Tax Deductions That Went Away After the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act (TJCA) was signed into legislation in 2017. The act practically doubled the usual deduction and eradicated or restricted many itemized deductions. The impact of the tax reform was that many individuals who used to itemize on Schedule A took the usual deduction as an alternative. Under is an inventory of exemptions, deductions, and credit that have been eradicated, restricted, lowered, or modified by the passage of the TCJA.

Exemptions and Credit

Exemptions and deductions cut back the quantity of taxable revenue you declare in your annual tax return. Tax credit are subtracted from the taxes you owe. All three of those parts have been impacted by the TCJA, and every impacts the quantity you pay another way.

For instance, for example you are a single filer whose taxable revenue is $100,000. This implies you fall into the 24% tax bracket. Utilizing the tax computation worksheet supplied by the Inside Income Service (IRS), you owe $18,021 for 2021. A $10,000 deduction (or exemption) would cut back your revenue to $90,000, leading to a tax invoice of $15,627. With a tax credit score of $10,000, your AGI would stay at $100,000, however your taxes could be simply $8,021—the quantity you get by subtracting $10,000 from $18,021.

Private Exemptions

The brand new legislation suspended private and dependent exemptions between 2018 and 2025. Although an exemption will not be technically a deduction, it features the identical method by permitting you to scale back your taxable revenue by the quantity of the exemption. On this case, say the exemption was $4,050 for your self and for every dependent you declare. Now, it’s zero. Bear in mind, although, that despite the fact that you possibly can’t declare a private or dependent exemption, you might be eligible for different tax advantages.

Little one Tax Credit score

The TCJA doubled the kid tax credit score (CTC) from $1,000 to $2,000 for many who qualify, together with mother and father with larger incomes than up to now. That restrict was elevated once more for the 2021 tax 12 months to $3,000 for youngsters ages six by means of 17 and $3,600 for youngsters beneath the age of 5. Revenue thresholds for 2021 are $200,000 for single mother and father and $400,000 for these married submitting collectively.

The kid tax credit score is refundable, which signifies that even for those who do not owe taxes because of low revenue, you possibly can nonetheless obtain partial credit score, offering (or growing) a refund. Keep in mind, it is a tax credit score so this comes instantly off the whole taxes you owe. As well as, a brand new $500 tax credit score is obtainable for dependents aged 17 and older.

Greater Customary Deduction

The TCJA raised the usual deduction for taxpayers. Single filers can declare a regular deduction of $12,550 in 2021 and $12,950 in 2022. For married {couples} submitting collectively, the deduction is $25,100 in 2021 and $25,900 in 2022. These are practically double the charges previous to the TCJA.

The federal revenue tax system and a few states have larger normal deductions for people who find themselves no less than 65 years outdated and for people who find themselves blind. Underneath federal pointers, in case you are blind or 65 or older and single, your normal deduction goes up by $1,700 for 2021 and $1,750 in 2022. If you’re married submitting collectively and one in every of you is 65 or older, your normal deduction goes up by $1,350 in 2021 and $1,400 in 2022.

No matter your age, you might uncover that the brand new normal deduction is bigger than the mixed whole of your itemized deductions, even for those who deduct mortgage curiosity. What follows is a better have a look at how Schedule A itemized deductions have modified with the TCJA. In some instances, there are additionally some solutions for what to do as an alternative.

Commuter Tax Advantages

Prior to now, your employer might reimburse you as much as $20 a month or $240 yearly for bicycle commuting bills on a tax-free foundation. As well as, your employer might take a deduction for providing the profit. The TCJA suspended that profit for each bike commuters and their employers. It additionally eliminated employer deductions for parking, transit, and carpooling.

Commuting Bills

Commuting bills thought of “vital for making certain the security of the worker” will proceed to be deductible by employers, however the TCJA would not spell out which bills qualify, and the IRS has supplied no actual steerage up to now.

Staff proceed to obtain tax-free advantages for parking, transit, and carpooling from their employers. The exclusion quantities are $270 per 30 days for 2021 and $280 per 30 days for 2022.

Nevertheless, as a result of corporations now not obtain a deduction for providing the profit, most have little incentive to supply it. Your employer can even supply bicycle-commuting advantages in any quantity and this expense is deductible.

Transferring Bills Deduction

Prices related to relocating for a brand new job was deductible on Kind 1040 as an above-the-line deduction, which you possibly can subtract out of your gross revenue to calculate your adjusted gross revenue (AGI). Sadly, this now not applies. In actual fact, the gap you progress would not even matter. Transferring bills are merely not deductible. The one exception is in case you are active-duty navy and transferring for a service-related cause. On this case, the deduction nonetheless applies.

