Tah-dah! The tax bill is the law of the land. Lots of major changes, too many to go over, but I will select just a few income tax items worthy of note to those who live and play outside the United States. That’s Mexico, for us!
Obamacare individual mandate has been repealed. Many expats spent endless hours trying to figure if they qualified for the “expat” category that excluded them from obligatory Obamacare coverage. Good news: The penalty has been eliminated. Bad news: Not yet! The elimination takes effect on Dec. 31, 2018. For now, you either need coverage, qualify for an exemption, or pay a penalty for each month without coverage. Something tells me the current administration may not make collection of that specific penalty a priority, but it’s still on the books.
Home equity loans: After new year’s eve Dec. 31 2017, interest on these loans will no longer be deductible. This is bad news for those who would fund purchases of Mexico real property with a stateside home equity loan. Alas, you can still have deductible interest on a second home mortgage; some RVs and even boats qualify as “second homes”.
Deduction of foreign real property taxes: More bad news—unlike before, these can no longer be deducted by individuals, unless they are paid in connection with a trade or business, or in the course of production of income (think rental residential property).
Speaking of—I need to “triple verify” this but if you indulge me (subject to yet more verification): The 40-year period to depreciate foreign residential real property appears to have been reduced to 30 years (know anyone who owns much of it?). If this is correct, depreciation deduction is bigger and must be recomputed going forward.
Personal casualty/theft losses. Deductible only if they are in an area covered by a presidential disaster proclamation. Result? Mexico disaster or theft losses will no longer likely be deductible.
Just like I anticipated, there were no changes to FATCA or FBAR reporting obligations. Also, for those that work abroad, be grateful the Congress did not choose to limit either the Foreign Earned Income Exclusion or put caps in the Foreign Tax Credit for individuals.
People with higher incomes benefit right away from lower rates and many other provisions. Those that fly at lower altitudes will seem benefitted but over time, that will wear off, like new car smell. It’s all in the fine print. There is no postcard. Happy New Year!
Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the U.S. Tax Court and other taxing agencies. His love of things Mexican has led him to devote part of his practice to the federal and state tax matters of U.S. expats in Mexico. He can be reached at firstname.lastname@example.org or Facebook: GotayTaxLawyer.