Tax Reform Impact on Itemized Deductions

The Tax Cuts and Jobs Act made changes to expenses that taxpayers are allowed to deduct if they itemize.  Among these changes are: a reduction on the mortgage balance for which interest may be deducted, reduction of state and local taxes deduction, elimination of miscellaneous expense deductions, casualty losses (except in the case of federal disaster declarations).

The mortgage interest deduction has been changed for mortgages taken out after December 15, 2017.  Any new mortgage after that date must be $750,000 or under for the interest to be fully deductible.  New mortgages that exceed $750,000, will be only partially deductible.  The previous limit was $1 million.

Beginning with 2018, the state and local tax deduction is limited to $10,000.  The $10,000 limit is applied to the combination of income taxes and real estate taxes.  So, if you pay $12,000/ year in real estate taxes and pay $6,000 of state income tax, instead of taking the total deduction of $18,000 – you will be limited to $10,000.

Also beginning with 2018, the miscellaneous expense deduction is gone.  In the past, miscellaneous expenses that exceeded 2% of your adjusted gross income were deductible.  This included expenses such as: unreimbursed employee expenses, union dues, job search expenses, tax preparation fees, investment advisory fees and safe deposit box rental fees.

Finally, casualty losses are no longer deductible unless they are a result of an event that is declared a federal disaster.  That means your flooded basement, fire damaged home, and theft losses are no longer deductible.

 

Honorine M. Campisi, CPA