The recent Tax Cuts and Jobs Act threatened to remove some important provisions for persons with disabilities from the law.  However, two important provisions were kept after the tough negotiations over the Republicans’ overhaul of the tax code.

Medical Expense Deduction

The deduction that allows people with very high medical costs to shrink their taxable income by subtracting some out-of-pocket medical expenses was at risk during the congressional debate last fall.  Some lawmakers wanted to repeal it, but people with serious illnesses or who need long-term care said that eliminating the tax break would be a serious financial blow.  Congress has come around to their way of thinking, at least for now. The tax bill passed last month preserves and expands it.
Under the new law, people whose unreimbursed medical expenses exceed 7.5 percent of their adjusted gross income can claim a deduction for those expenses in 2017 and 2018.  Then it is scheduled to revert to 10 percent for everyone, said Tara Straw, a senior policy analyst at the Center on Budget and Policy Priorities, a nonpartisan research institute in Washington, D.C.
That’s a lower threshold than current rules, which had required that people’s medical expenses exceed 10 percent of their income to take the deduction in 2017 if they’re younger than 65.  For people 65 or older, the threshold already was set at 7.5 percent.
Yet even at the lower threshold, relatively few people can take the deduction because their medical expenses aren’t high enough, Straw said.  To start with, health insurance premiums for employer-sponsored coverage that many people pay for with pretax dollars generally don’t qualify, she said.  “For many people, their premium is their biggest medical expense, and for most people, it can’t be deducted as a medical expense.”
In 2015, roughly 8.8 million taxpayers took the medical expense deduction, according to the Internal Revenue Service.

Qualified Disability Trust

Previous tax law allowed a person to create an irrevocable trust for the benefit of a person with a disability and, on the tax return, designate it as a “qualified disability trust” (QDT).  Whereas most irrevocable trusts must pay taxes as a separate taxpayer and at higher rates than individuals, a QDT is allowed to take a personal exemption against the trust income.  Prior to the new tax law, the personal exemption was $4,050.
The new tax law eliminated the personal exemption for taxpayers, while increasing the standard deduction to $24,000.  Without the personal exemption, there was great concern among disability planners that there would no longer be a qualified disability trust.  However, the final bill contained a provision stating that for any year when there is no personal exemption, the amount of $4,150 in 2018 (indexed for inflation in following years) shall be considered as the exemption to be taken by the QDT.  This preserves the opportunity to use the QDT as a planning technique to provide financial security for a person with a disability in a tax-efficient way.
With over 33 years of experience, Courtney Elder Law Associates are ready to help you and your loved ones. Our Mississippi special needs attorneys are here to guide you through this difficult process and ensure as much success as possible for your case.