- Under the Tax Cuts and Jobs Act of 2017, there are changes to how you can itemize your deductions.
- The deduction for state and local taxes is now being capped.
- There will be a higher standard deduction, which means fewer taxpayers will itemize deductions.
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The Tax Cuts and Jobs Act of 2017 will affect the 2018 income tax return you file in April 2019. There are several changes to the deductions you can take if you itemize on Schedule A that you need to be aware of before filing. Keep reading to find out what these limits mean for your taxes.
Mortgage Interest Deduction
When 2017 taxes were filed, homeowners could deduct the interest on up to $1 million of their home mortgage. That amount has been reduced to $750,000, so if you owe $1 million on your home, you can only deduct three-quarters of the interest you paid.
Home Equity Line of Credit Deduction
Under the new law, you can only deduct the interest you pay on your home equity line of credit if the money is used to “buy, build or substantially improve the taxpayer’s home that secures the loan.” Previously, taxpayers could use the proceeds from a home equity line of credit for whatever they wanted, from college tuition to vacations, and still deduct the interest.
State and Local Taxes Paid (SALT)
Taxpayers can now deduct a total of $10,000 of state and local property, sales and income taxes paid. The previous tax law allowed individuals to deduct all state and local property taxes, plus either state individual income tax or state sales tax, but not both.
Casualty and Theft Losses
Taxpayers will no longer be able to deduct losses from theft and casualties (like those resulting from natural disasters) that are not covered by insurance. The exception to this is for losses from federal disasters declared by the president. Previously, casualty and theft losses that were not covered by insurance were deductible.
The deduction for expenses related to your job that are not reimbursed by your employer has been eliminated.
The limit on charitable contributions has gone from 50 percent to 60 percent of income. Philanthropic taxpayers can now deduct contributions equal to up to 60 percent of their income.
The amount of medical and dental expenses that exceeds 7.5 percent of adjusted gross income, or AGI, can now be deducted. Previously, the threshold was 10 percent of AGI.
New Standard Deduction
Fewer taxpayers will be itemizing deductions under the Tax Cuts and Jobs Act, since the standard deduction has nearly doubled. The standard deduction has gone from $6,500 to $12,000 for single filers, and from $13,000 to $24,000 for joint filers. Filers do not have to itemize their deductions if they total less than these amounts.
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