Alimony Deduction

Prior to now, the particular person making alimony funds acquired an above-the-line deduction, and the particular person receiving the alimony counted the cash as taxable revenue. As of 2019, the paying partner now not receives a deduction and the receiving partner now not declares the funds as taxable revenue for any divorce that occurred after Dec. 31, 2018. Funds initiated earlier than 2019 should not affected. Little one assist funds are additionally nondeductible by the paying partner and tax-free to the recipient.

Present an IRA

One steered tactic for the paying partner entails giving the receiving partner a lump-sum particular person retirement account (IRA). This successfully offers the paying partner with a deduction as a result of they’re making a gift of cash they might have needed to pay taxes on finally.

The receiving partner could be chargeable for taxes upon withdrawal (together with a ten% penalty if cash is withdrawn earlier than age 59½) however would benefit from tax-free progress till withdrawing funds. The switch of the IRA account is tax-free.

Clearly, this is able to not be supreme if the receiving partner wants cash immediately.

Medical Bills Deduction

The deduction for medical bills stays. For 2021, you possibly can deduct unreimbursed medical bills that exceed 7.5% of your AGI on Schedule A. This deduction initially reverted again to a ten% AGI threshold, however that modified with a legislation signed on Dec. 20, 2019. The deduction is claimed on Traces 1–4 of Schedule A.

Remember that the medical expense have to be certified deductible bills. Most beauty surgical procedures don’t qualify.

SALT Taxes Deduction

The Schedule A deduction for state and native taxes (SALT) was limitless. These embody revenue taxes (or basic gross sales taxes), actual property, and private property taxes. With the passage of the TCJA, the SALT deduction is now restricted to $10,000 ($5,000 if married and submitting individually).

This could be a actual drawback for folks in states with excessive revenue or property taxes, akin to New York and California.

States Combat Again

Some states had sought to offset the cap by permitting residents to contribute to a state charitable fund in lieu of taxes. The funds might then be deducted as charitable contributions on federal returns. However in June 2019, the Division of Treasury and the IRS issued remaining rules curbing the follow.

4 states launched a constitutional separate problem to the SALT cap. These efforts additionally failed when a federal court docket dismissed the lawsuit in September 2019.

New York adopted a workaround known as the Employer Compensation Expense Tax, a voluntary employer-side tax designed to create a tax credit score for staff. The transfer takes benefit of the truth that companies don’t have any cap on deducting state and native taxes. For the 2020 tax 12 months, 311 employers participated in this system.

Connecticut enacted its obligatory Cross-By Entity Tax Credit score, which creates a tax on pass-through entities whereas additionally offering a tax credit score for the entity’s companions.

International Property Taxes

The TCJA eliminates the deduction for overseas taxes paid on actual property. Beforehand, you possibly can deduct overseas property taxes on Schedule A simply as you possibly can in the US, both for a daily residence or a second dwelling.

Certified Housing Expense

International property taxes could now be thought of a deductible certified housing expense on Kind 2555, International Earned Revenue, for functions of the overseas housing exclusion for sure U.S. residents or residents who reside outdoors the US and earn wages overseas. Certified housing bills embody hire, utilities (aside from telephone costs), residential parking, furnishings rental, and different gadgets.

Mortgage Curiosity Deduction

Prior to now, you possibly can deduct curiosity on mortgage debt of as much as $1 million ($500,000 for married taxpayers submitting individually). This nonetheless applies to any mortgage originated on or earlier than Dec. 16, 2017. However for those who originated a brand new mortgage after that date, the brand new restrict of $750,000 applies ($375,000 if married and submitting individually).

HELOC Curiosity Deduction

Beforehand, you possibly can deduct curiosity on a house fairness mortgage and residential fairness line of credit score (HELOC) simply as you possibly can with a mortgage, regardless of the way you used the cash. This deduction has gone away, no less than partly. Since 2018, you can not deduct curiosity on most of these loans besides beneath sure circumstances, even for those who took out the mortgage earlier than that 12 months.

HELOC Curiosity

When you have or take out a house fairness mortgage or line of credit score and use the cash to purchase, construct, or considerably enhance your essential or second dwelling, the curiosity should still be deductible.

Notice that to take the deduction, the house fairness mortgage have to be on the property you’re renovating. You’ll be able to’t take out a house fairness mortgage in your metropolis condominium to finance fixing up your ski home. You can even refinance an current mortgage and deduct the curiosity, supplied the refinanced quantity is not higher than your outdated mortgage steadiness (in different phrases, supplied you aren’t taking any money out).

