Tax reform: The Tax Cuts and Jobs Act passes

Authored by Patrick Balthazor, Paul Dillon, Michelle Hobbs and Mike Schiavo

Congress has passed the Tax Cuts and Jobs Act (officially known as "an Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018") and sent it to the president for his signature. This is the most significant tax legislation to be enacted since 1986. The Act dramatically reduces the corporate income tax rate to 21 percent, transitions the U.S. to a territorial tax system, provides for a one-time repatriation of foreign earnings and makes extensive changes to individual taxation rules. Most individual changes will expire after 2025.

While the Act will simplify taxes for many Americans, most businesses will find the computation of taxable income even more complex than in the past. Limitations on the deductibility of business interest, special deductions for businesses conducted via pass-through entities, and changes to the rules on expensing and depreciating asset purchases will each complicate this process.

This is the first in a series of communications addressing tax reform that we will publish over the coming weeks. What follows is a high-level outline of the major domestic provisions included in the Act. A separate communication will be forthcoming to address changes to international taxation and the move to a territorial system.

Business provisions

Corporate rate. The Act provides for a flat 21 percent corporate rate, rather than the originally proposed 20 percent rate. There is no separate rate for personal service corporations. The 21 percent rate becomes effective for tax years beginning after Dec. 31, 2017.

Corporate AMT. The corporate AMT is repealed. Prior-year minimum tax credits may offset a taxpayer’s regular tax liability for tax years beginning after 2017, subject to a formula.

Business income deduction for pass-through business entities. The Act provides for a 20 percent deduction for domestic qualified business income from a partnership, S corporation or sole proprietorship. The deduction does not apply to specified service businesses, except in the case of a taxpayer whose taxable income is below the threshold amount. Under the conference agreement, the threshold amount is $157,500 (twice that amount or $315,000 in the case of a joint return). The conferees expect the reduced threshold amount will serve to deter high-income taxpayers from attempting to convert wages or other compensation for personal services to income eligible for the 20 percent deduction under the provision. The conference agreement provides that the range over which the phase-in of these limitations applies is $50,000 ($100,000 in the case of a joint return).

A specified service trade or business means any trade or business involving the performance of services in the fields of health, law, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners, or which involves the performance of services that consist of investing and investment management trading, or dealing in securities, partnership interests or commodities.

The final version of the legislation modifies the wage limit applicable to taxpayers with taxable income above the threshold amount to provide a limit based either on wages paid or on wages paid plus a capital element. Under the conference agreement, the limitation is the greater of:

  1. 50 percent of the W-2 wages paid with respect to the qualified trade or business, or
  2. The sum of 25 percent of the W-2 wages with respect to the qualified trade or business plus 2.5 percent of the unadjusted basis, immediately after acquisition, of all qualified property.

For example, a taxpayer (who is subject to the limit) does business as a sole proprietorship conducting a widget-making business. The business buys a widget-making machine for $100,000 and places it in service in 2020. The business has no employees in 2020. The limitation in 2020 is the greater of (a) 50 percent of W-2 wages, or $0, or (b) the sum of 25 percent of W-2 wages ($0) plus 2.5 percent of the unadjusted basis of the machine immediately after its acquisition: $100,000 x .025 = $2,500. The amount of the limitation on the taxpayer’s deduction is $2,500.

The Treasury Department is expected to issue guidance in regard to the acquisition of property from related parties as well as other guidance around the capital component rule.

The conference agreement clarifies that the 20 percent deduction is not allowed in computing adjusted gross income and instead is allowed as a deduction reducing taxable income. For example, the provision does not affect limitations based on adjusted gross income. Similarly, the conference agreement clarifies that the deduction is available to both non-itemizers and itemizers.

The conference agreement provides that trusts and estates are eligible for the 20 percent deduction under the provision. Rules similar to those under present-law section 199 apply for apportioning between fiduciaries and beneficiaries any W-2 wages and unadjusted basis of qualified property under the limitation based on W-2 wages and capital.

Qualified REIT dividends, cooperative dividends and publicly traded partnership income are all eligible for this deduction. However, qualified REIT dividends do not include any portion of a dividend received from a REIT that is a capital gain dividend or a qualified dividend.

