There’s a new tax law in town called the Tax Cuts and Jobs Act, and it is placing a cap on many of the itemized deductions that you may be used to.
This new tax law has also eliminated personal exemptions and nearly doubled the standard deduction to about $12,000 for single filers and $24,000 for married joint filers — which will likely result in fewer people taking itemized deductions on their 2018 returns.
So, if you are hoping to claim a big break on your 2018 taxes, you may be in for a big surprise.
Here are six itemized tax deductions that you can say goodbye to on your 2018 return.
1. Casualty and theft losses:
Under the old tax code, you were able to claim an itemized deduction for unexpected property losses and those losses that aren’t reimbursed by insurance. These types of losses include damage from fire, accidents, theft and vandalism, as well as natural disasters.
The losses were deductible if they exceeded 10 percent of your adjusted gross income (AGI). Your adjusted gross income is your taxable income minus any adjustments to income such as deductions, contributions to a traditional IRA and student loan interest.
Now, effective 2018 through the end of 2025, you can only claim personal casualty losses if the damage is attributable to a disaster declared by the President of the United States. The 10 percent threshold of AGI still applies.
2. State and Local Taxes:
Prior to the new tax law, you were able to claim an itemized deduction — known as the State and Local Tax deduction (SALT) for these levies.
The Tax Cuts and Jobs Act made one big change to the deduction, resulting in a $10,000 cap being placed on SALT deductions.
3. Medical and dental expenses:
The IRS once allowed you to deduct a qualified medical expense that exceeded 7.5% of your adjusted gross income.
Beginning January 1, 2019, all taxpayers may deduct only the amount of the total unreimbursed allowable medical care expenses for the year that exceed 10% of their adjusted gross income.
However, keep in mind that while the IRS has lowered the bar for medical expenses you incur in 2018, fewer people all around are likely to itemize their deductions due to the higher standard deduction.
As a result, this break may no longer be available.
4. Miscellaneous itemized deductions:
The Tax Cuts and Jobs Act has suspended the “Miscellaneous itemized deductions” that were once deductible to the extent that they exceeded 2% of a taxpayer’s adjusted gross income. This applies for years 2018 through 2025. As a result, the deduction for tax preparation fees, unreimbursed employee expenses etc., will no longer be available.
5. Home mortgage interest:
Prior to the new tax law, you were able to write off the interest for up to $1 million in mortgage debt. If you took out a home equity loan or line of credit, you were also able to deduct the interest paid on loans of up to $100,000.
With the Tax Cuts and Jobs Act, you can now only claim a deduction for interest on up to $750,000 in qualified residence loans— that is, the combined amount of loans you use to buy, build or substantially improve your dwelling and second home.
The IRS has also applied new restrictions to interest claimed for home equity loans and lines of credit (HELOC). You can only take the break if you were using the money to build or improve your home.
The deduction is off the table if you took a HELOC to use for personal expenses.
6. Charitable giving:
The charitable donation deduction is still on the table, even after the tax overhaul. However, a combination of higher standard deductions and limitations on itemized deductions means that fewer people will be itemizing on their 2018 returns. In turn, that could put the charitable deduction out of reach for those taxpayers.
For more information about the new tax law and how it will affect your 2018 return, contact our office at 732.566.3660.