Author: Maurie Backman | March 14, 2019
Big changes are here
The Tax Cuts and Jobs Act brought a lot of changes to the tax code that filers are learning about first-hand as they prepare their 2018 returns. Some of those changes are helpful. Others, not so much. Here are 11 tax breaks that were altered as a result of last year's overhaul.
1. The standard deduction
In 2017, the standard deduction was $6,350 for single tax filers and $12,700 for married couples filing jointly. As a reminder, a deduction exempts a portion of income from taxes, so it can be a big money-saver. In 2018, however, those figures nearly doubled to $12,000 for single tax filers and $24,000 for couples filing jointly, which means we’ll likely see fewer filers itemizing on their returns going forward.
2. The personal exemption
Although the standard deduction nearly doubled in 2018, the personal exemption completely disappeared -- and that’s something that’s likely to hurt filers with large households. It used to be that you could claim an exemption for each member of your household -- yourself, your spouse, and each dependent. In 2017, you got $4,050 for each exemption you claimed, thereby shielding that much income from taxes. With that tax break gone, families with lots of children might see their tax bills go up.
3. The mortgage interest deduction
Prior to 2018, you could deduct the interest you paid on a mortgage of up to $1 million. But effective in 2018, you can only deduct interest on a mortgage of up to $750,000. That said, if you took out a mortgage prior to Dec. 15, 2017, you’re grandfathered into the old system and can claim interest against the higher limit.
4. The SALT deduction
The SALT (state and local tax) deduction was once a potentially lucrative tax break for workers in high-property tax states, namely because it used to be unlimited -- you could deduct all of your state and local taxes, including those paid for the privilege of owning your home. Beginning in 2018, however, the SALT deduction was given a $10,000 cap, thereby hurting filers who once benefitted from it the most.
5. The home equity loan interest deduction
Prior to 2018, taxpayers could deduct the interest paid on up to $100,000 in home equity debt, regardless of what the loan in question was used for. Now, you’re only allowed to deduct home equity loan interest if that loan is used to improve your home -- say, by finishing a basement or replacing a roof.
6. The moving expense deduction
Prior to 2018, workers who relocated for job purposes were allowed to take a deduction for the expenses involved, whether it was hiring movers or paying for storage. Effective in 2018, that tax break no longer exists, so if you’re moving for a job, it pays to negotiate a relocation package where your employer picks up at least part of the tab.
7. The unreimbursed job expense deduction
Some workers incur out-of-pocket costs in the course of their jobs that their companies won’t pay for. Prior to 2018, unreimbursed business expenses were deductible provided they totaled more than 2% of adjusted gross income (AGI). This means that someone with an AGI of $80,000 could claim expenses in excess of $1,600. That deduction, however, no longer exists, so if you tend to rack up big bills to do your job, you might ask your employer for a modest allowance to ease the burden.
8. The casualty and theft loss deduction
Prior to 2018, you could claim a tax deduction for property damage or theft as long as that loss exceeded 10% of your AGI. But effective in 2018, that deduction is no longer available unless it’s associated with a federally declared disaster area (such as if your area was impacted by a major hurricane).
9. The alimony deduction
Prior to 2018, alimony was deductible for those compelled to make those payments to their former spouses. But the 2018 tax overhaul did away with that deduction, so going forward, paying ex-spouses can’t claim it. This change applies to couples who signed divorce agreements after Dec. 31, 2018.
10. The business entertainment expense deduction
It used to be that you could snag a tax deduction for entertaining clients in the course of doing business. But as of 2018, that option is no longer on the table, so if you're in the habit of treating clients to ball games, concerts, or golf outings, you should know that you won't get a tax break out of the deal. You can, however, claim a 50% deduction for business meals.
11. The Child Tax Credit
If you have children in your household under the age of 17, you might be eligible for the Child Tax Credit. Prior to 2018, the credit was worth up to $1,000 per qualifying child, but eligibility began to phase out at $75,000 of earnings for single tax filers, and $110,000 for married couples filing jointly. Effective as of 2018, the Child Tax Credit has doubled to up to $2,000 per child, and up to $1,400 of that is refundable. This means that if the credit knocks your tax liability down below $0, the IRS will send you up to $1,400 per child to make up that difference. Furthermore, the income limits for claiming the credit have increased to $200,000 for single tax filers and $400,000 for couples filing jointly, which means more families should manage to snag this tax break going forward.
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