Some deductions may be smaller (or nonexistent) when you file your 2018 tax return
The Tax Cuts and Jobs Act (TCJA) reduces most income tax rates and expands some tax breaks. It also limits or eliminates several itemized deductions that have been valuable to many individual taxpayers.
Here are five you may see shrink or disappear:
State and local taxes (SALT)
For 2018 through 2025, your total itemized deduction for all SALT taxes combined is limited to $10,000. (This includes property tax) If you’re married and filing separately your total is $5,000. You still must choose between deducting income and sales tax; you can’t deduct both, even if your total state and local tax deduction wouldn’t exceed $10,000.
Mortgage interest
You generally can claim interest on mortgage debt incurred to purchase, build or improve your principal residence and a second residence. Points paid related to your principal residence also may be deductible. For 2018 through 2025, the TCJA reduces the mortgage debt limit from $1 million to $750,000 for debt incurred after Dec. 15, 2017. (with some limited exceptions).
Home equity debt interest
Before the TCJA an Itemized deduction could be claimed for interest on up to $100,000 of home equity debt used for any purpose. Such as to pay off credit cards (for which interest isn’t deductible). The TCJA effectively limits the home equity interest deduction for 2018 through 2025 to debt that would qualify for the home mortgage interest deduction.
Miscellaneous itemized deductions subject to the 2% floor
For 2018 through 2025 the deduction for expenses such as certain professional fees, investment expenses, and unreimbursed employee business expenses is suspended. This includes the home office deduction If you’re an employee that works from home. Business owners and the self-employed may still be able to claim a home office deduction.
Personal casualty and theft loss
For 2018 through 2025, this deduction is suspended unless the loss was due to an event officially declared a disaster by the President.
Be aware that additional rules and limits apply. Remember the TCJA nearly doubles the standard deduction. A larger standard deduction means you might be better off taking the standard deduction when you file your 2018 return. Have questions? Contact the tax experts at Ciuni & Panichi here.
You may also be interested in:
Develop Your Succession Plan Now
Financial statements tell your business’s story, inside and out
© 2019