Posted by Elliot Kravitz, ATP

Prepare Losing These Tax Breaks On Your 2018 Return

Prepare Losing These Tax Breaks On Your 2018 Return

If you haven’t thought about hiring an Accountant to help prepare your taxes before, you may now have to consider doing it now. It’s important for you to be prepared for the changes on your taxes now that you’re about to lose several exemptions. The burden may not be as heavy for single individuals, but for those with kids, this can be quite painful.

You’re not the only one who is unsure of how much you and your family will owe this year. Less than half of all taxpayers understand the effect of the new law in their tax bracket according to a study conducted by the NerdWallet. However, freaking out won’t help you face these changes every year during tax season. You just have to know about the changes so you don’t feel overwhelmed once you file your return. Here is the following tax break you’ll lose on your 2018 return and what you can expect.

Home Office Cost

Remember the miscellaneous itemized deductions you used to get? Before the tax overhaul, you were able to deduct unreimbursed employee costs, tax preparation fees, investment expenses and more that exceeds 2 percent of your adjusted gross income. The new tax code eliminated this as of 2018.

Theft and Property Damage

Taxpayers used to be able to claim an itemized deduction for property losses that aren’t reimbursed by insurance and that happened unexpectedly under the old tax code. The losses can be deducted to the extent they exceed 10 percent of your adjusted gross income. Today, personal casualty losses can be claimed only if the damage is attributable to a disaster declared by the president. The 10 percent threshold of AGI is still applicable. 

State and Local Taxes

It’s even more painful for those who need to the property tax, real estate taxes, and state and local income levels residing in New York, New Jersey or California. Before the new law, taxpayers are able to take advantage of the itemized deduction known as the state and local tax deduction or SALT but it will no longer be around (at least to an extent) for the levies on the 45 states and the District of Columbia. 

A $10,000 cap on SALT deductions was set by the new tax code which will be affecting taxpayers who live in high-tax areas. 

Home Mortgage Interest

The Tax Cuts and Jobs Act now only allow taxpayers to claim a deduction for interest on up to $750,000 in qualified resident loans which the combined amount of loans you use to buy, build, or significantly improve the place where you live and second home. The previous law use to allow people to write off the interest for p to $1 million in mortgage debt. You were also allowed to deduct the interest paid on loans of up to $100,000 before if you had a home equity loan or line of credit.

Charitable Contributions

Although the IRS continues to reward taxpayers who donate money for a cause through charitable donation deduction, not many people will be able to harvest the reward now that the new law is implemented. Fewer people will be itemized on their 2018 returns because of the combination of higher standard deductions and limitations on itemized deductions.

This could result in people re-considering their decision to make charitable donations.

You might be able to itemize in 2018 if you fall just short of the new standard deduction of $12,000 (single) or $24,000 (married and filing jointly). This is if you “bunch” multiple years of charitable donations and get over the obstacle.

Medical and Dental Costs

The threshold for the medical expenses has been temporarily lowered by the tax overhaul. You may claim an itemized deduction for out-of-pocket health-care costs to the extent they exceed 7.5 percent of your adjusted gross income for the 2017-2018 tax years.

The only problem people with steep medical costs this year will face is that beginning 2019, that threshold will jump back up to 10 percent where it had been for more taxpayers in the past.

However, you may not be able to take advantage of this break because fewer people all around are likely to itemize their deductions because of the higher standard deduction. The IRS may have lowered the bar for the amount of medical expenses you must in incur in 2018 but you may still have to deal with the negative results.

Elliot Kravitz, ATP
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