Over the past couple of weeks, we have reviewed specific tax law updates that will be taking place now that the 2017 Tax Cuts & Jobs Act was enacted last November. In this week’s post, we are concluding that theme and are discussing the other tax changes that are included in this tax reform. At MBS Accountancy, our goal is to keep you informed regarding taxes and any important news regarding your tax preparation. With that in mind, let’s discuss some other changes that are occurring as a result of the 2017 Tax Cuts & Jobs Act.
Miscellaneous Tax Deductions
Under the old tax laws, taxpayers were able to itemize deductions for miscellaneous expenses that they incurred during the tax year. For example, you could claim a deduction for any fees or costs you paid while preparing your taxes. You were also able to deduct business-related expenses that you were not going to be reimbursed for like licensing fees and home office costs. Additionally, fees paid to advisors and brokers were considered tax deductible. However, effective January 1st, 2018, investment fees and business-related expense deductions are suspended through 2025. Tax preparation fees are no longer able to be claimed as a deduction on your taxes through the end of 2025.
Deductions for Mortgage & Home Equity Loan Interest
Under the previous tax law, homeowners were able to deduct the amount of their mortgage interest on their taxes, up to 1 million dollars on a principal and eligible secondary residence. With the passage of the Tax Cuts & Job Act (and continuing through 2025), new homeowners are able to deduct mortgage interest up to 750,000 of the principal value of their new home. For existing homeowners, the 1 million dollar cap still applies and also for those homeowners who took out their mortgages on or before December 15, 2017. All homeowners are still able to deduct interest that was paid on home equity lines of credit or loans, as long as the money was used to build or improve your home.
For the 2017 tax year, taxpayers are able to deduct moving expenses for a move that is a certain distance from the previous location and they have a full-time job in their new location. Beginning with the 2018 tax year though, deductions for moving expenses are suspended through 2025 for all taxpayers except military members.
A pass-through business is usually a smaller business that is usually an S corporation, partnership, or LLC (limited liability company). In a pass-through business, a business owner reports the business profit as their own income and files taxes under the individual tax rate. Under the previous tax law, all of an owner’s income from their business was taxable according to the personal income tax. But beginning January 1, 2018, owners of a pass-through business are now able to deduct 20 percent of eligible business profits. To claim the highest deductible amount, 157,500 is the individual amount threshold and 315,000 is the threshold for married couples.
Deductions for Personal Casualty Or Theft
Under the tax law for the 2017 tax year, you were able to deduct uninsured losses that were greater than 100 dollars and due to a natural disaster like a fire or flood. One key condition was that the total loss amount had to be greater than 10 percent of the taxpayer’s AGI. Now, only losses sustained in a federally declared disaster are able to be counted in this deduction.
For 2017, taxpayers were able to decrease their AGI deducting personal exemptions. This allowed taxpayers to claim up to 4,050 for each exemption. However, the exemption did begin to phase out at AGI levels of 313,800 (married couples filing jointly), 156,900 (married couples filing separately), 287,650 (heads of households), and 261,500 (all other taxpayers). With the passage of the Tax Cuts & Job Act, all personal exemptions are suspended until the end of 2025.
Under previous tax law, taxpayers who did not itemize any deductions were able to claim a standard deduction of 6,350 (single), 12,700 (married couples filing jointly), and 9,350 (heads of household). Effective January 1, 2018, the standard deductions are rising to 12,000 for individuals, 18,000 for heads of households, and 24,000 for married couples filing jointly.
State and Local Tax Deduction
Previously, taxpayers were able to deduct state and local taxes on income, sales, and property as itemized deductions on their taxes. However, under the tax overhaul, there is a limit of 10,000 placed on the deducted amount for state and local sales, property, and income taxes.
Student Loan Discharge
Before the Tax Cuts & Job Act, student loan debt that was discharged (forgiven) due to death or disability was taxed as income. Effective January 1, 2018, debt from student loans is no longer taxed as income. This will remain in effect until the end of 2025.
Tax Bracket & Income Tax Changes
The previous tax law allowed for seven tax brackets with the rate for the highest income levels being 39.6 percent. This rate applies specifically to individuals who are earning above 418,400, and for married couples who are jointly filing taxes and earning above 47,700. Under the new tax overhaul, the top earners are now calculated who earn 500,000 (individuals) and 600,00 (married couples filing jointly). The tax rate has also decreased from 39.6 percent to 37 percent. There have also been changes and adjustments to the tax brackets that will remain in effect until 2027.
That was a lot… but we’re done – for now.
Over the past couple of weeks, we discussed the specific updates and changes to the Tax Cuts & Job Act that are going to affect you as you complete your taxes for this year in 2019. If you have any questions or concerns about how the specific updates will affect your unique situation, feel free to contact MBS Accountancy! We will be happy to assist you with any of your tax or accountancy needs. No matter what your situation is, our team of tax law experts and accountants will help you find a solution!