Republicans’ Tax Plan Kills These Common Deductions and You’ll Probably Pay More
If there’s one thing (besides repealing the Affordable Care Act) that Republicans want to wipe off their docket, it’s tax reform. In fact, you could argue that passing a tax plan is the most important item on the list. Though it’s been a year since President Donald Trump was elected, the Republicans in control of the House, Senate, and White House have yet to accomplish much legislatively. But they’d probably rest easy at night if they could simply pass a tax reform bill.
And after months of anticipation, we have one: the 429-page Tax Cuts and Jobs Act.
The Republican tax plan
There’s been plenty of coverage as to what, exactly, the plan contains, so we’ll cut to the chase. The plan, which Republican leaders have promised will lower taxes for middle-class Americans, will actually do the opposite. At first, many American households could actually see some tax savings, depending on where they live and a variety of other factors. But with some sunset provisions in place, the story could change in as little as five years.
The short and sweet of it all is the plan is mostly geared toward the wealthy and corporate interests most of all. Not only that, but if the bill were to pass as is — and it most certainly won’t, so be mindful of amendments and changes going forward — it would blow a $1.5 trillion hole in the budget. But of more immediate concern to most Americans are the tax deductions the plan would scuttle.
And there are plenty of popular deductions you can kiss goodbye if the Tax Cuts and Jobs Act finds its way through the House and Senate and is signed into law. Count the following deductions among them.
First up: The interest on all those student loan payments? Not deductible under the new tax plan.
Student loan interest
- The average college graduate in 2017 has more than $37,000 in student loan debt.
It’s one of the very few comforts about having student loan debt: being able to deduct the interest on your tax return. If Republicans have it their way, though, that could come to an end. Those with student loan debt can currently deduct as much as $2,500 in paid interest for qualifying loans. According to IRS data, more than 12 million student borrowers would be affected. And if your loan balance is rather high, it could be a big hit.
It’s not just students with heavy debt loads getting screwed. If you have big medical expenses, you’re on the list, too.
- Having a baby? That’s a $10,000 medical expense that might not be tax deductible.
This might be the single biggest surprise in the bill. An awful lot of people who would be directly impacted by this lost deduction are Republican voters, particularly older voters. Current rules allow people to deduct their medical and dental expenses (and for their spouse and dependents) if the costs exceed 10% of their income. For middle-class Americans, this could hit particularly hard as medical procedures aren’t cheap. And they wouldn’t even be tax deductible under this bill.
Blue-staters, you’re in the crosshairs, too.
State tax deductions
- States, including California and New York (which lean Democratic), would be the most affected.
If you live in a state in which you pay income tax, you’re typically able to deduct that from your federal tax bill. The Republican tax plan w0uld nix that, hitting taxpayers in some states particularly hard. Interestingly enough, those states that would be hit the hardest tend to vote Democrat in most elections (such as California and New York). That might not be the motivation behind this part of the bill, but it could lead to a higher tax bill for millions.
Even the cost to prepare your taxes would no longer be deductible.
- Paying a pro to help you with your taxes can cost several hundred dollars — and it wouldn’t be deductible under the Republican tax plan.
Doing your taxes is a headache and incredibly confusing. For that reason, most people choose to have someone else do it for them. Typically, it’s an accountant, a specialist of some kind, or software. And typically, you deduct those tax preparation costs from your bill. But — you guessed it — Republicans want to snuff out that deduction, too. Not all preparation costs are deductible, though, so many people might not be affected.
And if your stuff is lost or stolen, you can deduct it — for now.
Theft and destruction
- As natural disasters grow in frequency and intensity, this could become a big deal.
If your stuff is destroyed, stolen, or otherwise “lost,” you might be able to take a deduction related to the damage. That includes your house, vehicle, and possessions. And it applies in situations, such as volcanic eruptions, hurricanes, and fires. Given that we’re due to see some increased frequency of natural disasters because of climate change, this might be a bigger deal than we realize. And as if it weren’t enough to lose your house or car to a tornado, under this new plan you wouldn’t even be able to deduct it.
How about property tax deductions? They’re not getting scrapped — just capped — under the plan.
Property tax deductions capped
- The tax plan would cap property tax deductions at $10,000.
We mentioned earlier that state tax deductions would be squashed under the proposed legislation. Closely related to that is the plan to cap property tax deductions — and again, this would have a bigger effect in “bluer” states and areas where housing tends to cost more. The plan would cap property tax deductions at $10,000 and also preserve mortgage interest deductions for existing mortgages and for buyers paying less than $500,000.
Last but not least? Divorce expenses.
- Alimony might not be a factor for many people, but it can add up to a sizable deduction.
If you’re on the hook for alimony payments, you’re probably already pretty peeved about it. At least it’s tax deductible, though, for the person making the payments. Well, bad news: Republicans want to kill off that deduction, too, as a part of their new tax plan. CNBC reports that in 2015, around 600,000 taxpayers took advantage of the deduction, accounting for more than $12 billion. But, again, kiss that tax break goodbye if the plan passes.
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