Saying Goodbye: Tax Deductions That Vanished This Year
There are certain deductions that taxpayers can no longer claim. The Tax Cuts and Jobs Act of 2017 made significant changes to the individual income tax. Some may receive some pretty nice breaks, while others may lose some.
Let’s take a look at some of the deductions that will not be available to use when you file your 2018 return this year.
No Restrictions on Deductions for Home Equity Loan Interest
The tax law gets rid of the no-limit interest deduction for both existing and new home equity loans. Previously, Homeowners could deduct interest for loans utilized for any reason such as vacations or consolidating debt.
Currently, the interest on loans used to make home improvements are the only ones eligible for a deduction. Also, the total combines the amount of the home equity loan, and your first mortgage cannot go above $750,000 for married couples who file jointly.
Unreimbursed Employee Expense Deductions
Employees who had job-related unreimbursed purchases could deduct any amount above 2 percent of their adjusted gross income during the 2017 tax year. Currently, however, these workers won’t have that deduction useable on their 2018 tax return.
Personal exemptions have been eliminated. While an exemption is not technically a deduction, it meant taxpayers could discount $4,050 from their taxable income for every dependent they claimed on their return, so getting rid of it is a substantial loss for many families.
But on the flip side, this came with a substantial bump in the standard deductions. Previously, single taxpayers only qualified for a $6,350 standard deduction. That amount almost doubled in the 2018 tax year to $12,000 for individuals.
Couples who are married will get a standard deduction of $24,000 for 2018, which is an increase from $13,000 in 2017. Filers who are head of household will see a bump in their standard deduction from $9,550 to $18,000 for 2018.
The Unlimited Casualty Loss Deduction
For 2018, the only filers who can deduct casualty losses on their returns are those who live in designated disaster zones. One example of this deduction would be if your home is affected by fire but your homeowner’s insurance doesn’t cover all your costs; you can no longer write off the loss from your federal taxes.
Miscellaneous Itemized Deductions
Unreimbursed work expenses, such as union dues and work-related education, are one of many miscellaneous itemized deductions that have been disallowed under the new law. Other disappearing miscellaneous deductions include payments for tax preparation services, fees to fight the IRS, and hobby expenses.
However, there are a few items still deductible. For example, investment interest, the interest you pay on a loan to make an investment, still qualifies. Also, gambling losses remain deductible up to the amount of your winnings for that year.
No-Limit Local and State Tax Deductions
When you fill your forms out this year, deductions for local and state taxes, also known as SALT deductions, have a $10,000 cap. Additionally, you can’t forward nondeductible amounts to future years’ filings. This is one that will likely be missed by those living in expensive homes with hefty property taxes and high-income earners.
An Interest deduction of $1 Million on Your Mortgage
In states such as New York and California, with generally higher property values and property taxes, this one will be a bruiser. Last year, taxpayers who were married could deduct interest on a mortgage up to $1 million. For the 2018 tax year, however, they can only deduct interest on a mortgage valued up to $750,000.
Moving Expenses Deduction
The deduction for moving expenses related to relocation for a job has been eliminated for almost all workers. Military workers who are required to move, however, still maintain this deduction.
It’s always a good idea to review your current situation with your fiduciary financial advisor to see what tax strategies you can use to get the most from your financial plan.
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