Highlights of Changes Under the New Tax Law
On the Federal level you will no longer be able to declare exemptions for yourself nor your dependents.
Tax prep fees, investment management fees, employee business expenses and any other miscellaneous deductions will no longer be deductible on Schedule A for itemized deductions. Let’s keep in mind that most of these never ended up as deductions for most people since you had to exceed a floor of 2% of your income. However, for those of you who could deduct some of these, you will no longer have this benefit. This will be especially painful for those who could deduct employee business expenses and for those paying high annual management fees for professionals who manage their portfolios.
Tax preparation fees, safe deposit fees and some others might be deductible to you if you have a business. Check with your tax professional.
For self-employed people be sure to include under adjustments on page 1 of the 1040 the cost of your long-term care insurance, self-paid health insurance and Medicare premiums.
Your itemized deduction for the combination of state and local tax and real estate tax is now limited to $10,000. This limitation will cost you additional tax especially if you are living in high cost real estate communities.
There may be some other tax benefits coming for pass through entities like sole proprietorships and LLC’s but those regs have not yet been issued by the IRS. Stay tuned!
The standard deductions have gone up... For example, if you file married filing joint, the standard deduction is now $24,000 and $12,000 for those filing single. This will force many more people to go with the standard deduction rather than itemizing.
Capital gains exclusions for the sale of your primary residence have been kept at the same level as in the past. Individuals will be able to avoid tax on the first $250k of capital gain and married couples will remain at $500k.
Mortgage interest is deductible for the amount incurred on the first $750,000 of debt which included what you owe on your primary residence or second home. Older mortgages are grandfathered in but could exclude the deduction for a second home. Interest on home equity loans is also no longer deductible unless you can prove that the funds were used to substantially improve your residence.
Rules for contributing to IRA’s and other retirement plans have largely remained the same.