The 2017 Tax Cuts and Job Acts legislation changed a number of items for 2018 taxes. You may be surprised as you prepare your 2018 Taxes how these changes affect your return.
Since the standard deduction was increased, and certain other itemized deductions removed or limited, itemizing your deductions may not be in your best interest. You will want to consult with a tax professional for help this year.
The Standard Deduction Increase
The standard deduction has nearly doubled for all those filing.
- For married filing jointly (and for surviving spouses) the standard deduction is $24,000.
- For heads of household, it is $18,000.
- For unmarried individuals (other than surviving spouses or heads of household), the standard deduction is $12,000.
- And for married filing separately, it is the same – $12,000.
It will only make sense to itemize your deductions, if they are more than the amounts listed above for your filing status and qualify for itemization in 2018.
What deductions were removed for 2018 Taxes?
Here’s a list of what deductions were eliminated:
- Personal exemption deductions for yourself, your spouse, and your dependents.
- Itemized deductions:
- Personal Casualty and Theft Losses (unless incurred in a federally-declared disaster area)
- Employee business expenses
- Tax preparation fees
- Investment expenses, including investment management fees
- Employment related educational expenses
- Job search expenses
- Hobby losses
- Safe deposit box fees
- Investment expenses from pass-through entities
What 2018 tax deductions have been limited?
Besides removing the items listed above, some other deductions were limited to a certain amount.
- Taxes for Real Estate, and State and Local Tax deductions or Sales Tax. As of 2018, the amount of state and local tax deductions that an individual can claim for the year maxes out at $10,000.
- Home Mortgage Interest deductions. Note that you can still deduct the interest of a home equity loan or line of credit that was used to buy, build, or substantially improve your home – provided your home secures the loan. Otherwise, it doesn’t qualify.
For example, if you took out a home equity loan for personal expenses like paying off debt, that would not qualify for an interest deduction. A home equity loan on your main home used to purchase a vacation home would also not qualify. However, if you purchase a second home and the mortgage is secured by that second home, and if it doesn’t exceed the limited combined amount listed below, it would qualify.
For homes purchased after 2018, there’s a lower dollar amount that qualifies for this tax deduction. You can only deduct interest on the first $750,000 of qualified residence loans, or $350,000 for married filing separately. Moreover, these limits apply to the combined amounts for all qualified loans (ones used to buy, build, or substantially improve your home). You can only apply this deduction to a main and a second home, a third home would not qualify. The limit above applies to both residences combined.
If the combined loan amounts for first and second homes exceed the limitation, then you’d be able only to deduct a percentage of your combined interest.
It’s worth highlighting again, that the maximum loan amount for itemizing is now $750,000, down from $1,000,000.
A good note is that the limitation on itemized deductions for certain high-income taxpayers has been removed. So, if you are one of the lucky few who can optimize their itemized deductions, there’s no limit on what you can claim.
You need professional help for your 2018 Taxes
If you’re lucky, you’ve been consulting with a tax professional throughout 2018 in order to optimize your tax return this season. Even if you haven’t, especially if you haven’t, you will benefit from a professional’s help. They’ll be able to sort out your taxes for last year, finding your best strategy, and then they should be able to help you strategize for a better 2019 tax year.
Contact us if you’d like to learn what we can do for you by either calling ((561) 842-1304 or by filling out the online form off to the right of this post.