers. The new rules include a $1,400 refundable child tax credit.
State and local taxes deduction — Under the new rules,individuals can deduct up to $10,000 ($5,000 for marriedtaxpayers filing separately) in state and local income or property taxes.

529 plans — 529 plans now allow for up to $10,000 in annual tax-free distributions per beneficiary (regardless of the number of contributing plans) for tuition at elementary and secondary schools, including religious or other private schools.

Alternative minimum tax (AMT) — For tax years starting Jan. 1, 2018, through Dec. 31, 2025, the AMT exemption amount has been increased to $109,400 for married filing jointly taxpayers, $54,700 for married filing separately taxpayers and $70,300 for other taxpayers. The exemption phases out if AGI exceeds $1 million for married taxpayers and $500,000 for all other taxpayers. The exemption will be indexed for inflation.

Mortgage interest deduction — The new law reduces the ceiling of acquisition indebtedness to $750,000, unless the indebtedness was incurred before Dec. 15, 2017, where the limitation is still $1 million. This reduced ceiling is in effect from Jan. 1, 2018, to Dec. 31, 2025.

Home equity interest deduction — The home equity loan interest deduction was repealed through Dec. 31, 2025. Home equity interest that qualifies as acquisition debt (secured by the principal residence and incurred in acquiring, constructing or substantially improving the home) and is less than the $750,000 limit noted previously would still be deductible.

Miscellaneous itemized deductions — The new law suspends all deductions that were subject to the 2% adjusted gross income (AGI) limitation (e.g., tax preparation fees, safe deposit box, etc.).
Pease limitations for high-income taxpayers who itemize their deductions — The phase-out also goes away through Dec. 31, 2025, under the new law.

Charitable contributions — The new law increases the income-based percentage limit for charitable contributions of cash to public charities to 60%.