New things to consider for people who itemize their deductions
If you’ve normally itemized your deductions, it might be a good idea to review the deductions you claimed on your 2017 return and think about how they might change in the future. Tax benefits determine a lot of financial decisions for many taxpayers. They can influence whether you buy or sell a home, when you pay your state income taxes or property taxes, how much you donate to charity and how much tax you have withheld from your paycheck.
The new tax law suspends the deduction for home equity interest, unless the proceeds are used to buy, build or improve a home. Since substantially fewer people will be able to itemize, the tax benefit of owning a more expensive home and deducting the mortgage interest will be eliminated for many people. If the benefit of the mortgage interest and property taxes is eliminated, downsizing to a home with a smaller payment may be the best option.
The deduction for any combination of taxes which include property tax and state and local taxes is limited to $10,000 per year. This change primarily affects taxpayers who live in states with high property taxes. Four states are currently taking the IRS to court over the limit of $10,000.
Many people who had gambling winnings and claimed the gambling losses associated with the winnings would not benefit from deducting the losses. This is because many people will not have enough itemized deductions to exceed the standard deduction. Previously, people who gambled could offset their gambling winnings by deducting their losses when itemizing. For people who don’t have enough deductions to itemize, they will now be paying taxes on their gambling winnings.
Hobby income is still required to be reported as income on the 1040, but hobby expenses will no longer be deductible. Previously hobby expenses were deductible as an itemized expense. Anyone who previously had hobby income should consider if it is in their best interest to continue. For anyone who previously had a significant amount of expenses which offset the income, the loss of the expenses will result in them paying taxes on far more than their profit.
Employees who previously deducted employee business expenses for mileage, supplies, food and other items are no longer able to deduct their expenses. They may want to let their employer know that they are losing this deduction and see if the employer will reimburse them for their expenses. The loss of the employee business deduction can increase their taxes by thousands of dollars. Consequently, if your employer is not willing to reimburse expenses, finding another job with similar pay may be your best option.
David Zubler is the author of three books and a philanthropist. All of his proceeds from the books go to a charitable foundation he created for underprivileged children. He is also the founder of Your Tax Care which provides tax education.