This Is Your Last Chance to Get These Tax Deductions Before Donald Trump Kills Them
President Donald Trump’s Tax Cuts and Jobs Act is official as of December 22, 2017. The pushback from Democrats and Americans at large has made for headlines galore. Nevertheless, the Trump Administration’s tax reform made it through the House and Senate, officially becoming law.
The Tax Cuts and Jobs Act has reduced the corporate tax rate from 35 percent to 20 percent, ruffling feathers. Individual income tax rates have been lowered, and some deductions have been eliminated completely, while others have narrowed. The looming curiosity is how this new tax act will affect taxpayers. Here’s how President Trump’s new tax act will impact American taxpayers, beginning in 2018.
1. Mortgage interest deduction limits will drop by $250,000
After 2017, you will no deduct your home mortgage interest up to $1,000,000. As of the 2018 tax year, the limit on a home-owners’ acquisition indebtedness deduction will be $750,000. Keep in mind that if you go under contract for a home prior to December 15, 2017, and close before January 1, 2018, you still qualify for the $1,000,000 mortgage interest deduction for 2017.
Next: A new approach to home equity deductions
2. Home equity loan interest deductions will be scrapped starting in 2018
The home equity loan interest deduction is dead, which means that 2017 will be the last year to deduct interest you pay on your home equity loan (up to $100,000). Unfortunately, from at least 2018 through 2025, home equity loan interest deductions will be null and void.
Next: Taxpayers could take a hefty hit on this one.
3. State and local income tax deductions, as well as property tax deductions, are capped
As the 2017 deductions currently stand, taxpayers are able to deduct both state and local income taxes, as well as property taxes, and the sales taxes from federal returns, if they itemize. Beginning in the 2018 tax year, all of these combined deductions will be capped at $10,000. The change will likely hurt people in high-tax states like New York and California more than others, CNN reported.
Next: The term ‘casualty’ takes on a new meaning
4. Casualty losses
Casualty losses for the 2017 tax year still include a wide host of casualties such as car accidents, vandalism, and natural disasters. Therefore, taxpayers have experienced any casualty losses in 2017 will still be able to deduct any amount that insurance companies did not reimburse you minus $100 per loss. Furthermore, the losses must equal more than 10% of your adjusted gross income.
Moving forward to the 2018 tax year, taxpayers will only be able to deduct casualty losses for events the president of the U.S. declares to be a disaster.
Next: The high rollers may fold on this part of tax reform.
5. Gambling losses deductions will narrow in 2018
2017 will be the last tax year to deduct any losses associated with “expenses incurred in carrying out wagering transactions,” per the Nevada Independent. This broad realm of deductions will become much more narrow in 2018. Moving forward, only gambling losses can be deducted. If a taxpayer is itemizing, the loss deductions cannot exceed the number of winnings.
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6. Alimony deductions will no longer exist
With alimony deductions being completely scrapped for the payer, some taxpayers may be rethinking the terms of a divorce. Taxpayers paying alimony to a previous spouse should make sure to take advantage of any 2017 payment deductions. On the other hand, the payee receiving alimony will no longer have to pay any taxes associated with those payments. The change will apply to divorce that happen after December 31, 2018.
Next: Taxpayers can say goodbye to moving deductions
7. Moving expense deductions say buh-bye for most taxpayers
The new tax act ditches all moving expense deductions except for active duty and military forces. All other taxpayers will want to take advantage of the 2017 deductions that apply to moving expenses. Once the 2018 tax year commences, any costs associated with moving and storing home goods cannot be deducted.
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8. Bicycle commuters won’t be reimbursed any longer
Up until this recent tax reform, cyclists commuting back and forth to work were able to utilize the Bicycle Commuter Benefit. This benefit allowed commuters to take off $20 per month via an employer reimbursement. Under the new reform, this benefit ceases to exist.
Next: Is it time to rethink who is preparing your taxes?
9. Tax preparation fees can’t be deducted in 2018
After 2017, you’ll no longer be able to deduct the costs associated with preparing and filing taxes. Make sure to take advantage of this deduction when you file your 2017 taxes in April, because there will not be any chance of it reversing until 2025.
Next: Be sure to take advantage of this deduction.
10. Medical expenses threshold will increase in 2019
Finally, some good news for taxpayers. For the 2017 and 2018 tax year, medical expenses can be deducted as long as they exceed 7.5% of a taxpayer’s adjusted gross income. Currently, the threshold is 10%. But the benefit is only temporary. Moving forward, in 2019, that threshold will again increase to 10% of a taxpayer’s adjusted gross income.
Next: Personal exemptions understood
11. Personal exemptions will be eliminated
Under the new tax act, personal exemptions of $4,050 would be eliminated. Instead, the bill nearly doubles the standard deduction, from $6,350 for single to $12,000. The standard deduction for married couples will go from $12,000 to $24,000. That, combined with the elimination or reduction in other deductions, means few taxpayers will have an incentive to itemize, Money explained.
Next: Employees may want to keep an eye on expenses.
12. Unreimbursed employee expenses no longer deductible
Currently, you can deduct unreimbursed employee expenses that exceed 2% of your adjusted gross income. After 2017, this deduction will no longer exist. That means you’ll no longer be able to deduct the cost of things like uniforms you must pay for our of pocket or memberships to a professional association. As for 2017, taxpayers should take advantage of all unreimbursed employee expenses deductions.
Next: Bunching charitable contributions will likely be the ticket.
13. What’s going on with charitable contributions?
Since the new standard deduction for individuals has risen to $12,000 and $24,000 for married couples, some taxpayers may choose to opt out of charitable contributions. What is the primary reasoning for this? Taxpayers may not receive much in return when it comes to tax savings. These new increases in standard deductions are all the reason for taxpayers to consider doubling up on charitable contributions in 2017.
Next: This miscellaneous deduction change will have investors reeling.
14. Other miscellaneous deductions
A number of other miscellaneous itemized deductions will be disappearing in 2018. Taxpayers who itemize will no longer be able to deduct job search expenses, safe deposit box rental fees, and investment fees, among other expenses. Previously, these expenses were deductible if they exceeded 2% of your adjusted gross income.
Next: Luckily, these deductions remain intact.
15. These deductions are still safe
With all this tax reform change, taxpayers will be glad to know that some deductions and credits remained safe. The most notable are student loan interest deduction and the $250 of out-of-pocket school-related expense deduction for educations. In addition, tuition waivers for graduate students will remain tax-free. Considering many of these tax breaks were on the chopping block, it’s good news they remained safe.