Full expensing of certain assets. Businesses would be able to fully expense qualified property (tangible personal property with a recovery period of 20 years or less) acquired after Sept. 27, 2017, and before Jan. 1, 2023. This provision is applicable for the acquisition of new and used property. The inclusion of used property is a significant change from previous bonus depreciation rules.

Under the conference agreement, the bonus depreciation rates are as follows.

Placed-in-service yearBonus depreciation percentage

Qualified property in general/specified plants

Longer production period property and certain aircraft
Portion of basis of qualified property acquired before Sept. 28, 2017, but placed in service after Sept. 27, 2017
Sept. 28, 2017 − Dec. 31, 201750 percent50 percent
201840 percent50 percent
201930 percent40 percent
2020None30 percent
2021 and thereafterNoneNone
Portion of basis of qualified property acquired and placed in service after Sept. 27, 2017
Sept. 28, 2017 − Dec. 31, 2022100 percent100 percent
202380 percent100 percent
202460 percent80 percent
202540 percent60 percent
202620 percent40 percent
2027None20 percent
2028 and thereafterNoneNone

A transition rule provides that, for a taxpayer’s first taxable year ending after Sept. 27, 2017, the taxpayer may elect to apply a 50 percent allowance instead of the 100 percent allowance.

For passenger automobiles placed in service after Dec. 31, 2017, and for which the additional first-year depreciation deduction under section 168(k) is not claimed, the maximum amount of allowable depreciation is $10,000 for the year in which the vehicle is placed in service, $16,000 for the second year, $9,600 for the third year, and $5,760 for the fourth and later years in the recovery period. The limitations are indexed for inflation for passenger automobiles placed in service after 2018. The provision removes computer or peripheral equipment from the definition of listed property. Such property is therefore not subject to the heightened substantiation requirements that apply to listed property.

Section 179 expensing. The Act increases the maximum amount a taxpayer may expense under section 179 to $1 million and increases the phase-out threshold amount to $2.5 million. The $1 million limitation is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $2.5 million. The $1 million and $2.5 million amounts, as well as the $25,000 sport utility vehicle limitation, are indexed for inflation for taxable years beginning after 2018.

The Act also expands the definition of qualified real property eligible for section 179 expensing to include any of the following improvements to nonresidential real property placed in service after the date such property was first placed in service: roofs; heating, ventilation and air-conditioning property; fire protection and alarm systems; and security systems.

Business interest. Interest deductions for every business, regardless of entity form, would be subject to disallowance of net interest expense in excess of 30 percent of the business’s adjusted taxable income. Adjusted taxable income is a business’s taxable income computed without regard to business interest expense, business interest income, net operating losses, and depreciation, amortization and depletion.

For pass-through entities, the disallowance would be determined at the entity level rather than the partner or shareholder level.

This rule will not apply to:

  1. small businesses with average gross receipts of less than $25 million,
  2. real property trades or businesses,
  3. businesses using “floor plan financing,” such as auto dealers and some retailers, and
  4. certain regulated public utilities or electric cooperatives.

Disallowed interest expense deductions can be carried forward indefinitely (subject to section 382 limitations if applicable), but partnerships have certain restrictions.

Businesses that use “floor plan financing,” such as auto dealers and some retailers, have additional exceptions. Further, real property trades or businesses can elect out of this limitation; however, the trade-off is a longer depreciation period for real property (i.e., alternative depreciation system (ADS)) and no bonus depreciation for qualified improvement property.

NOL limitations. Net operating loss (NOL) rules have been modified so taxpayers can now only deduct NOLs up to 80 percent of taxable income, and most taxpayers can no longer carry an NOL back two years. Instead of a 20-year carryforward limitation, taxpayers can carry suspended NOLs forward indefinitely.

Effective date. The provision allowing indefinite carryovers and modifying carrybacks applies to losses arising in taxable years beginning after Dec. 31, 2017. The provision limiting the NOL deduction applies to losses arising in taxable years beginning after Dec. 31, 2017.

Business losses of noncorporate taxpayers. The Act creates a new restriction for noncorporate taxpayers with “excess business losses.” For this purpose, excess business losses are the amount by which business deductions exceed gross business income. This provision would limit such losses to $500,000 for married filing jointly ($250,000 for others) per year with both amounts indexed for inflation. In other words, business losses cannot offset nonbusiness income by more than the allowed amounts in any taxable year. Any excess loss would be carried forward as a net operating loss carryforward in subsequent tax years. This is a significant restriction over current law.

