6 Big Changes to Itemized Deductions

One of the key changes in the new law is a repeal to certain itemized deductions.
 
“The last major tax reform legislation took two years to work out,” points out Ren Cicalese III, CPA, MST. “The Tax Cuts and Jobs Act has taken three months. That’s a historic pace for such a major piece of legislation.”
 

Some of the most notable changes to itemized deductions as of 2018 include:

• Donations made to qualified charitable organizations are deductible under generous limits, subject to strict substantiation requirements. The limit increased from 50% to 60% of your adjusted gross income (AGI) for the year.

  “If this will impact your tax situation, consider donations of highly appreciated stock held longer than one year. Generally the deduction is at the security’s fair market value, subject to certain limitations,” – Rich Middleton, CPA

• State and local taxes, including income taxes, property taxes, and general sales taxes, are deductible but are capped at $10,000 (or $5,000 if married filing separately).

  “If you prepay any state & local taxes, be sure to consider any exposure to the alternative minimum tax,” – Rich Middleton, CPA
  
  “Most taxpayers living in a highly taxed state, like New Jersey, will likely find their tax bill will increase as a result of the changes to some often used deductions.” – Ren Cicalese III, CPA, MST

• Qualified mortgage interest, including amounts paid on an acquisition debt up to $1 million, is deductible. However, new debt acquired after 12/15/2017 will be limited to $750,000. Home equity interest is no longer deductible.

• You can deduct the excess unreimbursed medical and dental expenses above 7.5 percent of your adjusted gross income (AGI) for the year.
  

  “IRS Publication 502 can be used to see what kind of medical expenses qualify as deductible. Some expenses that may get overlooked at an emotional time are travel costs for medical treatment (including ambulance service), lodging for treatment at medical facility, or meals while at facility for treatment. Some states treat things differently so it is important to check with the states you file in to see if they treat items the same as the IRS.” – Chris Cicalese, CPA, MSTFP

• You can deduct unreimbursed casualty and theft losses only in federally declared disaster areas.

• Miscellaneous expenses (e.g., unreimbursed employee business expenses, business mileage, home office, moving expenses, and tax advisory fees) are completely repealed after 2017.

Under the final Tax Cuts and Jobs Act, other itemized deductions would be repealed. Changes to itemized deductions is only one part of the 1,000 page bill so there are other areas that may positively or negatively impact your tax situation.

“To compensate for the removal of most itemized deductions, the proposed law would increase the standard deduction for all taxpayers. This may be a net increase in deductions for some taxpayers.” – Ren Cicalese III, CPA, MST

The bottom line is that your tax strategy needs to be revisited as soon as possible. Contact an Alloy Silverstein accountant and advisor for assistance today.

Additional Resources:

• What Does Tax Reform Mean for Me as an Individual?→
• Meals, Entertainment, and Commuting Changes Under Tax Reform→
• Tax Reform Resource Center→