1. The standard $6,350 deduction. Some of the best news from the tax reform law is an increase in the standard deduction. While single taxpayers are only eligible for a $6,350 standard deduction this year, that amount will nearly double in 2018 to $12,000 for individuals. Married couples will get a standard deduction of $24,000 for 2018, up from $13,000 for 2017. And head of household filers will see a bump in their standard deduction from $9,550 to $18,000 in 2018.
"The majority of Americans are going to fall under the standard deduction," says Michael Foguth, president and founder of Foguth Financial Group in Brighton, Michigan. That may save taxpayers time as well as money.
Finance experts say there may be no need for many people to save receipts or document spending since they likely won't be itemizing deductions under the new law. "Look at your past taxes," says Ash Exantus, director of financial education and financial empowerment coach at BankMobile, an online bank geared for students. "If you're not close to the new standard deduction, I wouldn't necessarily waste the time [tracking expenses]."
[High angle view of curly woman calculating tax bill]
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2. Personal exemptions. The increased standardized deduction will be welcome news for many households, but there's a catch. "Taxpayers heard their new standard deductions will double, but they don't hear about losing their $4,050 personal and dependency exemptions," says Robert Duquette, professor of practice in the accounting department at Lehigh University.
While not technically a deduction, the exemption allows taxpayers to subtract $4,050 from their taxable income for each dependent they claim. Some experts point to an increase in the child tax credit as offsetting the loss of personal exemptions, but that credit won't help everyone. "Let's say all your children are in college," says Eric Bronnenkant, head of tax for online investment company Betterment. "Well, they get a personal exemption and no child tax credit."
3. Unlimited state and local tax deductions. Starting in 2018, deductions for state and local taxes – known as SALT deductions – will be capped at $10,000. "That's huge for the people in South Florida," Farra says. It will also have a significant impact on those in New York, California and other states where people pay high property taxes.
Some states are exploring strategies to offset the lost deduction and retain high-income taxpayers. For instance, legislation has been introduced in California to allow residents to make contributions to a state charitable fund in lieu of taxes. Meanwhile, New York is reportedly considering whether a deductible payroll tax could be used as a credit for state income tax and allow taxpayers to bypass the SALT deduction limit. However, it remains to be seen whether these efforts will be successful.
4. A $1 million mortgage interest deduction. Another change that could disproportionately affect those living in states such as California and New York is the restriction on the amount of mortgage interest that can be deducted. Currently, taxpayers can deduct interest on a mortgage of up to $1 million. Starting in 2018, only interest on the mortgage value capped at $750,000 will be deductible.
5. An unrestricted deduction for home equity loan interest. Duquette says people may have heard about the change in mortgage interest deductions, but they may not know about a change to interest deductions for home equity loans. "They don't seem to be aware the home equity line of credit interest [deduction] is completely gone with no grandfathering," he says. That means even those who have an existing home equity loancan't deduct the interest after 2017.
The new law does allow for deductions in limited cases, though. "Before, it was if you had any interest it was deductible," Foguth says. "Now, it has to be connected to home improvement." Plus, the combined total of the first mortgage and home equity loan can't exceed $750,000.
6. Deductions for unreimbursed employee expenses. Workers who made unreimbursed purchases related to their job can deduct any amount that exceeds 2 percent of their adjusted gross income in 2017. However, that deduction is being eliminated for 2018.
7. Miscellaneous itemized deductions. Unreimbursed work expenses is just one of several miscellaneous itemized deductions that have been disallowed under the new law. "Also gone is the unreimbursed qualified employee education expenses deduction," Duquette says. Other miscellaneous itemized deductions include costs related to tax preparation services, investment fees, professional dues and a long list of other approved items. To be deductible, the total amount of these miscellaneous expenses must exceed 2 percent of a person's adjusted gross income.Pause
8. A deduction for moving expenses. If you're relocating for a new job, you may be able to deduct your moving expenses from your 2017 taxes, assuming you meet criteria laid out by the IRS. This criteria stipulates you must be moving to a job location at least 50 miles farther from your old house than the distance from your old house to your old job. What's more, you must be working full-time hours within 12 months after the move to deduct expenses. However, for 2018, that deduction is eliminated for everyone except armed forces members.
9. Unrestricted deductions related to natural disasters. In 2017, homes were ravaged by hurricanes, wildfires and floods. Families impacted by natural disasters can deduct at least a portion of any losses incurred by the events that were not covered by insurance or another relief program on their taxes this year.
However, in 2018, not everyone will have access to that deduction. "The deduction is actually still the same, but you must be in a presidentially designated disaster zone," Bronnenkant says. The designations are typically made on a county-by-county basis. For example, Bexar County in Texas was part of the disaster declaration for Hurricane Harvey in 2017, but its neighbor to the south, Wilson County, did not get the designation.
10. Alimony deduction. In the past, couples could set up alimony agreements that would allow the person making payments to deduct that money from their federal taxes. That won't be an option in 2019. The deduction is being eliminated for any divorcecommencing after Dec. 31, 2018.
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