With the new standard deduction amounts being introduced in 2018, it might not be reasonable for taxpayers to itemize their deductions moving forward. However, if you still plan to itemize, here are some notable changes that you should take into account for 2018.
- Capping of the State and Local Taxes Deductions (SALT)
The number to remember is $10,000. For the year 2018, all state and local income, sales, and property taxes combined are capped at $10,000. This only applies to amounts listed on schedule A and do not affect sales and property taxes that are on Schedule C, Schedule E, and Schedule F.
- Home Mortgage Interest
The home mortgage interest deduction is now more secluded. This change will not affect all taxpayers, but it will have an impact on individuals who qualify for a mortgage upwards of $750,000. Only the interest from the first $750,000 is deductible on mortgages taken out after December 14, 2017. The limit for mortgages taken out before December 15, 2017 remains at $1,000,000.
- Medical Expense Deduction
The new floor to subtract from your medical expenses is 7.5% of your AGI. A floor is the amount that you can deduct expenses over. If your medical expenses do not meet this floor, you will not be able to deduct any medical expenses. So for example, you have $10,000 in medical expenses and an AGI of $150,000. 7.5% of your AGI ($150,000) creates a floor of $11,250 and because your medical expenses ($10,000) do not exceed the floor ($11,250) you may not deduct any medical expenses. Let’s say you had $15,000 in medical expenses with the floor being $11,250. In this case, you would be able to take a medical deduction of $15,000 – $11,250 = $3,750.
- Casualty and Theft
In 2018, you will no longer be able to deduct losses relating to casualty or theft unless those losses occurred due to a disaster declared by the President. This will be in effect from 2018 to 2025.
- Charitable Contributions
The AGI limit allowed to be contributed in any one tax year has increased from 50% to 60%.
For those of you who donate for the tax benefits, be sure to get a receipt.