IRS released a draft of the 2018 Schedule A. It reflects the changes to itemized deductions that were enacted under last year’s tax reform law. Note that because of the higher standard deductions, far few filers will itemize in 2018 than in the past years.
Start with medicals. The AGI threshold for deducting 2018 medical expenses stays at 7.5%. It goes back up to 10% for all filers beginning in 2019.
Turn to state and local taxes. This write-off is now capped at $10,000 for Schedule A itemizers…$5,000 for couples filing separately. Note that property and sales taxes remain fully deductible for taxpayers in a business or for-profit activity. So, property taxes paid on rental realty can be taken on Schedule E without regard to the cap, and self-employeds and farmers can deduct on Schedule C or F property taxes and sales taxes paid in their business.
Interest on home mortgages in nicked. Interest can be deducted on Schedule A on up to $750,000 of acquisition debt on a primary and a secondary residence…down from $1 million. This new limit generally applies to home mortgage debt incurred after December 14, 2017. Older loans and refinancing’s up to the old loan amount get the $1 million cap. No write-off is allowed after 2017 for interest that you pay on existing or new home equity loans from which the proceeds are used to buy a car, pay down credit card debt, etc. The law’s crackdown on home equity loans doesn’t apply to debt secured by a first or second home and used to remodel or improve the place.
Interest on margin loans can still be written off. Investment interest paid is deductible on Schedule A up to the amount of net investment income reported.
The charitable contribution write-off is preserved, with a couple of changes. The AGI limitation on cash donations to qualified charities is hiked from 50% to 60%. Also, gifts to colleges in exchange for the right to buy choice seats at sporting events aren’t as valuable taxwise. Under old law, donors were able to deduct 80% of the gift, even when the value of the seat license they received in exchange for their donation exceeded 20% of the donation. Congress eliminated this break in the new tax law.
The deduction for personal casualty and theft losses is a thing of the past…Except for casualty losses incurred in presidentially declared disaster areas.
All deductions that were subject to the 2%-of-AGI threshold are gone. These include unreimbursed employee business expenses, tax preparation costs, investment account management fees, IRA custodial fees paid by the account owner, hobby expenses to the extent of hobby income, safe deposit box fees and many more.
But other miscellaneous write-offs survive, such as personal gambling losses to the extent of gambling winnings that are reported on the first page of the 1040. Note that years ago you could offset gambling losses directly fro gambling winnings on Line 28 of Form 1040, regardless of whether or not you itemized deductions. I think it is totally unfair and discriminatory to restrict this deduction only to people who itemized their deduction. Now, more than ever, with more people claiming the standard deduction, it will forced those who occasionally win from lottery tickets, casinos, racetracks, etc. to pay tax on the winnings regardless if their losses was greater than their winnings. I had a situation years ago where an elderly client who rarely gambled and did not have itemized deductions that were sufficient to claim more than the allowable standard deduction, ended up paying income tax on her winning lottery ticket without the benefit of reducing it by her losing tickets.
The phaseout of itemized deductions for upper-incomers is scrapped.