Since the Tax Cuts and Job
Act was enacted for 2018 tax returns, a taxpayer’s first task is to determine
whether to claim itemized or standard deductions, both of which reduce the
amount of income subject to tax.
This new Act nearly doubled
the standard deduction to $12,000 for singles and married filing separately,
$24,000 for married filing jointly, and $18,000 for head of household. According to Jill Schlesinger, “The larger
amount means about 90 percent of tax payers will claim the standard deduction
and their tax preparation will be fairly straightforward.” Before the tax overhaul, about 30 percent of
taxpayers took itemized deductions, according to the Tax Policy Center.
Seven itemized deductions
that are capped or gone altogether from your 2018 return are:
Gone:
1. Casualty and theft losses (not reimbursed by insurance and which
occur unexpectedly). Now, personal
casualty losses can only be claimed if damage is attributable to a disaster
declared by the President. The ten percent
threshold of AGI is still the same as before the 2018 tax year.
2. Miscellaneous Itemized Deductions including expenses such as
unreimbursed employee costs, tax preparation fees, investment, safe deposit
box, etc.
3. Alimony payments.
Deductions for alimony payments is eliminated for agreements executed
after 12/31/18 and alimony payments are no longer included as income after this
date.
Capped:
4. State and Local Taxes (SALT). This includes property taxes plus state income
tax or sales tax*. The
new tax code places a $10,000 cap on SALT deductions, which could especially affect
tax returns for people living in high-tax areas. *There
is one detail that remains unchanged; you still must choose to deduct either
your state income tax or sales tax. You cannot deduct both amounts.
5. Medical and dental expenses. For 2017 and 2018 tax years, taxpayers are
able to claim an itemized deduction for out-of-pocket health-care costs to the
extent they exceed 7.5 percent of your adjusted gross income. Starting in 2019, that threshold will jump
back up to 10 percent (where it had previously been for many taxpayers). Note:
Even though the IRS has lowered the bar for the amount of medical expenses
you must incur for 2018, fewer people are likely to itemize their deductions
due the higher standard deduction.
6. Home Mortgage Interest.
There is a new dollar limit on
total qualified residence loan balances.
If your loan originated after 12/15/17, you may deduct interest on up to
$750,000 in qualifying debt. (combined amount
of loans you use to buy, build or substantially improve your dwelling and
second home). Regarding home equity
loans and lines of credit, deductible interest is allowed only if you were
using the money to build or improve your home.
7. Charitable Giving.
Still deductible, however, a combination of higher standard deductions
and limitations on itemized deductions means that fewer people will be
itemizing on their 2018 tax returns.
This could put the charitable deduction out of reach for many taxpayers. Charitable organizations are recommending “bunching”
several years’ deductions into one year to increase the deduction potential.
EXAMPLES
1. Married, filing jointly, no dependents:
Assumptions:
Combined Income: $150,000
Property Taxes: $8,000
Mortgage Loan Amount: $350,000
Amortization Term: 30 years
Interest Rate: 4%
Annual mortgage interest: $13,888
PMI, 10% down, .36 factor: $1,260
|
|
2017
|
2018
|
|
Adjusted Gross Income (AGI)
|
$150,000
|
$150,000
|
|
Itemized
|
$ 23,022
|
|
|
Standard
|
|
$ 24,000
|
|
Exemptions
|
$ 8,100
|
$ 0
|
|
Taxable Income
|
$118,878
|
$126,000
|
|
Tax
|
$ 21,197
|
$ 19,599
|
SAVINGS IN 2018 COMPARED TO 2017: $ 1,598
2. Single Person, no dependents:
Assumptions: Same as above
|
|
2017
|
2018
|
|
Adjusted Gross Income (AGI)
|
$150,000
|
$150,000
|
|
Itemized
|
$ 22,922
|
$ 23,888
|
|
Exemptions
|
$ 4,050
|
$ 0
|
|
Taxable Income
|
$123,028
|
$126,112
|
|
Tax
|
$ 27,430
|
$ 24,556
|
SAVINGS IN 2018 COMPARED TO 2017: $ 2,874
3. Married, filing jointly, 2 dependents
Assumptions:
Combined Income: $220,000
Property Taxes: $18,000
Mortgage Loan Amount: $800,000
Amortization Term: 30 years
Interest Rate: 4.25%
Annual mortgage interest: $33,739
|
|
2017
|
2018
|
|
Adjusted Gross Income (AGI)
|
$220,000
|
$220,000
|
|
Itemized
|
$ 53,214
|
$ 43,739
|
|
Exemptions
|
$ 16,200
|
$ 0
|
|
Taxable Income
|
$150,586
|
$176,261
|
|
Tax
|
$ 29,124
|
$ 30,882
|
|
Child Credit
|
0
|
$ 4,000
|
|
Net Tax
|
$ 29,124
|
$ 26,882
|
SAVINGS IN 2018
COMPARED TO 2017: $ 2,242
Notes:
● All earnings are shown without any withholding; state
withholding results in an itemized deduction – without income tax withholding,
the default provides sales tax based on reported earnings.
● In 2018, SALT capped at $10,000 (affects Example #3)
● The Child Credit (in Example #3) assumes the children
are under 10.
● Information provided by an accountant and deemed
reliable but not guaranteed.
New 1040 Form
Taxpayers will notice that
their Form 1040 has undergone a makeover. For starters, the paper copy will be
shrunken down so that it's "postcard-sized" with six schedules.
"You'll have a
redesigned 1040, and some lines will be combined and shifted over to other
forms and schedules," said Amy Wang, a CPA and senior manager on the
American Institute of CPAs' tax policy and advocacy team.
If you had a simplified tax
return (Form 1040A or 1040EZ) in previous years, these will no longer be
used. Instead, for the 2018 tax year, you'll
file the new Form 1040.
Please visit my website at dianeloan.com with your inquiries and to schedule a time for a free
consultation.
Provided by Diane Pyshos, Senior Mortgage Consultant
NMLS #137800 - Company ID
#19291
A&N Mortgage
Services, 1945 North Elston Avenue, Chicago, IL
60642
and
16109 Red Arrow
Highway, Union Pier, MI 49129
312-909-9718
THIS IS AN ADVERTISMENT. This is not a commitment to lend. A and N Mortgage Services, Inc. is an
Illinois Residential Mortgage Licensee and Equal Housing Lender. 1945 N. Elston Ave., Chicago, IL 60642 P:
773.305.LOAN (5626) www.anmtg.com NMLS #19291 IL MB.0006638. Serving IL, IA,
IN, FL, MA, MI, MN, TX, WI
