Elimination of 2018 personal exemption

[kashmandu]

My 89-year-old mother is on medicaid, gets a pension from a state teacher retirement and a reduced social security benefit. All her pension and SS go to pay her assisted living costs, except for $50 a month. The loss of the "personal exemption" in 2018 has resulted in a $313 federal tax owed. Is there some other exemption/deduction she is eligible for?

[Carl]

In 2017 your mother got a $6,350 standard deduction, plus a self-exemption of $4,050, along with an additional $1.250 because she was over the age of 65. That was a total of $11,650 of her income that was not taxable on the 2017 tax return.

Now for 2018 there is no more dependent or self-exemption. She only gets the standard deduction. For 2018 the standard deduction is $12,000. So compared to 2017, that's an additional $350 of her income in 2018 that is not taxed. So my guess is that for 2018 her income increased quite a bit, or she didn't have enough itemized deductions in 2018 to decrease the tax liability.

Now I don't know if in your specific situation the assisted living costs qualify as a medical expense. But if they do, then be aware that the total of all medical expenses must exceed 7.5% of her AGI in order to be included on the SCH A.  That's lower than the 10% requirement for the 2017 taxes. I suspect either you did something wrong on her return, or it very well could be that things aren't being calculated correctly by the program because the IRS has not yet released all the 2018 forms you may require for that specific tax return.

[NCperson]

isn't the standard deduction $13,600 because she is over 65?

[kashmandu]

Hi Carl, thanks for the reply, but there is some information in your reply that has confused me. In 2017 (and also this year), I itemized deductions on her tax return so that I could take the greater amount of deductions; in other words, the standard deduct in 2017 may have been $6,350, but her itemized deduct was $31,000. I was under the impression that you cannot itemize AND take the standard deduction; hence, TT analyzes your deductions, compares it to the standard deduction, and recommends that you take the larger of the two amounts. My mother's income was basically the same in 2018 as it was in 2017. TT told me during the review of mom's return that the reason she owed taxes this year was because of the elimination of the "personal exemption" ($4,050). In 2017 she was able to take that $4,050 (plus her itemized deductions), which covered the shortfall between her itemized deductions and the taxes owed on her AGI; medicaid lets my mom keep $50 a month; the rest of her income goes to pay for her assisted living costs which qualify as a medical expense. As far as I know, I did not make any mistakes on this year's return. My question is: is anyone aware of any additional deductions/exemptions my mom might qualify for.

[NCperson]

that is a broad question. 

the tax law changes eliminated most all of the miscellaneous deductions, so basically, you are left with Medical deductions (over 7.5% of her AGI), donations, state and local taxes ("SALT'), which is limited to $10,000 this year.

What is Turbo Tax showing as her standard deduction....should be $13600 (if she is over 65); otherwise $12,000.

Was all $31,000 of last year's deduction all related to medical? the reason I ask is if a lot of it was SALT, then the deductions are limited this year and that is what could be driving higher taxes

Suggest comparing last years return to this years to see where the difference is occurring.  are you sure the difference is a function of the deductions? 

[kashmandu]

Hi, NC person and thanks for the reply. As I mentioned in my reply to "Carl" earlier, Turbo Tax does not "show" me what her standard deductions is because I am itemizing her deductions; Turbo Tax would only show the standard deduction if the itemized deductions did not exceed the standard deduction; it is my understanding that you cannot itemize AND then take the standard deduction; it's an either/or situation. Mom's income has remained basically the same for the last three years, and she has paid no federal taxes and no SALT. According to Turbo Tax, the reason she is paying federal taxes this year is because she (and every other tax payer) lost the "personal exemption" ($4,050) that the government allowed/gave in previous years. There is no need for me to compare last year's return to this year's; Turbo Tax does that automatically and shows me where the differences are; and this year it told me that the government eliminated the "personal exemption" this year. Mom is on Medicaid, living in a Medicaid apartment in an assisted living facility. Her entire pension and SS earnings, minus the $50/month that Medicaid lets her keep for person expenses, goes to pay her assisted living/medical costs. If I am incorrect in any of the assumptions I made above, please let me know. Basically, my question to the community is: Does anyone have an information about other deductions/exemptions that my mother might qualify for? 

[Carl]

Something to keep in mind too, is that the program is not complete and will not be complete until the IRS releases all the forms that you "may" need, in their electronic format. TurboTax can not include them in the program until the IRS releases them. I just don't see that happening until sometime after the shutdown ends. So depending on the complexity of the return you're dealing with, that could be a contributing issue, when combined with the fact that the SALT deductions are limited.

If you're using the desktop version of the program, you can switch to forms mode to see the actual forms and worksheets used by the program and just "follow the numbers" to see what's going on. Additionally, for any calculations where the forms are not yet released by the IRS, the calculation worksheets will usually have something like "Do not File" watermarked across them, or at the top of the form or worksheet.  Now if you're using the online version, then the forms mode just flat out is not an available option.

One thing you can do (with desktop or online) is in the search box enter "standard deduction" and click the find or search button. Then give it a minute, and when it appears click the "jump to" link. Work that through at that will at least allow you to see the itemized deductions you have entered in the program thus far and compare it to the standard deduction (also shown). It also allows you to "override" what the program selected, if you want or need to switch the deduction type.

Now you keep asking if their are other possible deductions. We really can't know mainly because until the program is complete, it's perfectly possible that due to programming limitations you're not even being offered that possibility. That's why you should wait until "at least" the end of Feb to actually file the return. I myself would not recommend e-filing the return until the middle of March.

[NCperson]

something just doesn't make sense.... let's assume the following:

- SS is $17,000 and $2,000 in part B-D medical expenses, so the net payments are $15,000-. Pension is $17,000

assisted living expenses (all tax deductible) are $31,000

which leaves around $1,000 in cash left over. 

therefore: SS is not taxable (but part B-D medical expenses are still deductible) and total medical expenses are $33,000

medical deduction is the part that exceeds 7.25% of the $17,000 or -$31,725 which leaves AGI at less than zero ($17000 - 31725) so no tax is due.

are you sure you have correctly loaded the income?

also, did you correctly load the SS as the medicare Part B-D expenses are also tax deductible , so important to list those expenses as well. 

I used the desktop version to confirm this.   if you want to provide the real SS and pension numbers I can run that through Desktop as well 

[kashmandu]

Hi Carl. Again, thanks for the reply. I am using the desktop version of TT. And I had planned on waiting/researching this issue, up until April 15th if necessary. I hope there is some relief on the horizon. As you suggested, I will go to the forms to see what is actually showing up there. Thanks again for your tips and recommendations.

[kashmandu]

Hello again NC person. Thanks for the reply. Mom's income/deduction figures are much different from the ones used in your reply to me. I have been through the Wages and Income/Deductions and Credits sections of my desktop Turbo Tax Deluxe program three times so far. Thanks for offering to do it again using the real numbers, but I don't believe that's necessary. I have used TT for the last 3 years to do mom's taxes; her income and deductions have remained relatively the same; the only difference that I can see in this year's taxes, is the elimination of the "personal exemption" ($4,050), which TT showed me at the conclusion of the Deductions and Credit sections. Thanks again for your efforts and suggestions.