Other Deductions and Credits

Itemized Deductions

While there has been an overall limitation on itemized deductions in prior years, there is no such limitation for 2019.

If you do choose to itemize, here are some important things to consider:

Medical Expense Deduction

The threshold for deducting such unreimbursed expenses is 10% of adjusted gross income for all taxpayers for both regular and alternative minimum tax purposes.

State & Local Tax Deduction

Through 2025, a taxpayer’s deduction for state and local taxes—including property taxes—is limited to $10,000 if they itemize their deductions. Additionally, the taxpayer still has the option to choose between deducting income taxes or deducting sales tax, but can’t deduct both.

Mortgage Interest Deduction

A taxpayer is allowed to deduct interest on mortgage debt up to $750,000 annually.

The limit for mortgage debt incurred or under written contract before December 15, 2017, is $1 million. The $1 million limit also applies for refinanced debt originally incurred before December 15, 2017, when the balance doesn’t exceed the amount of refinanced indebtedness.

Deductions for interest on home equity debt are only deductible if the debt was used to buy, build, or substantially improve the taxpayer’s home that secures the loan.  Home equity debt is subject to the same debt balance limits as mortgage debt.

Charitable Contributions

The limit on the deduction for cash donations to public charities is 60% of adjusted gross income. However, charitable deductions for payments made in exchange for college athletic event seating rights are eliminated.

Personal Casualty and Theft Loss Deduction

Through 2025, this deduction is suspended, except if the loss was due to an event officially declared a disaster by the president of the United States.

Moving Expenses

The deduction for work-related moving expenses is suspended through 2025, except for active-duty members of the armed forces and their spouses or dependents who move because of a military order that calls for a permanent change of station.

The exclusion from gross income and wages for qualified moving expense reimbursements is also suspended, except for active-duty members of the armed forces who move due to a military order.

Alimony Payments

Alimony payments aren’t deductible—and are excluded from the recipient’s taxable income—for divorce agreements executed or, in some cases, modified after December 31, 2018.

For divorce agreements executed prior to January 1, 2019, the alimony payments are deductible by the payor and are included in the recipient’s taxable income. This change will likely produce a higher overall tax burden as the recipient spouse typically pays income taxes at a rate lower than the paying spouse.

529 Plans

Distributions from 529 plans used to pay qualifying education expenses are generally tax-free. The definition of qualified education expenses includes not just postsecondary school expenses, but also primary and secondary school expenses. However, primary and secondary school expenses are limited to $10,000 annually.

Qualified Business Income Deduction

The qualified business income deduction under Section 199A provides many owners of sole proprietorships, partnerships, S corporations, and some trusts and estates, a deduction related to income from a qualified trade or business and subject to certain limitations. These limitations may apply once the taxpayer reaches the following income thresholds:

  • $160,700 for singles filers
  • $321,400 for joint filers

Importantly, not all activities rise to the level of a trade or business. For taxpayers with qualified business income from more than one trade or business, aggregating such businesses may allow for additional deductions if the taxpayer is subject to the limitations. Aggregation rules should be carefully considered as once an aggregation election is made, it must be consistently applied unless facts or circumstances change and requirements are no longer met.

Other Miscellaneous Deductions

The deduction for certain miscellaneous deductions, such as tax preparation fees, investment expenses, and unreimbursed employee business expenses, is suspended through 2025.

Tax Credits

Family Tax Credits

The credit is $2,000 per child under age 17. The maximum amount refundable—because a taxpayer’s credits exceed his or her tax liability—is limited to $1,400 per child.

The credit doesn’t begin to phase out until adjusted gross income exceeds $400,000 for married couples or $200,000 for all other filers. However, the phaseout thresholds aren’t indexed for inflation, meaning the credit will lose value over time.

A $500 nonrefundable credit is available for qualifying dependents other than qualifying children, such as a taxpayer’s parent, sibling, niece, nephew, aunt, uncle, or 17-year-old child.

All of the family tax credit provisions expire after 2025.

More Resources

The IRS’s Notice 2018-76 provides some clarity on the deductibility of business meal expenses.

New tax reform provision allows more tax-free savings for education expenses as well as increased flexibility with 529 plans.

The IRS clarified that deductions for home equity loans, credit, and second mortgages are mostly unchanged with tax reform.

Tax reform will have a varying impact on the deductibility of charitable giving in 2018 and beyond.

Learn how technology executives who derive a significant amount of their income from stock-based compensation can benefit from proactive tax planning.

The Tax Cuts and Jobs Act has far-reaching implications for businesses and individuals that pay state income taxes. Our Insight has the details.

Individuals will need to consider the effects of President Trump’s tax reform in their 2017 income taxes.