Accounting methods. The Act provides several provisions reforming and simplifying accounting methods for small businesses.

  • Cash method of accounting. Under current law, a corporation or partnership with a corporate partner may only use the cash method of accounting if its average gross receipts do not exceed $5 million for all prior years (including the prior tax years of any predecessor of the entity). The Act increases to $25 million the $5 million threshold for corporations and partnerships with a corporate partner and repeals the requirement that such businesses satisfy the requirement for all prior years.
    Presently, farm corporations and farm partnerships with a corporate partner may only use the cash method of accounting if their gross receipts do not exceed $1 million in any year. An exception allows certain family farm corporations to qualify if its gross receipts do not exceed $25 million. The Act extends the increased $25 million threshold (above) to farm corporations and farm partnerships with a corporate partner as well as family farm corporations (the average gross receipts test would be indexed for inflation).
  • Accounting for inventories. The Act permits businesses with average gross receipts of $25 million or less to use the cash method of accounting even if the business has inventory. In contrast, the cash method currently can only be used for certain small businesses with average gross receipts of not more than $1 million (for businesses in certain industries that have annual gross receipts that do not exceed $10 million). Under the cash method, the business could account for inventory as non-incidental materials and supplies. The Act allows a business with inventories qualifying for and using the cash method to account for such inventories using the method of accounting reflected on its financial statements or its books and records.
  • Capitalization and inclusion of certain expenses in inventory costs. The Act fully exempts businesses with average gross receipts of $25 million or less from the uniform capitalization (UNICAP) rules. The UNICAP rules generally require certain direct and indirect costs associated with real or tangible personal property manufactured by a business to be included in either inventory or capitalized into the basis of such property. The Act’s exemption would apply to real and personal property acquired or manufactured by such business.
  • Accounting for long-term contracts. Under current law, an exception from the requirement to use the percentage-of-completion method (PCM) is provided for certain businesses with average annual gross receipts of $10 million or less in the preceding three years. The Act increases the $10 million average gross receipts exception to the PCM to $25 million, effective for tax years beginning after 2017. Businesses that meet the increased average gross receipts test would be allowed to use the completed-contract method (CCM) or any other permissible exempt contract method.

Deductibility of FDIC premiums. No deduction would be allowed for a certain percentage of premiums paid by banks for the FDIC for years after 2017. The deduction would be disallowed for taxpayers with consolidated assets of $50 billion or more and limited for small institutions. The applicable percentage is the ratio of the excess of total consolidated assets over $10 billion to $40 billion. For example, for a taxpayer with total consolidated assets of $20 billion, no deduction is allowed for 25 percent of FDIC premiums. The provision does not apply to taxpayers with total consolidated assets (as of the close of the taxable year) that do not exceed $10 billion.

Depreciation lives. The Act eliminates the separate definitions of qualified leasehold improvement, qualified restaurant and qualified retail improvement property, and provides a general 15-year recovery period for qualified improvement property with a 20-year ADS recovery period. For example, qualified improvement property placed in service after Dec. 31, 2017, is generally depreciable over 15 years using the straight-line method and half-year convention without regard to (1) whether the improvements are to property subject to a lease; (2) placed in service more than three years after the date the building was first placed in service; or (3) made to a restaurant building. Restaurant building property placed in service after Dec. 31, 2017, that does not meet the definition of qualified improvement property, is depreciable over 39 years as nonresidential real property, using the straight-line method and the midmonth convention.

The Act retains depreciable lives of 39 and 27.5 years for nonresidential and residential rental property, respectively. However, it reduces the alternative depreciation life for residential rental property to 30 years from 40 years for those taxpayers subject to ADS.

Business credits retained. The Act retains the following credits that earlier versions proposed to eliminate:

  • New Markets Tax Credit (NMTC)
  • Employer-provided child care credit
  • Work Opportunity Tax Credit

Like-kind exchanges are generally repealed after 2017; however, exchanges of real property can still qualify.

Amortization of research and experimental procedures. Amounts defined as specified research or experimental expenditures are required to be capitalized and amortized ratably over a five-year period, beginning with the midpoint of the taxable year in which the specified research or experimental expenditures were paid or incurred. Specified research or experimental expenditures attributable to research conducted outside of the United States are required to be capitalized and amortized ratably over a period of 15 years, beginning with the midpoint of the taxable year in which such expenditures were paid or incurred. Specified research or experimental expenditures subject to capitalization include expenditures for software development. The new law applies to amounts paid or incurred in tax years beginning after Dec. 31, 2021.

