This year, there are major changes coming to the tax code. And if you had hoped to take advantage of some of the same deductions as last year, you may end up with an unpleasant surprise. The new tax legislation, known as the Tax Cuts and Jobs Act, has greatly reduced itemized deductions.
Under the new law, there are no more personal exemptions. Previously valued at $4,050 for each taxpayer and dependent, the personal exemption has been replaced with an increased standard deduction. The new standard deduction is $12,000 for a single person as well as $24,000 for a married joint filer. According to the Joint Committee on Taxation, 9 out of 10 filers will take the standard deduction.
For many people who have previously chosen itemized deductions, the impact on their tax bill could be negative. Below, we’ve complied six of the most popular deductions that are curbed or eliminated this year.
1. Home office expenses
In previous years, it was possible take a variety of small itemizations known as miscellaneous itemized deductions. It was possible deduct everything from tax preparation fees, unreimbursed employee costs, and other business expenses so long as together they added up to more than 2 percent of your adjusted gross income.
With the changes to the tax code, these itemized deductions are gone.
2. Property loss
In prior years, it was possible to take an itemized deduction for any property loss that your insurance company failed to reimburse. This includes a variety property damage, including losses from fires, vehicle accidents, vandalism, and even natural disasters.
While you could previously deduct these property losses if they exceed 10 percent of your adjusted gross income, under the new law you may only claim these losses if they are caused by a natural disaster incident officially declared by the United States government.
3. State and local tax deductions
One of the most popular deductions used by filers in states and municipalities with higher tax rates is the state and local tax deduction. The deduction, better known as the SALT deduction, allowed filers to deduct state property and real estate taxes. It also allowed you to deduct state and local income and sales tax levies as well.
For the most part, these tax deductions are gone this year. Under the recent tax law changes, SALT deductions are capped at $10,000. This is a major cost to filers in high-tax states like New York, where the average SALT deduction was $22,000 each year.
4. Home mortgage interest
In previous years, it was possible to deduct a maximum of $1 million of mortgage debt interest. What’s more, you could also write off any interest paid on home equity lines of credit up to the amount of $100,000.
However, the combined limit for deducting interest for mortgages and home equity lines is now capped at $750,000 combined. The IRS has also made some sever restrictions on these deductions, as home equity lines may only be written off if the loans were used to make improvements to your house. If the loan is used for other purposes, you may not write it off.
5. Charitable Gifts
If you had previously been deducted your charitable giving, it is still possible under the new tax law. The catch, however, is that the laws now are only available for charitable giving at higher levels.
Unfortunately, for many people the potential deduction for charitable giving is not enough to make itemizing your deductions as opposed to taking the higher standard deduction worth it. For some, it may make the most sense to make several years’ worth of contributions in a single year to make the deduction worth it.
6. Medical expenses
For most tax payers, any medical or dental expenses could be itemized if they exceeded 10 percent of your adjusted gross income. The good news is that in the coming years, that figure has been lowered to 7.5 percent. However, that dip is just temporary, as the rate returns to 10 percent in 2019. And because so many more people will be taking the standard deduction going forward, this itemization will likely not be available to most filers.
Due to the aforementioned changes, searches for allotment loans and other short-term lending solutions have increased, driven primarily by people who stacked their debt and intended to pay it off with their tax return. If you find yourself in this position, click or call to apply for a BMG Money loan – our average customer receives their loans in less than 2 days. We look forward to continuing to assist you with bettering your financial situation.