The Tax Cuts and Jobs Act was a major overhaul of the federal tax code. For some it will be a boon, but for others, a bust. As you wind down your calendar year, keep in mind a few changes that could affect most individual taxpayers, and their filings.
1. Home Equity Loans
Interest on home equity loans taken out in 2018 and beyond will no longer be tax deductible, unless the loan is used to "buy, build or substantially improve" the home that secures the loan. Keep in mind the new limits on all mortgage deductions; taxpayers can only deduct interest on $750,000 worth of home loans, home and equity combined.
Deduction for state and local taxes, also called SALT deductions, are limited to $10,000. This includes property tax as well. This is a major change for people in states with high taxes, and in high property tax areas, such as New York and California.
3. Dependent and Personal Exemptions
There is no longer multiple personal and dependent exemptions for filers. However, other changes in the tax law may lead to bigger tax refunds for families with children. New tax laws allow for more tax credits for families with children. Tax credits are a direct reduction in taxes, whereas tax deductions just reduce your adjusted gross income (AGI). Translation: tax credits are better!
4. 2% AGI Deductions
A host of deductions that were only allowed to be taken if they were above 2% of your AGI have been eliminated, such as:
5. Moving Expenses
You can no longer deduct moving expenses incurred when moving for a job related reason, unless you are in the military. This was a surprisingly big draw in 2015, with over a million taxpayers claiming this deduction. But it's gone now!
6. Most Casualty and Theft Losses
Only casualty losses from presidentially declared disaster areas can be deducted, starting in 2018. Historically, all uninsured property losses from theft or disaster that were greater than 10% of your AGI could be claimed.
7. Donation to College In Exchange for Athletic Event Seats
The elimination of this deduction seems more newsworthy than useful, so let's add it in at #7. Prior to 2018, if someone made a sizeable donation to a university, and were given tickets or seating rights to athletic events, they could deduct the entire amount of the donation. Starting in 2018, the fair market price of those seats or rights will have to be deducted from the charitable donation. Normally, a donor would deduct out the fair market value of whatever item was received when taking the tax deduction, like perhaps buying musical tickets at a school auction. College sporting event seats had historically been excluded, but that is no longer the case.
Leona Helmlsey famously said, "We don't pay taxes; only the little people pay taxes." Hopefully everyone pays taxes, and presumably everyone would like to pay less taxes. If that sounds like a good idea to you, contact a local tax attorney. Though many deductions have been eliminated, many loopholes have been added. Don't let the rich take all of them. Contact a tax attorney and claim yours!