Test Bank for Supplement to Taxation for Decision Makers, 2018 Edition by Shirley Dennis-Escoffier & Karen A. Fortin | Complete Chapter-by-Chapter Practice Questions, Verified Answers & Instructor Resource (2026–2027)

SUPPLEMENTTO n




TAXATIONFOR DECISION MAKERS, 2018 EDITION n n n n n




Shirley Dennis-Escoffier and Karen A. Fortin n n n n n




Changes introduced by the Tax Cuts and Jobs Act of 2017 n n n n n n n n n n




INTRODUCTION
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (TCJA) that represents
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the most comprehensive changes to the tax law in over 30 years. TCJA impacts all taxpayers by eliminating
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or changing many long-standing rules and adding new provisions. While Congress made most corporate
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changes permanent, the changes to the individual rates and deductions are temporary to comply with
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budget rules under reconciliation. As a result, most individual changes are effective for tax years beginning
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after December 31, 2017 and before January 1, 2026; effectively suspending existing law with the 2017 rules
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reinstated in 2026.
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This supplement updates the text for these revisions as well as other important changes since publication.
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Changes made retroactively affecting 2017 tax returns are discussed first; then changes affecting future
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years are highlighted in the next section of this supplement. These changes are keyed to the 2018 edition by
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chapter and section number.
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RETROACTIVE CHANGES n




Chapter Section Brief Description of Change n n n




5 5.4.1 The minimum amount of unreimbursed medical expenses that are not deductible
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5.7.2 is reduced from 10% to 7.5% of AGI for 2017 and 2018 for all taxpayers (regardless
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of age) for regular income tax and for the alternative
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minimum tax (AMT). The 10% threshold is reinstated in 2019 for regular tax and n n n n n n n n n n n n n




AMT.
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5 &9n n 5.4.5 The $100 floor for casualty losses from disasters in 2016 or 2017 is raised to
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9.3.1 $500 per casualty and the 10%-of-AGI threshold does not apply. Taxpayers who
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do not itemize can increase their standard deduction by the net disaster
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loss for these two years. n n n n




7 7.3.2 Bonus Depreciation is increased from 50 percent to 100 percent for purchases after
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September 27, 2017. A more detailed discussion of this provision with an
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example follows. n




Retroactive Change to Bonus Depreciation n n n n




Prior to the passage of the Tax Cuts and Jobs Act, bonus depreciation only applied to new (not
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used) property at a 50% rate. TCJA temporarily increased bonus depreciation to 100% for assets acquired
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after September 27, 2017 and extended it to used property. The 100% rate will begin to phase out after
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2022 and expire at the end of 2026.
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, Supplement to Taxation for Decision Makers, 2018 Edition n n n n n n n




Property previously used by an unrelated taxpayer may qualify for bonus depreciation if n n n n n n n n n n n n




purchased and placed in service after September 27, 2017 and the taxpayer had not used the property at
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any time before acquisition. Additionally, the property’s basis cannot be determined by reference to the
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adjusted basis of the taxpayer from whom it was acquired (carryover basis transactions).
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If there was a written binding contract to acquire property in effect prior to September 28, 2017,
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the property is deemed acquired the date the contract was entered into and is not eligible for the 100%
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bonus depreciation rate. Instead, the 50% bonus rate applies with only new property eligible. If the
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purchase of the property is completed before September 28, 2017 but it is not placed in service until 2018,
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the bonus depreciation rate is 40%; if placed in service in 2019, the bonus rate is only 30%.
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Bonus depreciation applies only to tangible personalty, software, and certain improvements. Any
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basis remaining after the reduction for the bonus depreciation is deducted is subject to regular MACRS
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depreciation. Realty and other assets with recovery periods greater than 20 years are not eligible for bonus
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depreciation. Bonus depreciation is not limited to small businesses, however; there is no phase-out
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provision (or taxable income limitation), unlike Section 179 expensing.
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When electing Section 179 expensing, the expensed amount is deducted first before computing
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bonus depreciation; thus, bonus depreciation is sandwiched between the Section 179 expensing and
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regular MACRS depreciation deductions.
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Example: On September 1, 2017, Molokai Corporation, a calendar-year corporation, purchased
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$1,810,000 of 5-year equipment and expensed $510,000 under Section 179. If this was used
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equipment, the maximum allowable first-year depreciation is $770,000: $510,000 Section 179
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expensing and $260,000 *($1,810,000 − $510,000) × 20%+ regular MACRS depreciation. Its
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second-year depreciation is $416,000 *($1,810,000 − $510,000) × 32%+.
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If Molokai had purchased new equipment, its maximum allowable depreciation expense
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deduction for 2017 is $1,290,000, consisting of $510,000 Section 179 expense, $650,000
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[($1,810,000 − $510,000) × 50%+ bonus depreciation and $130,000 *($1,810,000 − $510,000 −
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$650,000) × 20%] regular MACRS depreciation. Its 2018 depreciation deduction would be
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$208,000 *($1,810,000 − $510,000 − $650,000) × 32%+. n n n n n n n




If Molokai had instead purchased the equipment after September 27, 2017, it could
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deduct the entire $1,810,000 in the first year using the new 100% bonus depreciation.
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HIGHLIGHTS OF CHANGES AFFECTING 2018 TAX YEARS AND LATER n n n n n n n n




The following changes are effective beginning with 2018 tax years (affecting tax returns filed in 2019) or
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later. The details on these changes will be incorporated in the new 2019 edition of Taxation for Decision
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Makers available in July 2018. Highlights are provided here for instructors who want to address these
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changes in their current classes.
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Chapter Section Brief Description of Change n n n




1 &4 n n 1.1.4
4.1.1
1 & 12 n n 1.1.6 The estate and gift tax exemption is doubled and after its 2018 inflation
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12.1.3 adjustment is expected to be $11,200,000 million ($22,400,000 for a
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married couple). n




1 & 12 n n 1.1.6 The 2018 gift tax exclusion, as adjusted for inflation, increases from
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12.1.3 $14,000 to $15,000. n n




2