When President Trump signed the Tax Cuts and Jobs Act into law in 2017, it created several significant changes that affected various households differently. For example, while it doubled the standard deduction and raised the child tax credit, it did away with several deductions and credits.
2020 tax season will be much the same, however. “There’s a lot of confusion about the stimulus package,” Greg Hammer, the president of Indiana-based Hammer Financial, told US News My Money.
Still, the measures under the CARES Act shouldn’t affect regular taxpayers’ deductions, and you shouldn’t be concerned about paying taxes on your stimulus checks. “Essentially, the intent was to give people the money,” Hammer noted.
Although several important tax deductions could see a comeback once parts of the law lapse in 2025, US News My Money explains which tax deductions you won’t be able to claim this year.
One of the most uplifting parts of the 2017 tax bill was the raise on the standard deduction. “The overall effect of the tax reform was that most taxpayers were better off using the standard deductions rather than itemizing their deductible expenses,” CPA and Michigan-based Creative Financial Solutions managing partner Daniel Laginess explained.
Although the standard deduction for single filers was $6,350 in 2017, that figure doubled to $12,000 in 2018. For this year’s tax returns, the standard deduction for single filers is $12,400. Spouses filing jointly will be eligible for a $24,8000 standard deduction, while those who file as the head of household can deduct $18,650.
According to Timothy McGrath, a managing partner at Riverpoint Wealth Management in Chicago, “The amount of people who are eligible for (itemized) deductions has really dropped.” So unless you have a home loan with a high interest rate, a standard deduction will probably help you save big instead of itemizing.
The boosted standard deduction was beneficial for most Americans. Still, it came at a price: it got rid of a few earlier deductions, such as the personal exemption for taxpayers and dependents, according to Laginess.
Although personal exemptions differ from deductions, they let taxpayers deduct $4,050 from their taxable income for every dependent. Many families will feel the effects of this change, even with the new standard deduction rules.
State And Local Tax Deductions
Taxpayers who itemize their deductions have enjoyed considerable savings thanks to an unlimited number of state and local taxes they could write off. Also known as SALT, taxpayers now have an annual limit of $10,000 in deductions for these types of taxes.
The cap is especially problematic for California and New York residents, two states with higher-than-average state income and property taxes. “There are a lot of high earners who aren’t getting much of a deduction with a cap of $10,000 per year,” McGrath remarked.
Mortgage Interest Deductions
Another modification that unduly impacts states with above-average tax rates is the limit on the amount of mortgage interest homeowners can write off on their taxes. For example, spouses could deduct interest on mortgages valued at $1 million in 2017. Now, they can only write off interest on mortgages worth up to $750,000.
Home Equity Loan Interest Deductions
The 2017 tax bill also got rid of unlimited interest write-offs for current and new home equity loans. At one point, you could write off interest on loans, regardless of their intended purpose. This year, homeowners can only deduct interest on loans to cover the cost of renovations. Additionally, spouses filing jointly can no longer deduct interest on initial mortgages and home equity loans over $75,000.
Unreimbursed Employee Expenses
Employees who never received compensation for work-related expenses could write off any figure more than 2% of their 2017 adjusted gross income. “(Some workers) used to have big write-offs,” CPA and Arizona-based Axberg Wealth Management president Paul Axberg explained.
But this deduction is no longer available. To make up for these expenses, employers will have to handle this problem directly with their employer.
Miscellaneous Itemized Deductions
Unrepaid work expenses fall under miscellaneous itemized deductions eliminated by the 2017 tax law. Other deductions in this category include financial service expenses, tax preparation service fees, investment fees, professional charges, and many more.
Independent contractors, gig workers, and freelancers can write off most of these as work expenses when they file a Schedule C form. But the IRS has certain regulations regarding who it considers an independent contractor. These individuals are required to pay self-employment taxes. If you’re unsure of your status, consider working with a tax expert.
- LaPonsie, Maryalene. “12 Tax Deductions That Have Disappeared.” U.S. News & World Report, U.S. News & World Report, 11 Jan. 2021, money.usnews.com/money/personal-finance/taxes/articles/tax-deductions-that-disappeared-this-year.