The Tax Cuts and Jobs Act brought about many changes to the filing of the 2018 tax returns. The 2019 tax return filing season is the first time that the new tax law will be in effect. As you begin prepping for your 2018 tax filing, become familiar with these changes. You can ask your CPA or tax consultant to help you find the tax advantages available to you.
It’s true that many itemized deductions, including unreimbursed job expenses, have been repealed for the 2018 tax year. However, there are many popular tax deductions still available, some with significant changes. Here are ten of them.
1. Medical and dental expenses
You can deduct the amount of your total medical expenses for yourself, your spouse and your dependents that exceed 7.5 percent of your adjusted gross income. It reverts back to 10 percent in 2019.
2. Health savings account contributions
If you use a health savings account to pay certain medical expenses, you are eligible for a tax deduction on contributions you made to your account.
3. Medical – related home renovations
Most home renovation costs are not deductible on your tax return. However, if improvements are made to your home for medical purposes – such as wheelchair ramps and accessibility changes in kitchens and bathrooms - you can deduct those renovations as medical expenses.
4. Mortgage interest deduction
The interest deduction on new mortgages is limited to loans of $750,000 or less unless you’re married and filing separately, the limit is $375,000. Previously the limits were $1 million and $500,000, respectively. To claim a home equity interest deduction the taxpayer must be able to document the expenses to buy, build or improve the home.
5. Home sale
If you sold your home at a profit, you could exclude up to $250,000 of gains from your income. Married joint filers can exclude $500,000.
6. State and local taxes
The deduction for state and local taxes (SALT) related to property and sales taxes, on federal IRS tax returns is being limited to $10,000. Taxpayers will still need to itemize for this deduction but will have a cap of $10,000 for 2018 where previously there was no limit.
7. Charitable contributions
The deduction limit is increased to 60 percent of AGI. There is no deduction if the contribution secures athletic event seating rights. Taxpayers will need to produce receipts for any contribution of $250 or more, even if the charity has reported contribution to IRS.
8. Casualty loss
There is no casualty loss deduction unless for a federally declared disaster. The taxpayer is required to include the FEMA number and the location of property when the claiming loss deduction. This applies to those homeowners who have been affected by one of the natural disasters that occurred in 2018.
9. Child tax credit
To claim the increased child tax credit in 2018, taxpayers will need Social Security numbers for every qualifying child.
10. Alternative minimum tax
The increase in the AMT exclusion amounts and lower regular tax rates will likely mean that fewer middle-income taxpayers but more higher-income taxpayers will be caught by the AMT
While many itemized deductions have been suspended starting with the 2018 tax year, the standard deduction has increased. It's now $24,000 for married couples filing jointly and for qualified widows and widowers. For single filers and married couples filing separately, the deduction is now $12,000. If you file as head of household, you can deduct $18,000. The increase makes it likely that many more taxpayers will be better off with the standard deduction in 2018. The result? Simplification for many more taxpayers.
There are numerous other changes to the tax law that will affect individual filers in 2019. For more clarification of the specific deductions, you should consult with your tax advisor and update your tax planning as part of your long-term financial plan.
Charles P Myrick CPA offers tax preparation for individuals using a process that combines smart, personalized planning with annual tax preparation and filing. Our job is to help you know about all the available tax opportunities that meet your individual needs and circumstances. We work closely with tax lawyers, and investment advisors to ensure that all the details are legally sound, technically accurate, and working to your maximum benefit. Contact us to learn more: (202) 789-8898