DPAD. The section 199 domestic production activities deduction is repealed.

Partnership provisions

Substantial built-in loss. The provision modifies the definition of a substantial built-in loss for purposes of section 743(d), affecting transfers of partnership interests. Under the provision, in addition to the present-law definition, a substantial built-in loss also exists if the transferee would be allocated a net loss in excess of $250,000 upon a hypothetical disposition by the partnership of all partnership’s assets in a fully taxable transaction for cash equal to the assets’ fair market value, immediately after the transfer of the partnership interest.

For example, a partnership with three taxable partners (partners A, B and C) has not made a section 754 election. The partnership has two assets, one of which, Asset X, has a built-in gain of $1 million, while the other asset, Asset Y, has a built-in loss of $900,000. Pursuant to the partnership agreement, any gain on sale or exchange of Asset X is specially allocated to partner A. The three partners share equally in all other partnership items, including in the built-in loss in Asset Y.

In this case, partner B and partner C each have a net built-in loss of $300,000 (one third of the loss attributable to Asset Y) allocable to his partnership interest. Nevertheless, the partnership does not have an overall built-in loss, but a net built-in gain of $100,000 ($1 million minus $900,000).

Partner C sells his partnership interest to D for $33,333. Under the provision, the test for a substantial built-in loss applies both at the partnership level and at the transferee partner level. If the partnership were to sell all its assets for cash at their fair market value immediately after the transfer to D, D would be allocated a loss of $300,000 (one third of the built-in loss of $900,000 in Asset Y). A substantial built-in loss exists under the partner-level test added by the provision, and the partnership adjusts the basis of its assets accordingly with respect to D.

Technical terminations. The Act repeals technical termination provisions under section 708(b)(1)(B). This provision applies to partnership taxable years beginning after Dec. 31, 2017.

Carried interests. In general, the receipt of a capital interest for services provided to a partnership (profits interest) results in taxable compensation to the recipient. However, a safe harbor rule allows that the receipt of a profits interest in exchange for services is not a taxable event if the holder is entitled to share only in gains and profits generated after the date of issuance (and certain other requirements are met).

Hedge fund managers are often the recipients of a type of profits interest known as a carried interest. The carried interest is often received in exchange for managing the fund’s assets. Under pre-Act law, carried interests were taxed at long-term capital gains rates provided that they were held for at least one year. The conference agreement provides that long-term capital gains from carried interests held less than three years will be treated as short-term capital gains (i.e., taxed at ordinary rates).

The new rules apply to applicable partnership interests held or received in connection with the performance of services in any “applicable trade or business.” An applicable trade or business means any activity that consists in whole or in part of the following: (1) raising or returning capital, and either (2a) investing in (or disposing of) “specified assets” (or identifying specified assets for investing or disposition) or (2b) developing specified assets. Specified assets means securities, commodities, real estate held for rental or investment, cash or cash equivalents, options or derivative contracts with respect to such securities, commodities, real estate, cash or cash equivalents as well as an interest in a partnership to the extent of the partnership’s proportionate interest in the foregoing.

Repatriation and international provisions

International provisions will be addressed in a subsequent tax alert along with additional details on repatriation. Regarding repatriation, the conference committee report provides the following overview:

The repatriation tax will be imposed by amending section 965 to increase the Subpart F income for certain foreign corporations for the last tax year that begins before 2018. The repatriation tax will be based on the undistributed, non-previously taxed post-1986 foreign earnings and profits, based on the higher of E&P as of Nov. 2, 2017, or Dec. 31, 2017 (the use of fixed measurement dates is intended to prevent the reductions of E&P prior to enactment). The repatriation tax will also be based on E&P considered cash or cash equivalents, and remaining E&P. Further, Treasury can be expected to issue guidance to prevent the manipulation of the cash component of E&P.

The Act sets a tax rate for repatriation at 15.5 percent for earnings held as cash and 8 percent for other earnings. The IRS and Treasury Department are expected to issue guidance to prevent the manipulation of the cash component of E&P.

