Author: Matthew Frankel | May 02, 2018
Meeting the survivors
The Tax Cuts and Jobs Act was the biggest overhaul to the U.S. tax system in more than 30 years. The final version of the reform bill got rid of some pretty valuable tax breaks, such as the personal exemption and deduction for job-related moving expenses.
On the other hand, there were plenty of widely-used tax deductions and credits that survive into 2018 and beyond. Some remain exactly the same as they were, while some have been scaled back and others have been expanded.
With that in mind, here are 23 of the most commonly-used tax deductions and credits that survived the GOP's tax reform process.
1. The Child Tax Credit
The Child Tax Credit is an example of one of the tax breaks that has been expanded for 2018. Specifically, the Child Tax Credit is doubled from $1,000 to $2,000, plus the income thresholds for eligibility have been dramatically increased. For example, the credit used to phase out for married taxpayers with adjusted gross incomes over $110,000, but this threshold has been raised to $400,000 for 2018, opening the credit to many more families.
2. The Child and Dependent Care Credit
The Child and Dependent Care Credit allows parents who paid child care expenses for children under age 13 to get some additional tax relief. Specifically, the credit can be worth as much as $1,050 for one child, or up to $2,100 for multiple children with qualifying expenses.
3. The standard deduction
Not only did the standard deduction survive tax reform, but it nearly doubled. The 2018 standard deduction will be $24,000 for married couples filing jointly, $18,000 for heads of household, and $12,000 for singles and married taxpayers filing separately. This is somewhat offset by the loss of the personal exemption, but could still help lower taxes for many Americans.
4. Mortgage interest
One of the most popular and lucrative tax breaks, the mortgage interest deduction survived the Tax Cuts and Jobs Act, but with slight modifications. Now, only $750,000 of mortgage debt can be considered for the deduction, down from $1 million previously, although mortgages obtained before Dec. 15, 2017 are grandfathered in. The bill also limits the deductibility of interest on home equity loans, as compared with the previous law.
5. Charitable contributions
Charitable donations are still deductible, and this deduction was kept mainly the same as it has been in recent years. However, there are two minor changes. First, if you make donations to a college in exchange for the right to purchase athletic tickets, those donations will no longer be deductible. Second, the cap on deductible donations is raised to 60% of income, up from the previous 50%.
6. Medical expenses
The medical expense deduction has been retained for 2018, and is getting slightly more generous. Americans can now deduct unreimbursed medical expenses in excess of 7.5% of their adjusted gross income (AGI), down from the previous threshold of 10%. In fact, this is one of the few changes that was retroactive to the 2017 tax year.
7. American Opportunity Credit
The most lucrative, but also the most restrictive, of the tuition tax breaks remains in place for 2018. If you paid tuition (for yourself or someone else) for the first four years of post-secondary education in 2018, you could be entitled to a credit of as much as $2,500. And, up to $1,000 of the credit is refundable, meaning that you can get it even if you don’t owe any taxes at all for the year. The catch? The student must be enrolled in a degree or certificate program, and must be taking classes on at least a half-time basis.
8. Lifetime Learning Credit
If you pay tuition in 2018, but don’t meet the American Opportunity Credit’s strict requirements, you may qualify for the Lifetime Learning Credit instead. Worth up to $2,000 per year, the Lifetime Learning Credit can be used beyond the first four years of college, has no degree or certificate program requirement, and also doesn’t have a half-time attendance requirement. The downside is that the income limitations for the credit are more restrictive than the American Opportunity Credit.
9. The SALT deduction
The state and local taxes deduction, also known as the SALT deduction, still exists in 2018. This was the most debated portion of the tax reform process, and for good reason -- it’s the largest tax break used by U.S. taxpayers.
However, this deduction is now significantly less valuable, especially to taxpayers in high-tax states like New York, New Jersey, and California. While the deduction was previously unlimited, it is now capped at a total of $10,000 in property taxes and state and local income (or sales) taxes.
10. Traditional IRA deduction
The Tax Cuts and Jobs Act made no changes to the traditional IRA deduction. For the 2018 tax year, individuals who meet income requirements can deduct up to $5,500 in traditional IRA contributions, and an additional $1,000 if they are 50 or older. Note that the income requirements only apply if you or your spouse are covered by a retirement plan at work.
11. Self-employed retirement plans
In addition to preserving the traditional IRA deduction, the Tax Cuts and Jobs Act made no changes to the deductibility of other retirement contributions. Contributions to self-employed and small business retirement accounts such as SIMPLE IRAs, SEP-IRAs, and Solo 401(k)s are still deductible, as long as they meet certain requirements. And contributions to 401(k) and similar retirement plans can still be made on a pre-tax basis.
