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Under the Tax Cuts and Jobs Act, Some of the Biggest Changes Are in the Deductions for Individuals

Under the Tax Cuts and Jobs Act, Some of the Biggest Changes Are in the Deductions for Individuals

For 2018, the standard deduction amounts will increase to simplify the deduction scheme. More taxpayers will find it beneficial to claim the standard deduction. Itemized deductions have been modified for the 2018 tax year following tax reform. Many of the itemized deductions have either disappeared or changed. Here is how the itemized deductions found on Schedule A have changed.

Medical and dental expenses subject to 7.5% floor. Under tax reform, a 7.5% floor is in place for medical and dental expenses for two years beginning Jan. 1, 2017. The provision is retroactive to the beginning of this year so this change effects both your 2017 and your 2018 tax returns.

State and local taxes. Under tax reform, deductions for all state and local sales, income, and property taxes combined may not exceed $10,000 ($5,000 for married taxpayers filing separately). Amounts paid in 2017 for state or local income tax imposed for the 2018 tax year will be treated as paid in 2018. You cannot pre-pay any 2018 state and local income taxes in 2017 to avoid the cap. State, local, foreign property taxes, and sales taxes that are deductible on Schedules C, E, or F are not subject to the limit. For example, rental property tax remains deductible and not subject to the limitations.

Home mortgage interest. Home mortgage interest deduction was modified. As of Dec. 15, 2017, the mortgage used to buy, build or improve your home that is secured by a qualified residence is limited to $750,000 ($375,000 for married taxpayers filing separately). For mortgages taken out before Dec. 15, 2017, the limit is $1,000,000 ($500,000 for married taxpayers filing separately). In 2026, the cap goes back up to $1,000,000, no matter when you took out the mortgage. 

Charitable donations. Charitable donations remain deductible under tax reform however there are changes. The percentage limit for cash donations by an individual taxpayer to public charities and certain other organizations increases to 60%. Effective in 2018, taxpayers cannot deduct payments made to a college or college athletic department in exchange for college athletic event tickets or seating rights at a stadium. 

Casualty and theft losses. The deduction for personal casualty and theft losses is repealed for the tax years 2018 through 2025 except for those losses attributable to a federal disaster as declared by the President.

Job expenses and miscellaneous deductions subject to 2% floor. Miscellaneous deductions which exceed 2% of your AGI will be eliminated for the tax years 2018 through 2025. This includes deductions for the home office, unreimbursed employee expenses, unreimbursed travel and mileage, and tax preparation expenses.

Itemized deductions. The phase out itemized deductions is suspended for the tax years 2018 through 2025.

Contact us in one of our many locations to see how these changes may affect you.

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