Individual provisions

Tax rates. The top tax bracket for individuals will be 37 percent, which kicks in at $600,000 for married filing joint taxpayers and $500,000 for single filers. These brackets sunset for tax years beginning after Dec. 31, 2025. Expect practitioner guidance from Treasury on determining head of household status. The 3.8 percent net investment income tax and the 0.9 percent additional Medicare tax are still intact using their historical thresholds. New income tax brackets include the following ranges:

Married individuals filing joint returns and surviving spouses

Not over $19,050, 10 percent of the taxable income
Over $19,050 but not over $77,400, $1,905 plus 12 percent of the excess over $19,050
Over $77,400 but not over $165,000, $8,907 plus 22 percent of the excess over $77,400
Over $165,000 but not over $315,000, $28,179 plus 24 percent of the excess over $165,000
Over $315,000 but not over $400,000, $64,179 plus 32 percent of the excess over $315,000
Over $400,000 but not over $600,000, $91,379 plus 35 percent of the excess over $400,000
Over $600,000, $161,379 plus 37 percent of the excess over $600,000

Single individuals

Not over $9,525, 10 percent of the taxable income
Over $9,525 but not over $38,700, $952.50 plus 12 percent of the excess over $9,525
Over $38,700 but not over $82,500, $4,453.50 plus 22 percent of the excess over $38,700
Over $82,500 but not over $157,500, $14,089.50 plus 24 percent of the excess over $82,500
Over $157,500 but not over $200,000, $32,089.50 plus 32 percent of the excess over $157,500
Over $200,000 but not over $500,000, $45,689.50 plus 35 percent of the excess over $200,000
Over $500,000, $150,689.50 plus 37 percent of the excess over $500,000

Individual AMT. The Act temporarily increases both the exemption amount and the exemption phase-out thresholds for the individual AMT. Under the provision, for taxable years beginning after Dec. 31, 2017, and before Jan. 1, 2026, the AMT exemption amount is increased to $109,400 for married taxpayers filing a joint return (half this amount for married taxpayers filing a separate return) and $70,300 for all other taxpayers (other than estates and trusts). The phase-out thresholds are increased to $1 million for married taxpayers filing a joint return and $500,000 for all other taxpayers (other than estates and trusts). These amounts are indexed for inflation.

State and local taxes. The Act limits the combined individual deduction for state and local income taxes, as well as real estate and sales taxes, to an annual cap of $10,000. The last-minute inclusion of income taxes in this computation was a compromise to allow more individuals in high-taxed states to utilize the full $10,000 limitation.

Further, the conference committee report clarifies that taxpayers cannot prepay their 2018 state tax liabilities in order to avoid this limitation.

Mortgage interest. The Act maintains the mortgage interest deduction in its current form, but only for existing mortgages. It reduces the deduction for new mortgages to $750,000 from the current $1 million principal cap. For this purpose, a new mortgage is considered debt incurred after Dec. 15, 2017. Home equity interest is now disallowed, but the interest deduction for second homes is retained.

Refinanced debt would count as having been incurred when it was originally incurred to the extent that the amount is within the original amount.

In addition, the Act provides that a taxpayer who has entered into a binding written contract before Dec. 15, 2017, to close on the purchase of a principal residence before Jan. 1, 2018, and who purchases such residence before April 1, 2018, shall be considered to have incurred acquisition indebtedness prior to Dec. 15, 2017, under this provision. It is not clear from the legislative text why there is a three-month lag time between closing on the purchase (before Jan. 1, 2018) and purchasing the residence (before April 1, 2018). We are hopeful further guidance will be forthcoming.

Standard deduction and personal exemptions. The standard deduction would increase to $24,000 for joint filers (and surviving spouses) and $12,000 for individual filers; these amounts will be indexed for inflation for tax years after 2018. Single filers with at least one qualifying child would receive an $18,000 standard deduction. However, the Act repeals personal exemptions.

Charitable contributions. For contributions made in tax years beginning after 2017 and before 2026, the 50 percent limitation for contributions to public charities and certain private foundations is increased to 60 percent.

Alimony. Alimony payments would no longer be deductible by the payor or included in the income of the recipient. This repeal would apply to any divorce or separation decree executed after 2018 as well as any modification to an existing agreement made after 2018 if the modification expressly provides for this section to apply.