12. Estate tax exemption and annual gift exclusion
For 2018, the lifetime exemption for estate taxes doubles to $11.18 million for individuals and $22.4 million for married couples. The annual gift tax exclusion of $15,000 per recipient is also kept in place, meaning that this much can be given each year without affecting the donor’s annual exclusion amount. If a taxable estate is valued at more than the lifetime exclusion, minus the individual’s taxable gifts, the excess is taxed at a 40% rate.
13. Student loan interest
As much as $2,500 in student loan interest can still be used as an adjustment to income in 2018, subject to income limitations. Adjustments to income are also known as above-the-line deductions, and can be taken by all taxpayers who qualify, regardless of whether they itemize deductions or not.
14. Educator expenses
This is another above-the-line deduction, meaning that it can be taken even if the taxpayer doesn’t itemize. Qualified K-12 educators can deduct as much as $250 per year for classroom supplies they purchase with their own money. If both spouses are educators, and they file a joint tax return, they can deduct as much as $500, but no more than $250 each.
15. Health Savings Account contributions
Taxpayers with qualifying high-deductible health insurance plans can still deduct their contributions to health savings accounts, or HSAs. For 2018, a “high-deductible” health plan is defined as a deductible of at least $1,350 for individual coverage, or $2,700 for family coverage, with out-of-pocket maximums of up to $6,650 or $13,300 respectively. 2018 contribution limits are set at $3,450 (individual) and $6,850 (family), with an additional $1,000 catch-up contribution allowed if the policyholder is 55 or older.
16. Self-employed business expenses
If you run a small business, or work from home, the Tax Cuts and Jobs Act preserves the tax benefits you’ve been able to take advantage of. The home office deduction is a popular example of this, as is the deduction for business use of a vehicle. Self-employed individuals can also deduct the cost of their health insurance, as well as a variety of other expenses.
17. The Earned Income Tax Credit
The Earned Income Tax Credit, or EITC, can be an extremely valuable tax credit for families with low- to moderate incomes, and was unchanged by the Tax Cuts and Jobs Act. The maximum amounts of the EITC for 2018 are $519 for taxpayers with no children, $3,461 with one child, $5,716 with two children, and $6,431 with three or more children.
18. The Saver's Credit
The Saver’s Credit, which is officially called the Retirement Savings Contributions Credit, is still intact for 2018. This credit is worth as much as 50% of retirement account contributions for lower-income taxpayers, up to a maximum credit of $1,000 per person, per year. And keep in mind that this is in addition to any other tax benefits of retirement savings.
19. Adoption credit
The Federal Adoption Tax Credit, which is designed to reimburse parents for qualified adoption expenses, remains for 2018. Qualifying adoption expenses include things like court costs, attorney fees, adoption agency fees, and travel expenses associated with the adoption process. For the 2018 tax year, the maximum adoption credit is $13,840 -- and keep in mind that this is a credit, not a deduction, meaning that it reduces your taxes dollar-for-dollar.
20. Obamacare subsidies
The Tax Cuts and Jobs Act eliminated Obamacare’s individual mandate -- that is, Americans will no longer be required to maintain insurance or pay a penalty beginning in 2019.However, the bill doesn’t change the subsidies available to qualifying taxpayers who obtain insurance through the federal and state healthcare exchanges. If you earn less than 400% of the federal poverty level for your family size, you can still qualify for a subsidy.
21. Graduate tuition waivers
During the tax reform legislative process, one unpopular proposal called for counting graduate tuition waivers as taxable income. In other words, if a graduate student received a $10,000 tuition waiver as part of their financial aid package, this could then be considered taxable, and result in a potentially hefty tax liability. Fortunately for grad students, this didn’t make it into the final bill.
22. Profit on the sale of a home
Under IRS law, homeowners who sell their primary residence (but not an investment property) can exclude as much as $250,000 of profit from their taxable income. For married couples, the excludable amount doubles to $500,000. In other words, if you and your spouse buy a home for $300,000 and sell it for $800,000 years later, you won’t pay a dime in taxes. You need to meet certain time-related qualifications to use this, but tax reform leaves this break intact.
23. Capital losses
If your investment losses exceed your capital gains in a given year, you can deduct as much as $3,000 in losses from your other taxable income and carry the rest over to future tax years. The Tax Cuts and Jobs Act made no change to this, so if you use tax-loss harvesting as part of your investment and tax-planning strategy, you’ll still be able to do so.
Not an exhaustive list
Keep in mind that this is not an exhaustive list, and the Tax Cuts and Jobs Act kept many other less-common tax breaks in place. For example, there are some less-common credits for homeowners, such as the Residential Energy Efficient Property Credit, that aren’t going anywhere. So, if you’re curious about a particular deduction or credit, it’s best to check with the IRS or a tax professional.
The Motley Fool has a disclosure policy