Mortgage Insurance coverage Deduction

Although it’s not particularly associated to the TCJA, the Schedule A deduction for mortgage insurance coverage premiums/personal mortgage insurance coverage (MIP/PMI) expired on the finish of 2017. Nevertheless, a legislation signed on Dec. 20, 2019, prolonged the deduction by means of 2020. The deduction is claimed on Line 8d of Schedule A.

Casualty, Theft Deduction

The great Schedule A deduction for casualty and theft losses went away following the passage of the TCJA. Prior to now, you possibly can deduct losses associated to a catastrophe or theft to the extent that these losses weren’t coated by insurance coverage or catastrophe aid.

The deduction continues to be accessible for those who reside in a federally designated catastrophe zone. Usually, these designations are made county by county, so even when the county subsequent to you is a federally declared catastrophe space, your county might not be.

Miscellaneous Itemized Deductions

Miscellaneous Schedule A itemized deductions topic to a 2% of AGI threshold went away in 2018. This contains deductions within the following classes:

• Unreimbursed Job Bills. These are work-related bills you paid out of your individual pocket and embody journey, transportation, and meals, union {and professional} dues, enterprise legal responsibility insurance coverage, depreciation on workplace tools, work-related schooling, dwelling workplace bills, prices of on the lookout for a brand new job, authorized charges, work garments, and uniforms. All of those are gone. Your greatest recourse is to ask your employer to reimburse you for these bills. The reimbursement will probably be tax-free. You possibly can additionally ask for a pay increase, however that will be taxable.
• Funding Bills. These are charges for funding recommendation or administration, tax or authorized recommendation, trustee charges (i.e., to handle IRAs or different investments), or rental charges for a secure deposit field. Though the gadgets above are now not deductible, for those who borrow cash to purchase an funding, curiosity on that mortgage (known as funding curiosity) is deductible for those who itemize. The deduction is restricted to the quantity of taxable funding revenue you earn for the 12 months.
• Tax Preparation Charges. These embody the price of tax preparation software program, hiring a tax skilled, or shopping for tax publications. Additionally gone are deductions for digital submitting charges and costs you pay to combat the IRS, together with legal professional charges, accounting charges, or charges you pay to contest a ruling or declare a refund. For those who rent somebody to arrange each your private and enterprise taxes, ask for a separate invoice for every. Charges you pay to arrange your corporation return are totally deductible as a enterprise expense.
• Pastime Bills. These bills, as much as the quantity of revenue you earned annually, are now not deductible despite the fact that you do must report (and pay taxes on) any revenue you earn out of your interest. For those who promote items associated to your interest to clients, you possibly can deduct the price of these items when calculating hobby-related revenue.

Itemized Deductions Nonetheless Obtainable

Just a few miscellaneous itemized deductions stay after 2018:

• Playing losses are nonetheless deductible beneath the TCJA as much as the quantity of your winnings for the 12 months. Playing losses should not topic to the two% restrict on miscellaneous itemized deductions.
• Curiosity on scholar loans continues to be tax-deductible ($2,500 or the quantity of curiosity you pay throughout the 12 months—whichever is decrease) even for those who don’t itemize deductions.
• The $250 classroom instructor deduction for classroom lecturers continues to be in impact and accessible, even when the instructor would not itemize.
• The usual mileage charge deduction for Armed Forces members was 16 cents per mile in 2021 and 18 cents for 2022. For charity, the speed was 14 cents for 2021 and 2022.

Enhancing Deductions

Together with the brand new normal deduction, a number of others are higher beneath the TCJA.

• The property tax exemption is $11.7 million in 2021 and $12.06 million in 2022.
• Scholar mortgage debt discharge because of demise or incapacity has not been taxed since 2018. Beforehand, discharged debt because of incapacity or demise was taxable to you or to your property.
• Itemized AGI deductions are topic to no limitations due to the TCJA, though different limitations could also be imposed, relying on the deduction.
• Charitable contributions now embody larger restrict thresholds. Most presents by money or verify will be as much as 60% of your AGI versus the earlier restrict of fifty%.

The Backside Line

Whether or not deductions eradicated by the TCJA or different modifications have a destructive impression on you will depend on your private monetary scenario and the kinds and quantities of deductions you would possibly be capable to take. It is price noting that the modifications carried out by this laws are at the moment set to run out after Dec. 31, 2025, except Congress decides to increase them. The IRS’s Tax Reform: Fundamentals for People and Households publication affords extra info.