Can You Guess Which Itemized Deductions and Credits Made the Cut?
Last December, accountants and taxpayers everywhere got a chance to unwrap the comprehensive and, at times, overwhelming new tax bill — the Tax Cuts and Jobs Act. A lot was packed inside, including changes to several itemized deductions as well as some tax credits, and almost all of the individual income tax changes expire at the end of 2025. We also got a higher standard deduction (for 2018, $12,000 for individuals; $18,000 for heads of household; and $24,000 for married couples filing jointly); however, the benefit of the increased standard deduction may, for some taxpayers, be partially or totally offset by the repeal of the personal exemption. Take a look at what did and didn’t make the cut for 2018, then ask your adviser and accountant if you would be able to itemize next year.
Say goodbye. In the past, taxpayers were generally allowed to reduce their taxable income by $4,050 per person, but no more.
Still deductible … once out-of-pocket medical expenses exceed 7.5 percent of your adjusted gross income. That threshold will increase to 10 percent in 2019 (except for taxpayers age 65 and older for whom the 7.5 percent floor will remain intact), so it may make sense to move up any known deductible medical expenses to this year. Also, it eliminates the tax penalty for not having health insurance (starting in 2019).
Unreimbursed Job Costs
Say goodbye — at least until 2026, barring any changes. These job-related moving expenses and certain other job costs are no longer deductible unless you are an active duty military family.
Credit for Dependents
Still applies … and the Child Tax Credit has been doubled to $2,000. In addition, the new law allows for a $500 credit for other types of dependents.
State and Local Taxes
Still deductible, but … capped at $10,000 for most individuals. In the past, it was generally unlimited.
Large Charitable Donations
Still deductible … and the limit for cash contributions has been raised to 60 percent of adjusted gross income. Remember that this only helps if all your itemized deductions exceed the new, higher standard deduction.
Mortgage Interest Payments
Still deductible, but … only on loans up to $750,000 that were opened after Dec. 15, 2017. Prior loans are capped at $1 million.
Say goodbye. No longer deductible by the payer spouse or taxable to the payee spouse for agreements inked after 2018. You may want to include a provision that the divorce agreement must be renegotiated if the tax law changes again.
Interest on Home Equity Loans/Lines of Credit
Still deductible, but … the loan must be used to “buy, build or substantially improve” the home that secured the loan. Otherwise, no.
Sources: forbes.com; nytimes.com; turbotax.com; Raymond James research. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While familiar with the tax provisions of the issues presented herein, Raymond James financial advisors are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.
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