The 2017 Tax Cut and Jobs Act fundamentally changed tax laws and was a mixed bag for some households. While the standard deduction nearly doubled and the child tax credit increased, many other deductions and credits were eliminated.
However, not much will change for the 2020 tax year. “The stimulus package is very confusing,” said Greg Hammer, president of Hammer Financial in Schererville, Indiana. However, the provisions of the Coronavirus Aid, Assistance and Economic Security Act (CARES) should not affect tax deductions for consumers. Nor should people worry about government stimulus payments being counted as income. “Essentially, the intention was to give the people the money,” said Hammer.
[READ: Your Guide to 2020 Tax Deductions.]
While some key tax breaks could return after parts of the tax law expire in 2025, here are 12 tax deductions that disappeared in 2018 and won’t be available this spring:
– The standard deduction of $ 6,350.
– Personal exceptions.
– Unlimited state and local tax deductions.
– A mortgage interest deduction of $ 1 million.
– An unlimited deduction for home equity interest.
– Deductions for unreimbursed employee expenses.
– Various individual prints.
– A deduction for moving costs.
– Unrestricted deduction for accident damage.
– Allowance for maintenance.
– Deductions for certain school donations.
– Donation deductions for some taxpayers.
1. Standard $ 6,350 deduction
Some of the best news from the Tax Reform Act was an increase in the standard deduction. “The overall effect of the tax reform was that most taxpayers were better able to use standard deductions than break down their deductible expenses,” said Daniel Laginess, CPA and managing partner at Creative Financial Solutions in Southfield, Michigan.
While individual taxpayers were only entitled to a standard allowance of $ 6,350 in 2017, that amount nearly doubled to $ 12,000 in tax year 2018. For 2020 applications filing, the standard individual deduction increases even further to $ 12,400. Married couples will get a standard $ 24,800 deduction when filing tax forms this spring, and the Head of Household Actors will be eligible to deduct $ 18,650.
The story goes on
“The number of people who are entitled to (individual) deductions has really gone down,” said Timothy McGrath, managing partner of Riverpoint Wealth Management in Chicago. Unless someone is a homeowner with significant mortgage rates, a standard deduction is likely to result in greater tax savings compared to listing.
2. Personal exceptions
The increased standard deduction was welcome news for many households, but there was a compromise. According to Laginess, several previously allowed deductions and personal exemption from taxpayers and dependents have been eliminated.
While technically not a deduction, the exemption allowed taxpayers to deduct $ 4,050 from their taxable income for each dependent they claimed, making the elimination a significant loss for families. The increased standard deduction helps mitigate the loss of personal exceptions, but it may not fully make up for it.
[READ: What Parents Should Know About Children and Taxes.]
3. Unlimited state and local tax deductions
State and local taxes have long been one of the biggest write-offs for those listing deductions. Known by the acronym SALT, they are still deductible but are capped at $ 10,000 per year. The limit is especially detrimental to those who live in states like California and New York, which both have above-average state income taxes and property tax rates. “There are a lot of high earners who don’t get a huge deduction with a cap of $ 10,000 a year,” says McGrath.
4. $ 1 million mortgage interest deduction
Another change that disproportionately affects those living in states like California and New York is the restriction on the amount of mortgage interest that can be deducted. In 2017, married taxpayers could deduct interest on a mortgage of up to $ 1 million. As of tax year 2018, you will only be able to deduct interest on mortgage values up to $ 750,000.
5. Unrestricted deduction of home equity interest
The Tax Cut and Jobs Act also removed unlimited interest deduction on new and existing home equity loans. Previously, homeowners could deduct interest on loans taken out for any purpose, such as: B. for debt consolidation or travel. Now only interest can be deducted on home equity loans that are used for renovation work. Additionally, the total of the initial mortgage loan and home equity loan for married couples applying together cannot exceed $ 750,000.
6. Deductions for unreimbursed staff costs
Employees who made unreimbursed purchases in connection with their work were able to deduct any amount in 2017 that exceeded 2% of their adjusted gross income. “(Some workers) used to have large write-offs,” said Paul Axberg, CPA and president of Axberg Wealth Management, an Arizona-based tax, finance, and pension planning company.
However, taxpayers will not see this deduction on their 2020 tax return. Instead, to make up for the loss of the deduction, workers may want to negotiate a reimbursement from their employers.
7. Various individual prints
Labor costs that are not reimbursed are one of several different individual deductions that are not permitted under the Tax Reform Act. Other zero miscellaneous deductions include fees for financial services, expenses related to tax preparation services, investment fees, professional fees, and a long list of other pre-approved items.
Independent contractors can deduct many of these items as business expenses under Appendix C. This means that people who work or freelance in the gig economy may still be able to claim a deduction for these costs. However, the IRS has specific rules about who qualifies as an independent contractor, and these workers must also pay taxes on self-employment. Contact a tax advisor for the details and determine what is most financial for your situation.
8. Deduction for moving costs
If you moved for a new job last year, forget about deducting your moving expenses from your 2020 taxes. The deduction has been removed for practically all employees. Only military personnel who have to move for a new assignment can now be withdrawn.
9. Unrestricted deduction for accidental damage
As of 2018, only those in disaster areas designated by the President can deduct accidental damage from their tax forms. That means, for example, if your home burns down but the insurance doesn’t cover all of your expenses, you won’t be able to write off the loss from your federal taxes.
10. Allowance for maintenance
In the past, couples have been able to enter into maintenance arrangements that would allow the paying individual to deduct this money from their federal taxes. While people with divorce agreements that were entered into before December 31, 2018 can still deduct alimony payments, this is not an option for individuals whose divorce was entered into after that date.
Under the new tax law, maintenance is no longer viewed as taxable income by the recipient, so not only is it not deductible by the payee, but people can no longer deduct legal costs related to the conclusion of a maintenance agreement. Those who divorced in 2020 may want to find another way to compensate a spouse, such as giving an IRA to avoid non-deductible alimony.
[Read: What If I Made a Mistake on My Taxes?]
11. Deductions for certain school donations
Some colleges and universities have asked alumni to make donations before they can buy season tickets. Before 2018, these donations were tax deductible. While the sporting season has been shortened due to the 2020 pandemic, anyone who has made a donation related to the right to purchase tickets should know that deduction is no longer possible under the Tax Cut and Jobs Act.
12. Donation deductions for some taxpayers
Deductions for charitable gifts weren’t removed, but it has become more difficult for people to make claims. CARES law allows anyone to make a deduction of $ 300 for charitable giving in 2020. However, to go beyond that, taxpayers have to list the deductions, which few people do now due to the increase in the standard deduction.
For those who can list, the good news is that they can donate and deduct a higher percentage of their income. “You can give up to 100% of your income and subtract everything,” says Axberg. Previously, people were only allowed to deduct up to 60% of their adjusted gross income, but this limit has been temporarily lifted by the CARES Act.
“I think there is a lot more to be planned in the future,” says McGrath. Those who don’t have enough deductions to warrant annual listing should think about their donations strategically. One option would be to pool donations in a single year instead of spreading gifts over several years. On the other hand, a fund advised by donors is to be set up. In this way, you can make a large, deductible contribution within a year and then distribute donations from the fund over several years.