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All Contents © 2020The Kiplinger Washington Editors
By Sandra Block, Senior Editor
| January 16, 2019
The Tax Cuts and Jobs Act lowered tax rates and nearly doubled the standard deduction, which is expected to reduce taxes for about 65% of taxpayers, according to the Tax Policy Center. But an estimated 29% of Americans will see no change to their tax bill, and 6% of you will pay more. If you’re one of the unfortunate taxpayers who don’t get a lower tax bill, it might be because the tax overhaul scrapped or capped some popular tax breaks.
Here are 8 common tax deductions that were repealed or limited by the new tax law.
Deductions for personal exemptions, worth $4,050 for each exemption claimed on your 2017 tax return (for you, your spouse and each of your dependents), were eliminated by the new tax law in favor of a larger standard deduction and an expanded child tax credit.
The former deductions were phased out for taxpayers whose adjusted gross income (AGI) exceeded a certain threshold amount. For 2017, the personal exemption deduction was completely phased out for single taxpayers with an AGI of $384,000, head of household filers with an AGI of $410,150, married couples filing a joint return with an AGI of $436,300, and married taxpayers filing a separate return with an AGI of $218,150.
In the past, people who relocated for a job and paid the moving costs could deduct most of their expenses, even if they didn’t itemize. The tax overhaul eliminated that deduction unless you’re an active-duty member of the military.
If you’re paying alimony under the terms of a divorce agreement finalized by December 31, 2018, go ahead and deduct your payments. For divorce agreements reached after 2018, though, alimony is no longer deductible, which is why courthouses were very busy at the end of last year. The deduction is also lost if an existing agreement is changed after 2018 to exclude the alimony from your former spouse’s income.
Ex-spouses who receive alimony payments under an agreement finalized or modified after 2018 will no longer have to pay taxes on the money.
These deductions included the write-off for tax preparation fees, investment fees, hobby losses, job search expenses, safe deposit boxes and unreimbursed business expenses. Previously, taxpayers could deduct these expenses if they exceeded 2% of their adjusted gross income.
The loss of these deductions could be particularly costly for employees with significant unreimbursed business expenses. For example, an employee who uses his or her own car to visit clients—and isn’t reimbursed for the mileage—could end up with a higher tax bill this year. The change could also prove costly for employees who work remotely, since they’ll no longer be allowed to deduct the cost of maintaining a home office. (The new tax law doesn’t affect the ability of self-employed workers to claim a home-office deduction.)
Starting with 2018 tax returns, you can deduct interest on home equity loans or lines of credit only if the money is used to buy, build or improve your home. If you use the cash to pay for other expenses – college tuition, for example – the interest isn’t deductible anymore.
In the past, you could deduct interest on a mortgage of up to $1 million ($500,000 if you’re married filing separately). If you closed on a loan by December 15, 2017, you still qualify to deduct interest on that amount. For loans acquired after that, you can only deduct interest on up to $750,000 ($375,000 if you’re married filing separately). You can also still deduct interest on a second home, but total mortgage interest is capped at $750,000.
The tax overhaul capped the amount of state and local taxes you can deduct at $10,000 ($5,000 if married and filing a separate return). In the past, these taxes were generally fully deductible. This could increase the tax bill for residents of states with high state income and property taxes.
If a tree fell on your home last year, you probably won’t be able to deduct losses that aren’t covered by insurance unless a hurricane knocked it down. The tax overhaul eliminated this deduction unless losses were the result of a federally declared disaster, such as hurricanes Michael and Florence in the Carolinas or the Camp wildfire in northern California. Go to www.fema.gov/disasters for a complete list of disaster declarations by state.
If your losses occurred in a federally declared disaster area, the old rules still apply: You must itemize to claim this deduction, and you must reduce the amount of your unreimbursed losses by $100. Once you’ve done that, you can only deduct unreimbursed losses that exceed 10% of your adjusted gross income.