2017 federal income tax update

2017 Federal Tax Update. Part 1 – Individuals

The Internal Revenue Service has recently released Rev. Proc. 2016-55 which is setting forth the cost-of-living adjustments in effect for 2017 tax year. We have compiled the most common individual income tax provisions and contrasted them to the 2016 limits enumerated in Rev. Proc. 2015-53.

Notably, the 2017 personal exemption remains unchanged at $4,050. However, the 2017 standard deduction increases for all filing statuses. The additional standard deduction for old age or blindness remains at $1,550 for unmarried and $1,250 for married taxpayers. The maximum $1,050 standard deduction for dependents applies to both 2016 and 2017 tax years.

Tax ProvisionI.R.C §2016 Tax Year2017 Tax YearNotes
Personal Exemption§ 151(d)$4,050$4,050No change
Standard Deduction –Single/MFS§ 63(c)(2)$6,300$6,350Increase
Standard Deduction- MFJ§ 63(c)(2)$12,600$12,700Increase
Standard Deduction- HH§ 63(c)(2)$9,300$9,350Increase
Additional Standard Deduction§ 63(f)$1,250/$1,550$1,250/$1,550Old Age/Blindness
Standard Deduction for dependents§ 63(c)(5)$1,050$1,050Maximum amount

Most “above-the-line” deductions allowed to arrive at adjusted gross income receive no boost in 2017. However, the dollar limitations used to compute benefits and contributions under the various qualified retirement plans were indexed for inflation. Expect a breakdown of all dollar limitations in Part 3 of the update.

Tax ProvisionI.R.C §2016 Tax Year2017 Tax YearNotes
Qualified Educator Expenses§ 62(a)(2)(D)$250$250No change
IRA contribution limit§ 63(c)(2)$5,500$5,500No change
Catch-up IRA contributions § 63(c)(2)$1,000$1,000No change
Student Loan Interest Deduction§ 221$2,500$2,500No change
Tuition & Fees Deduction§ 222$4,000$4,000Maximum amount
Health Savings Account (HSA)§ 223$3,350 / $6,750$3,350 / $6,750Single / Family coverage

Section 101 of the PATH Act of 2015 made permanent the earned income threshold of $3,000, which is used to compute the refundable portion of the Child Tax Credit. The enhanced American Opportunity Tax Credit was made permanent under Section 102 of the PATH Act of 2015. The Adoption Tax Credit and the maximum Earned Income Tax Credit were indexed for inflation.

Tax ProvisionI.R.C §2016 Tax Year2017 Tax YearNotes
Adoption Credit§ 23(a)(3)$13,460$13,570Increase
Child Tax Credit§ 24(d)(1)(B)(i)$3,000$3,000Made permanent 
American Opportunity Credit (Hope Credit)§ 25A(b)(1)$2,050$2,050Made permanent 
Lifetime Learning Credit§ 25A(c)(1)$2,000$2,000Maximum credit allowable
Earned Income Credit§ 32(b)(3)(B)(i)$6,269$6,318Maximum credit allowable

Some of the tax provisions that relate to expatriates and Americans abroad also increase. Traditionally, the 2017 Foreign Earned Income Exclusion (FEIE) was indexed for inflation. The Foreign Housing Exclusion is a fixed percentage of the FEIE and is further on revised annually for high-cost locations.

Tax ProvisionI.R.C §2016 Tax Year2017 Tax YearNotes
Foreign Earned Income Exclusion (FEIE)§ 911(b) $101,300$102,100Increase
Foreign Housing Exclusion (FHE)§ 911(c)$16,208$16,33616% of FEIE; varies per location

Finally, the permanent expatriation thresholds applicable to citizens and long-term permanent residents who renounce citizenship or abandon residency have also changed. The increase applies to the average net income tax used to determine when a taxpayer is a "covered expatriate" and the taxable income exemption under Section 877A.

Tax ProvisionI.R.C §2016 Tax Year2017 Tax YearNotes
Average annual net income tax § 877(a)(2)(A)$161,000$162,000Covered expatriate status
Covered expatriate taxable income exclusion§ 877A(a)(1)$693,000$699,000Increase