Taxes are on everyone's mind right now, with the recent passage of the tax reform law and the beginning of the 2017 tax year filing season in just a few weeks. But with new tax rules taking effect as of Jan. 1, it's easy to get confused about what you can and can't do on the returns that you're about to file. In particular, several tax breaks that tax reform eliminated for the 2018 tax year and beyond are still available on your 2017 return. Below are seven of the most popular, giving you, in some cases, one last chance to take full advantage of these tax benefits before they disappear.
1. Personal exemptions
One of the highest-profile tax breaks to disappear in the tax reform law is the personal exemption. Starting in 2018, higher standard deductions, a larger child tax credit, and a new credit for non-child dependents will take the place of the personal exemption.
For 2017, however, you can still claim a $4,050 reduction in taxable income for every qualifying dependent. That generally includes yourself, your spouse, and children for whom you provide the bulk of financial support. Personal exemptions typically save taxpayers thousands of dollars, and you don't have to itemize to receive them, so it's definitely worth making sure you take full advantage of these tax breaks.
2. State and local income tax deductions
A lot of controversy during Congressional deliberations on tax reform centered on the proposed elimination of deductions for state and local taxes of all kinds. Initial proposals would have gotten rid of the deduction entirely, but pushback from high-tax states resulted in a compromise under which up to $10,000 in total state and local taxes are eligible.
For the just-ended tax year, rules are still in effect that allow all state and local income taxes paid in 2017 toward the 2017 tax year. Some had initially hoped to prepay 2018 income taxes in 2017 to get further use of the deduction, but lawmakers specifically prohibited that move. Those who live in states without an income tax can use the sales tax deduction instead, but taxpayers have to choose one or the other, and most of those in the vast majority of states that impose an income tax are better off taking income tax over sales tax.
3. Property tax deductions
2017 will also be the last tax year for which property taxes are deductible in full. For this deduction, prepaying taxes that had been assessed in 2017 but that weren't due until 2018 was a permissible strategy, reflecting practices that taxpayers have used for years. Starting this year, property taxes will be subject to the same aggregate $10,000 limit on all state and local taxes.
4. Mortgage interest deduction on $1 million homes
Tax reform reduced the amount of deductible interest on home purchases, reducing the maximum loan amount from $1 million to $750,000. That means that borrowers on homes purchased in 2018 worth $1 million or more will see a 25% reduction in what they can itemize. For 2017, the deduction on all interest on purchase-money mortgage debt up to $1 million is allowed.
Going forward, home purchases in 2017 and before will have grandfathering provisions that allow continued deduction of interest on debt up to $1 million. For new home purchases, though, taxpayers will have to follow the less generous new rules.
5. Mortgage interest deduction on home equity loans
In addition to moves on home purchases, tax reform eliminated the deduction on home equity loan interest. Therefore, 2017 will be the last year that taxpayers can take interest on up to $100,000 in home equity debt as an itemized deduction. An important thing to note is that, unlike the home purchase loan provision, there's no grandfathering on home equity debt. Even if you had an existing home equity loan in 2017, you'll still lose this deduction going forward.
6. Moving expenses
Tax reform took away the right to deduct moving expenses. For your 2017 return, you'll still be allowed to reduce your gross income by the amount you pay for an eligible move. To qualify, your new workplace must be at least 50 miles further away from your former home than your old workplace was, and you have to work full time at your new location for at least 39 weeks out of the 12 months following the move. One big benefit of moving expenses is that you don't have to itemize to claim them.
7. Miscellaneous deductions
A host of miscellaneous deductions are slated to go away in 2018, so your 2017 tax return will be the last chance to claim them. They include unreimbursed employee expenses, tax-preparation fees, investment-related legal and accounting fees, and job-search costs. Even in 2017, these expenses are deductible only to the extent that they exceed 2% of your adjusted gross income, and you have to itemize in order to claim them.
Use it or lose it
If you can use these tax breaks in 2017 -- and nearly everyone can use at least one of them -- make sure to do so. Starting in 2018, some of them will no longer be available, so you'll want to do everything you can to get one last squeeze of tax savings from these deductions.
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