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Tax reform brought significant changes to itemized deductions

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Tax law changes in the Tax Cuts and Jobs Act affect almost everyone who itemized deductions on tax returns they filed in previous years..  One of these changes is that TCJA nearly doubled the standard deduction for most taxpayers. This means that many individuals may find it more beneficial to take the standard deduction. However, taxpayers may still consider itemizing if their total deductions exceed the standard deduction amounts.

Here are some highlights taxpayers need to know if they plan to itemize deductions:

Medical and dental expenses
Taxpayers can deduct the part of their medical and dental expenses that’s more than 7.5 percent of their adjusted gross income.

State and local taxes
The law limits the deduction of state and local income, sales, and property taxes to a combined, total deduction of $10,000. The amount is $5,000 for married taxpayers filing separate returns. Taxpayers cannot deduct any state and local taxes paid above this amount.

Miscellaneous deductions
The new law suspends the deduction for job-related expenses or other miscellaneous itemized deductions that exceed 2 percent of adjusted gross income. This includes unreimbursed employee expenses such as uniforms, union dues and the deduction for business-related meals, entertainment and travel.

Home equity loan interest
Taxpayers can no longer deduct interest paid on most home equity loans unless they used the loan proceeds to buy, build or substantially improve their main home or second home.

More information:
• Publication 5307, Tax Reform: Basics for Individuals and Families
• Publication 501, Standard Deduction, and Filing Information
• Schedule A, Itemized Deductions
• IRS Tax Map

IRS YouTube Videos:
• Interactive Tax Assistant – English | ASL

 

*This message was distributed by IRS Tax Tips, an IRS e-mail service. For more information on federal taxes please visit IRS.gov.

Here’s how tax reform affects taxpayers who claim the child tax credit

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Many people claim the child tax credit to help offset the cost of raising children. Tax reform legislation made changes to that credit for 2018 and later. Here are some important things for taxpayers to know.

Credit amount. The new law increases the child tax credit from $1,000 to $2,000. Eligibility factors for the credit have not changed. As in past years, a taxpayer can claim the credit if all of these apply:

  • the child was younger than 17 at the end of the tax year
  • the taxpayer claims the child as a dependent
  • the child lives with the taxpayer for at least six months of the year

Credit refunds. The credit is refundable, now up to $1,400. If a taxpayer doesn’t owe any tax before claiming the credit, they will receive up to $1,400 as part of their tax refund.

Earned income threshold. The income threshold to claim the credit has been lowered to $2,500 per family. This means a family must earn a minimum of $2,500 to claim the credit.

Phaseout. The income threshold at which the child tax credit begins to phase out is increased to $200,000, or $400,000 if married filing jointly. This means that more families with children younger than 17 qualify for the larger credit.

New credit for other dependents. Dependents who can’t be claimed for the child tax credit may still qualify for the new credit for other dependents.  This is a non-refundable credit of up to $500 per qualifying person. These dependents may also be dependent children who are age 17 or older at the end of the tax year. It also includes parents or other qualifying relatives supported by the taxpayer.

 

*This message was distributed by IRS Tax Tips, an IRS e-mail service. For more information on federal taxes please visit IRS.gov.