Deduction Changes for 2018 Personal Taxes

Recent Tax Reform Alters Personal Deductions for 2018

The IRS made major changes to personal deductions for 2018 taxes.

The new regulations eliminate or reduce several popular deductions. As an offset to these changes, the rules also increase standard deductions.

With all of these changes, most taxpayers will not benefit from itemizing deductions. As you compile your tax return for this tax season, please keep the following in mind.

The IRS Reduced or Eliminated Several Deductions

Personal Exemptions Eliminated

In 2017, each individual could take a personal exemption of $4,050. The IRS allowed this deduction for each member of a family. This year the new tax regulations eliminate the personal deduction.

State/Local Taxes Deduction Reduced

You can now only deduct up to $10,000 in state or local taxes. Previously, you could fully deduct these taxes.

Mortgage Interest Deduction Reduced

Under the new tax regulations, taxpayers can only deduct mortgage interest on mortgage liabilities up to $750,000 on their primary and second home.

Home Equity Loan Interest Deduction Reduced

The new rules also reduce or eliminate the deduction of interest on home equity loans based on how the funds are used.  Taxpayers cannot deduct home equity loan interest if they use the proceeds for non-home-related events (such as paying off credit cards, purchasing an auto or paying for college tuition).

Taxpayers can deduct home equity loan interest if they use the proceeds for home improvements, but only if the combined debt (original mortgage plus home equity loan) does not exceed the $750,000 total loan limit.

Moving Expense Deduction Eliminated for Most

Unless you are an active-duty member of the military, you can no longer deduct moving expense related to a job change.

Job-Related Deductions Eliminated

Previously, in certain circumstances, you could deduct some job-related expenses (such as license fees, required education courses, tools, equipment, etc.). To deduct these job-related expenses, your miscellaneous deductions (including these costs) had to exceed 2% of your AGI. The new regulation disallows job-related expenses.

Note: employers can claim these expenses as a business expense. If you are losing this deduction, ask your employer if they would cover some of the cost.

Medical Expenses Available for Some

To deduct medical expenses, you must itemize your deductions. In 2018, fewer folks will be itemizing their deductions due to all of the above changes. If you are itemizing, you can only deduct medical expense after they exceed 7.5% of your Adjusted Gross Income or AGI.

Standard Deduction Amounts Increase

To compensate taxpayers for the elimination of many deductions, the IRS rules increase the standard deduction amounts.

The new standard deductions are as follows:

Single (or married and filing separately) $12,000

Married, filing jointly $24,000

Head of household* $18,000

Who can claim head of household?

The IRS defines a head of household as an unmarried individual with a dependent. To claim this deduction, the unmarried taxpayer must pay more than half of the household’s expenses. The IRS allows a divorced individual to qualify as “unmarried” if the individual’s marital status changes by the final day of the tax year.

Contact us if you need help with your 2018 taxes

As you can see, a 2018 tax filing will be much different from previous years. If you need help completing your taxes this year, please contact us.

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