Why are my Deductions so Low?
April 24, 2019
Despite all of the income tax rates that were reduced by the Tax Cuts and Jobs Act (TCJA), as well as the tax breaks that were expanded, some taxpayers may still see an increase from what they’ve come to expect when it comes to their tax liability when filing their 2018 returns.  These following five deductions may impact your bottom line for 2018 through 2025:
 
State and Local deduction.  The cap for all state and local taxes, including property tax, is limited to $10,000.  ($5,000 if you’re married and filing separately).  You can still only choose to deduct income OR sales tax – you may not deduct both.  This holds true even if your state and local taxes don’t cross the $10,000 limit.
 
Mortgage interest deduction. Interest on mortgage debt that was acquired while building or improving your personal or secondary residence has usually been applied as an itemized deduction.  After the changes from the TCJA, the mortgage debt limit has decreased from $1M to $750K for any debt attained after 12/15/17, with some exceptions.
 
Miscellaneous itemized deductions subject to the 2% floor. There are a lot of expenses that are lumped into the “miscellaneous” category for itemized deductions for things such as specific professional fees, unreimbursed employee business expenses, and investment expenses.  The deduction for these types of expenses has been suspended for 2018 through 2025.  Even home office deductions for those that are employees of someone else, fall under this freeze. 
 
Home equity debt interest deduction. Interest on up to $100K of home equity debt was available to be used as an itemized deduction previous to the TCJA.  This debt could have been used for anything, such as tuition fees, paying of credit card debt, etc.  The TCJA now limits the home equity interest deduction to debt that was for the express purposes of improvements upon the home it was borrowed against.
 
Deduction for personal casualty and theft loss.  Itemized deductions for losses due to an occurrence that has been declared a disaster by the President will now be the only type of losses allowable.
 
There are still additional limitations and rules that can apply based on your individual circumstances.  It’s important to keep in mind that the TCJA has nearly doubled the standard deduction.  This means that in many situations, it may be more advantageous for tax payers to forgo itemizing all together, even if it has been the better move in the past.  Please call your Faw Casson team with any questions you may have.
 

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