7 Tax Deductions that are Lost or Limited
on Your 2018 Tax Return
With the Tax Cuts and Job Act of 2017, Congress and the President changed the tax rules significantly. In fact, this was the largest overhaul of the tax code since 1986 under Ronald Reagan. In general, most people will save some money on their tax bill, while a few will pay more. The 2017 tax year was the last time you could file under the old tax-code so your 2018 Tax Return will follow the new rules.
Under the tax reform, the standard deduction was nearly doubled to $12,000 for single filers and $24,000 for joint filers. Meanwhile, some itemized deductions were eliminated or limited. The Joint Committee on Taxation estimates that the number of filers who itemize will decline from 46.5 million in 2017 to just over 18 million in 2018, meaning about 88 percent of the 150 million households that file taxes will take the increased standard deduction. Therefore, fewer will itemize expenses such as property taxes and charitable donations. Charities are concerned that the changes in tax deductibility for those using the standard deduction may result in fewer contributions. Because of these many changes, you may be collecting receipts hoping to take a deduction that no longer exists or has been limited. Let’s take a look:
- State and Local Taxes: Deductions for all State and local sales, income, and property taxes normally deducted remain in place but are capped. The amount you can claim is now limited to $10,000. This change is particularly painful if you live in a State or area with very high property or State income taxes. Maryland is in the top 5 highest taxed States according to The Washington Post.
- Charitable Donations: Charitable donations remain deductible under tax reform, with the rules remaining the same for the most part. However, if you are among the estimated 88% of taxpayers using the standard deduction you will no longer file a Schedule A and therefore not take the charitable deduction. We will be discussing charitable giving strategies after tax reform in an upcoming article.
- Home Mortgage Interest: Prior to tax reform, you were able to deduct the interest for up to $1,000,000 in qualified mortgage debt on your dwelling and second home. Post tax reform, the deduction is now limited on your mortgage for use in buying, building or improving your dwelling and second home to $750,000. Beginning in 2026, the cap goes back up to $1,000,000.
- Interest on Home Equity Line of Credit (HELOC): This is a big change. For the tax years 2018 through 2025, there is no deduction available for interest on your HELOC unless you are using the money to build or improve your qualified residence. No deduction is allowed for personal expenses such as credit card debt consolidation, cars, or education to name a few.
- Casualty and Theft Losses: The deduction for personal casualty and theft losses is eliminated for the tax years 2018 through 2025 except for those losses attributable to a federal disaster declared by the President (generally, this is meant to allow some relief for victims of hurricanes and other natural disasters like the California fires). For those who itemize, you are still able to deduct the losses that exceed the threshold of 10% of your Adjusted Gross Income (AGI).
- Job Expenses and Miscellaneous Deductions Subject to 2% Floor: Miscellaneous deductions which exceed 2% of your AGI have been eliminated for the tax years 2018 through 2025. This includes deductions for unreimbursed employee expenses, tax preparation fees, investment expenses and more. It also includes expenses that you incur in your job that are not reimbursed, like tools and supplies; required uniforms not suitable for ordinary wear; unreimbursed travel and mileage; and the home office deduction.
- Alimony on a New Divorce not Deductible: The new law eliminates the tax deduction for divorce or separation agreements that are executed after Dec. 31, 2018. The recipients of alimony payments will, in turn, no longer be required to include these payments in taxable income. The new rules do not apply to divorces executed prior to 2019.