Deduction for home mortgage and home equity interest modified.
Your deduction for mortgage interest is limited to interest you paid on a loan secured by your main home or second home that you used to buy, build, or substantially improve your main home or second home.
THIS MEANS THAT…if you do itemize… that interest paid on most home equity loans is not deductible unless the loan proceeds were used to buy, build, or substantially improve your main home or second home.
For example, interest on a home equity loan used to build an addition to an existing home is typically deductible, while interest on the same loan used to pay personal living expenses, such as credit card debts, is not.
As under prior law, the loan must be secured by the taxpayer’s main home or second home (known as a qualified residence), not exceed the cost of the home and meet other requirements.
Miscellaneous itemized deductions suspended.
The previous deduction for job-related expenses or other miscellaneous itemized deductions that exceeded 2 percent of your adjusted gross income is suspended. This includes unreimbursed employee expenses such as uniforms, union dues and the deduction for business-related meals, entertainment and travel, as well as any deductions you may have previously been able to claim for tax preparation fees and investment expenses, including investment management fees, safe deposit box fees and investment expenses from pass-through entities. The business standard mileage rate listed in Notice 2018-03 cannot be used to claim an itemized deduction for unreimbursed employee travel expenses during the suspension.
THIS MEANS THAT…if you do itemize…if your miscellaneous itemized deductions previously needed to exceed 2% of your adjusted gross income, they are no longer deductible.
Deduction for personal exemptions suspended
For 2018, you can’t claim a personal exemption deduction for yourself, your spouse, or your dependents.
THIS MEANS THAT…you will not be able to reduce the income that is subject to tax by the exemption amount for each person included on your tax return as you have in previous years.
However, changes to the standard deduction amount and Child Tax Credit may offset at least part of this change for most families and, in some cases, may result in a larger refund.
Child tax credit and additional child tax credit
For 2018, the maximum credit increased to $2,000 per qualifying child. Up to $1,400 of the credit can be refundable for each qualifying child as the additional child tax credit. In addition, 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 under 17 qualify for the larger credit.
Repeal of deduction for alimony payments
Alimony and separate maintenance payments are no longer deductible for any divorce or separation agreement executed after December 31, 2018, or for any divorce or separation agreement executed on or before December 31, 2018, and modified after that date. Further, alimony and separate maintenance payments are no longer included in income based on these dates, so you won’t need to report these payments on your tax return if the payments are based on a divorce or separation agreement executed or modified after December 31, 2018.
Repeal of deduction for amounts paid in exchange for college athletic event seating rights
No charitable deduction shall be allowed for any amount paid to an institution of higher education in exchange for which the payor receives the right to purchase tickets or seating at an athletic event.
THIS MEANS THAT… “Seat license” or other fees paid in exchange for the right to buy seating at college athletic events are no longer deductible.
Reporting Health Care Coverage
Under the Tax Cuts and Jobs Act, you must continue to report coverage, qualify for an exemption, or report an individual shared responsibility payment for tax year 2018.
If you need health coverage, visit HealthCare.gov to learn about health insurance options that are available for you and your family, how to purchase health insurance, and how you might qualify to get financial assistance with the cost of insurance.
Most taxpayers have qualifying health coverage or a coverage exemption for all 12 months in the year, and will check the box on the front of their tax return.
THIS MEANS THAT... For tax year 2018, the IRS will not consider a return complete and accurate if you do not report full-year coverage, claim a coverage exemption, or report a shared responsibility payment on the tax return. You remain obligated to follow the law and pay what you may owe at the point of filing.
WHAT’S NEXT FOR TAX YEAR 2019? The shared responsibility payment is reduced to zero under TCJA for tax year 2019 and all subsequent years. See IRS.gov/aca for more information.
Recharacterization of a Roth Conversion
You can no longer recharacterize a conversion from a traditional IRA, SEP or SIMPLE to a Roth IRA. The new law also prohibits recharacterizing amounts rolled over to a Roth IRA from other retirement plans, such as 401(k) or 403(b) plans. You can still treat a regular contribution made to a Roth IRA or to a traditional IRA as having been made to the other type of IRA.
See IRA FAQS – Recharacterization of IRA Contributions and IRS.gov/taxreform for more information.