Do you know which itemized deductions and credits made the cut?
In December of 2017, accountants and taxpayers everywhere got a chance to unwrap the comprehensive and at times, overwhelming, new tax bill. 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; however, for some taxpayers, the resulting benefit may be partially or totally offset by the repeal of the personal exemption.
Take a look at what did and didn’t make the cut, then ask your advisor and accountant if you’ll be able to itemize.
Personal Exemptions
Say goodbye. In the past, taxpayers were generally allowed to reduce their taxable income by $4,050 per person, but no more.
Medical Expenses
Still deductible, once out-of-pocket medical expenses exceed 7.5% of your adjusted gross income (AGI). That threshold will increase to 10% in 2019 (except for taxpayers age 65+ for whom the 7.5% floor will remain intact), so it may make sense to move up any known deductible medical expenses to this year.
Also, the new bill eliminates the tax penalty for not having health insurance (starting in 2019).
Large Charitable Donations
Still deductible, and the limit for cash contributions has been raised to 60% 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.
Interest on Home Equity Loans and 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.
State and Local Taxes (SALT)
Still deductible, but capped at $10,000 for most individuals. In the past, it was generally unlimited.
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.
Casualty and Theft Losses
Still deductible, but only if the casualty loss was due to a federally declared disaster. The deduction for theft losses has been repealed.
Unreimbursed Job-Related Moving Expenses
Say goodbye until at least 2026, barring any changes. These expenses are no longer deductible unless you are an active duty military family.
Alimony
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.
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
Opinions expressed are not necessarily those of Raymond James & Associates.
Information contained was received from sources believed to be reliable, but accuracy is not guaranteed.
Investing always involves risk and you may incur a profit or loss. No investing strategy can guarantee success.
Past performance may not be indicative of future results.
*The referenced websites are being provided for information purposes only.
Raymond James is not affiliated with and does not endorse, authorize or sponsor the following websites or their respective sponsors.
Raymond James is not responsible for the content of the websites or the collection or use of information regarding the website's users and/or members.
All expressions of opinion reflect the judgement of Larry Adam and are subject to change. There is no assurance any of the trends mentioned will continue or that any of the forecasts mentioned will occur. Economic and market conditions are subject to change. Investing involve risk including the possible loss of capital. U.S. government bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government. The S&P 500 is an unmanaged index of 500 widely held stocks.
It is not possible to invest directly in an index. Past performance may not be indicative of future results.