Expansion of child tax credit. Under the Act, the child tax credit would be increased to $2,000 per qualifying child (up from $1,000). The credit is further modified to temporarily provide for a $500 nonrefundable credit for qualifying dependents other than qualifying children. Under the conference agreement, the credit begins to phase out for taxpayers with adjusted gross income in excess of $400,000 (in the case of married taxpayers filing a joint return) and $200,000 (for all other taxpayers). The phase-out thresholds are not indexed for inflation.

Miscellaneous itemized deductions. The Act suspends all miscellaneous itemized deductions that are subject to the 2 percent floor under present law. The provision does not apply for taxable years beginning after Dec. 31, 2025.

Medical expense deduction. The Act provides that, for taxable years beginning after Dec. 31, 2016, and ending before Jan. 1, 2019, the threshold for deducting medical expenses shall be 7.5 percent for all taxpayers. For these years, this threshold applies for purposes of the AMT in addition to the regular tax.

Individual mandate. The individual shared responsibility payment, or individual mandate, under the Affordable Care Act is repealed for months beginning after 2018.

Estate and gift tax. The Act doubles the estate and gift tax exemption for estates of decedents dying and gifts made after Dec. 31, 2017, and before Jan. 1, 2026. This is accomplished by increasing the basic exclusion amount provided in section 2010(c)(3) of the Code to $10 million from $5 million. The $10 million amount is indexed for inflation occurring after 2011. As a conforming amendment to section 2010(g) (regarding computation of estate tax), the provision provides that the Treasury Secretary shall prescribe regulations as may be necessary or appropriate to carry out the purposes of the section with respect to differences between the basic exclusion amount in effect: (1) at the time of the decedent’s death and (2) at the time of any gifts made by the decedent. The provision is effective for estates of decedents dying and gifts made after Dec. 31, 2017.

Tax-exempt organizations

Excise tax on executive compensation. Compensation in excess of $1 million paid to covered employees will be subject to a 21 percent excise tax. This excise tax applies to all organizations exempt from tax under section 501(a), among others. Covered employees include those individuals that are among the five highest compensated employees of the organization or are considered a covered employee of the organization (or predecessor) for any preceding tax year beginning after Dec. 31, 2016.

Private foundation excise tax on investment income. The Act would set a 1.4 percent excise tax on the net investment income of private university and college endowments. The tax applies to schools with assets of more than $500,000 per tuition-paying student.

Planning for the remainder of 2017

With rate reductions going into effect in 2018, our advice for the balance of the year is to defer income and accelerate deductions whenever possible. Potential opportunities may include the following:

  • Is prepayment of 2018 state income taxes deductible? Many individuals are considering the prepayment of their 2018 state income taxes since the Act limits such deductions going forward. However, the conference agreement provides that “in the case of an amount paid in a taxable year beginning before January 1, 2018, with respect to a State or local income tax imposed for a taxable year beginning after December 31, 2017, the payment shall be treated as paid on the last day of the taxable year for which such tax is so imposed for purposes of applying the provision limiting the dollar amount of the deduction. Thus, under the provision, an individual may not claim an itemized deduction in 2017 on a pre-payment of income tax for a future taxable year in order to avoid the dollar limitation applicable for taxable years beginning after 2017.”
    In other words, Congress has effectively blocked such a prepayment strategy.
  • Fixed asset reviews. Consider cost segregation studies, repairs and maintenance expense reviews, bonus depreciation and section 179 expensing.
  • Incentive compensation/bonuses. Consider paying bonuses prior to year-end, modifying bonus plan documents or making a board resolution to fix the amount of bonuses that will be paid by 2.5 months after year-end (even if the fixed amount is less than the potential bonus amount).
  • Prepaid expenses. Review accounting methods for prepaid expenses and consider changing accounting methods to accelerate expenses.
  • Qualified plan contributions. Consider contributing the maximum allowable amount to a defined contribution pension plan by the earlier of the extended due date for the 2017 return or the filing of the 2017 return.
  • Undo a Roth conversion? The Act eliminates the ability to undo or “re-characterize” individual retirement account conversions. If you decided to move pre-tax IRA money to a post-tax Roth IRA account, you normally would have until Oct. 15 of the year following the conversion to undo the transaction. But that rule could be altered, meaning you should decide by the end of December if you want to change your mind. It may make sense to wait until next year if you will be in a lower tax bracket.

For related insights and in-depth analysis, see our tax reform resource center.

For more information on this topic, or to learn how Baker Tilly tax specialists can help, contact our team.


The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely.  The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.