Possible U.S. tax changes for snowbirds

Republicans have taken control of the U.S. Senate, so the GOP now has both houses of Congress. And the majority of U.S. states are now led by Republican governors. These changes could give stalled legislation a boost.

For advisors, two key areas of interest are immigration and tax reform.

Proposed legislation on immigration that previously made it through the House but not the Senate includes provisions on the so-called snowbird visa; the GOP majority could give it new life. See what I’ve written about it here.

Read: U.S. midterm results could bring cross-border tax changes

Another development to watch: three senators are pushing to prevent those who renounce U.S. citizenship from re-entering the U.S.

On the U.S. income tax front, it’s unlikely the election results will spark reform for individual taxpayers. It’s more likely we’ll see steps to curb corporate tax avoidance measures.

But there’s still plenty going on. At the end of October the IRS, in Revenue Procedure 2014-61, announced their inflation adjustments for more than 40 tax provisions. This included income, gift, estate and expatriation tax provisions.

Most important to advisors are the following:

• The 39.6% tax rate affects singles whose income exceeds $413,200, or $464,850 for married taxpayers filing a joint return. That’s up from $406,750 and $457,600, respectively. The other marginal rates—10%, 15%, 25%, 28%, 33% and 35%—and the related income-tax thresholds are described in the revenue procedure.
• Standard deduction rises to $6,300 for singles and married persons filing separate returns, and $12,600 for married couples filing jointly, up from $6,200 and $12,400, respectively, for tax year 2014. The standard deduction for heads of household rises to $9,250, up from $9,100.
• Limitation for itemized deductions to be claimed on individual 2015 tax year returns begins with incomes of $258,250 or more ($309,900 for married couples filing jointly).

Read: Details on Ottawa’s new income-splitting breaks

• Personal exemption for tax year 2015 rises to $4,000, up from the 2014 exemption of $3,950. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $258,250 ($309,900 for married couples filing jointly). It phases out completely at $380,750 ($432,400 for married couples filing jointly.)
• Alternative Minimum Tax exemption amount for tax year 2015 is $53,600 ($83,400, for married couples filing jointly). The 2014 exemption amount was $52,800 ($82,100 for married couples filing jointly).
• The 2015 maximum Earned Income Credit amount is $6,242 for taxpayers filing jointly and who have three or more qualifying children, up from a total of $6,143 for tax year 2014. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.
• Estates of people who die during 2015 have a basic exclusion amount of $5,430,000, up from a total of $5,340,000 in 2014.
• For 2015, the exclusion from tax on a gift to a spouse who is not a U.S. citizen is $147,000, up from $145,000 for 2014.
• For 2015, the foreign earned income exclusion breaks the six-figure mark, rising to $100,800 from $99,200 for 2014.
• The annual exclusion for gifts remains at $14,000.
• The annual exclusion for gifts to a spouse who is not a U.S. citizen is now $147,000.
• Expatriation to avoid tax now for mark-to-mark tax exemption purposes has a capital gain exemption threshold of $690,000.

Read: 4 tax tips for clients who own U.S. property

Terry F. Ritchie, EA, RFP, TEP is Director of Cross-Border Wealth Services at Cardinal Point Capital.