Mortgage Interest Deduction
Mortgage Interest Deduction
The TCJA changed and eliminated a good number of itemized deductions. However, these changes are temporary since they have a lifetime of up to 2025 unless the Congress votes for some or all of them to continue. Meanwhile, you need the right information so that you can plan accordingly concerning some or all of the following deductions that you will lose in your 2018 return.
Prior to TCJA, you could write off the interest for up to $1 million in mortgage debt. Now you can only claim a deduction for interest on up to $750,000 in loans on a qualified residence. This means all amounts that you use to buy, to build or renovate your primary home and the second home.
The IRS has also come up with new restrictions to interest
claimed for home equity loans and lines of credit. Now, you can only relax if you were using the money to build or improve a home. The deduction does not apply if you took a HELOC for personal expenses.
The State and Local Taxes Deduction (SALT)
If you live in New York, California or New Jersey, odds are that you are feeling the pinch from the tax on property, real estate, and state and local income levies. In the meantime, 45 states and the District of Columbia levy statewide sales taxes according to the Tax Foundation. Before the changes in tax rules, you would seize an itemized deduction called state and local tax deduction or SALT for such levies. Time has come when you have to say goodbye to such, at least to a certain extent.
The current tax code places a $10,000 cap on SALT deductions that can dent returns for people that reside in high-tax areas.
The Medical and Dental Expenses Deduction
Changes to the itemized deduction for medical and dental expenses are temporary. You could claim an itemized deduction of your expenses that exceeded 10% of your adjusted gross income. For 2017-2018 tax years, you may only claim an itemized deduction for out-of-the-pocket costs you spent on health-care if they exceed 7.5% of your adjusted gross income. Form 2019, this will go back to 10% like it was.
While the IRS has lowered the bar for the expenses you should incur in 2018, fewer people are likely to itemize their deductions because of the higher standard deduction. For this reason, this break may no longer be available to you.
You could only claim a deduction for the portion of your expenses that exceeded 10% of your adjusted gross income. This is true through the 2016 tax year. The TCJA reduces that threshold to 7.5 percent, although only for tax years 2017 and 2018. This provision is retroactive. You get a little gift as you go about preparing your 2017 return. You’ll be able to deduct somewhat more in medical expenses.
The other rules haven’t changed. You can claim the expenses you incur for yourself, your spouse or any dependent. Only if you have paid them in the same year you are claiming the deduction. Cosmetic-type treatments and surgeries are not deductible unless they are preventive or are used to treat existing problems.
Casualty and theft losses
The casualty and theft losses itemized deduction survived in some way, but it ’s been trimmed. Beginning 2018, you can claim this loss you suffered if it is due to a federally-declared disaster. If not, kiss this tax deduction goodbye, maybe until 2015, or maybe forever. The U.S president must declare the event as a disaster to entitle you to this deduction. Fortunately, this covers many catastrophic disasters. For example, hurricanes.
Charitable Donation Limitations
Charitable deductions are still alive and kicking and the government still rewards the philanthropic. This deduction was subject to Pease limitations up to 2017. These limitations reduced people with high income in their itemized deductions by 3% for every dollar of taxable income. This is over given thresholds and ultimately increase these deductions to 80% of their itemized deductions. TCJA has repealed the Pease limitations. This was in an effort to allow you to donate regardless of the amount you earn since you can now claim this tax deduction in full.
Deductions Affecting Workers besides mortgage interest deduction
The miscellaneous itemized deductions you were claiming for expenses you made for work-related purposes have been scrapped off. These would appear on your schedule A as an addendum called the Form 2106. Lenders would refer to them as Unreimbursed Employee Business Expenses. If a lender saw this one your tax return, they could deduct these expenses from your qualifying income. I have personally had borrowers not qualify for a home loan because they wrote off so much of their income. They did so using this piece of their Schedule A. Some miscellaneous deductions have survived the TCJA, but not this one. They were only deductible if they exceeded 2 percent of your AGI and if your employer failed to reimburse you. As I am sure you can imagine how creative people can be when understanding & utilizing this line of the tax return.