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Tax reform miscellaneous itemized deductions
Brad Smith • March 12, 2019
The Tax Cuts and Jobs Act (TCJA) also known as simply the tax reform
almost doubled standard deductions. It also modified many itemized deductions which could be obtained on Schedule A, Itemized Deductions. This suggests that most people who went with itemized deductions in the past may need to take the standard deduction. Tax filers can only choose the itemized deductions or the itemized deductions.
The Tax Cuts and Jobs Act made the following changes to itemized deductions,
Suspension of overall itemized deductions
The tax reform of 2018 doesn't allow for the income-based itemized deductions. This means that individuals who had limited access to deductions previously due to their income exceeded a specified level can now get more itemized deductions now.
Modification in the deduction for the property, local income, and sales taxes
The reduction in property, local income, and sales taxes for any taxpayer is now limited. The limit is on the total sum of these deductions combined. This limit is $10,000 if you are a single tax filer and $5,000 if you are married and filing tax separately. Any amount exceeding this limit cannot be deducted.
Total qualified residence loan balance has a new limit
The loan for home equity or mortgage can affect the interest amount which may be deducted. If the loan was taken before Dec 15, 2017, then up to $1 million in qualifying debt can be deducted. This limit is $500,000 for tax filers who are married but are filing tax separately. If the loan was taken after this date then this limit is $750,000 in qualifying debt. And for married taxpayers filing separately, it is $375,000.
Modification Home equity interest deduction
If the interest from home equity loans is not paid on loan proceeds for buying, building or significantly improving their residential or second home then this interest cannot be deducted.
For instance, if the interest from home equity loan was utilized for constructing an extension to a current residential home then it can be deducted. However, the interest on the very same loan isn’t deductible if used for paying personal living expenses like credit card debt.
On top of these requirements, the amount of deductible cannot exceed the original cost of the home.
Modification in charity contributions limit
For charity contributions in the form of cash, the limit has increased from 50% to 60% of the taxpayer’s AGI. Meaning that tax filers who donate more to the charity will be now able to deduct more of their contributions.
Modification in the deduction for theft losses and casualty
For claiming the deduction for a tax filer's net theft and casualty losses, the incident must be associated with a disaster declared by the federal administration.
Suspension of miscellaneous itemized deductions
If the miscellaneous itemized deductions exceeded 2 percent of AGI, they were still deductible before TCJA. Expenses exceeding the 2 percent limit cannot be deducted anymore.
Unreimbursed employee expenses like union dues uniforms, business-related meals, entertainment, and travel are included in this. Deductions for safe deposit box fees, investment expenses, investment management fees, and tax preparation fees, etc. are also included in miscellaneous itemized deductions.
Please reach out to us at https://cartiercpas.com/ for more information about the New Tax Reform so we can help you prepare or email us at info@cartiercpas.com.
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