You might wonder what the Tax Cuts and Jobs Act (TCJA) has in store for you next year. The answer is a lot. Many of the common deductions you know will either be limited or removed until 2025, when the TCJA expires.
1. No more personal and dependent exemptions.
The $4,050 personal exemption that taxpayers claim for themselves, spouses and dependents are no longer available in 2019. Currently, you can still deduct personal exemptions for the 2017 tax year. Click here to deduct your personal exemptions now.
2. The Standard Deduction doubles.
For 2019, the standard deduction increases to $12,000 for single and married filing separate filers, $18,000 for heads of households, and $24,000 for joint filers. It’s twice the amount of the previous standard deductions which are $6,350 for single and married filing separately, $9,350 for the head of household and $12,700 for joint filers. This may make it harder for taxpayers to itemize their deductions.
3. The Child Tax Credit (CTC) increases until 2025.
For qualifying children under 17, the CTC doubles from $1,000 to $2,000. Your dependent must also have a social security number for this credit. Moreover, the TCJA combines the Additional Child Tax Credit (ACTC) with the CTC. You can then receive a refundable credit of up to $1,400 after removing your tax.
4. A new dependent credit is here.
If you want to claim a non-dependent, (meaning someone who is not a qualifying child under age 17) you can do so and receive $500 for this credit. The non-dependent must be either a full-time student or disabled.
5. State and Local Taxes (SALT) deduction have a cap of $10,000.
Beforehand, there was not a limit in place for your SALT deduction but now, there will be a noticeable difference for taxpayers with greater amounts of state and local taxes.
6. Miscellaneous itemized deductions are eliminated.
In prior years, you can deduct your itemized deductions such as unreimbursed job expenses, tax preparation fees, and other expenses as long as they exceed 2% of your adjusted gross income. In 2019, you cannot deduct expenses such as:
· Moving expenses (excluding members of the armed forces)
· Travel expenses
· Meal expenses
· Professional and union dues
· Business liability insurance premiums
· Depreciation in mandatory items such as computer or phone usage
· Employee education expenses
· Home office expenses
· Job-seeking expenses
· Supplies and uniforms
· Investment fees
· Tax preparation fees
· Hobby expenses
It’s also recommended that you complete a new W-4 in place of this new tax law. Click here to find out more about your W-4.
7. Natural disaster expense deductions are allowed only if the location is a disaster zone.
Now, you can only deduct expenses from natural disasters if it falls under a presidentially designated disaster zone. Click here to see qualified disaster zones.
8. No more alimony deductions.
The TCJA declares that you cannot deduct your alimony payments on your tax return. This means that divorcees who make alimony payments can no longer deduct that amount on their federal taxes. This applies to divorces after December 31, 2018.
9. Mortgage interest deduction receives a cap of $750,000.
Prior to this, taxpayers could deduct up to $1 million in mortgage interest whereas now, it’s cut by 25%. On top of that, the new cap of $750,000 applies to residences purchased after December 15, 2017.
10. The Home Equity Interest Deduction disappears.
For 2018-2025, the interest you pay on home equity loans and lines of credit are no longer available. However, the IRS states that they are still deductible as long as they are used to buy, build or substantially improve the taxpayer’s home that secures the loan.
For example, you cannot deduct the use of the loan for credit card debt and living expenses. The loan must also be a qualified residence such as a homeowners’ main or second home and not exceed the cost of the home.
Here’s a reminder of the income tax brackets for 2018:
· 10% (Up to $9,525 for individuals; up to $19,050 for married filing jointly; and $13,600 for head of household)
· 12% (< $9,525 to $38,700; < $19,050 to $77,400 for couples; and < $13,600 to $51,800)
· 22% (< $38,700 to $82,500; < $77,400 to $165,000 for couples; and < $51,800 to $82,500)
· 24% (< $82,500 to $157,500; < $165,000 to $315,000 for couples; and < $82,500 to $157,500)
· 32% (< $157,500 to $200,000; < $315,000 to $400,000 for couples; and < $157,500 to $200,000)
· 35% (< $200,000 to $500,000; < $400,000 to $600,000 for couples; and < $200,000 to $500,000)
· 37% (< $500,000; < $600,000 for couples; and < $500,000)
Keep these 2019 changes in mind.
These changes will take place in the 2019 tax season. If you haven’t already filed your 2017 tax return, file now to get the tax deductions you’ll miss out next year!