The new tax law made sweeping changes on many fronts. The big change, especially affecting homeowners in our area, is a new $10,000 cap on deductions for property taxes and state and local income taxes (referred to as SALT). For those who itemize deductions, this could lead to a higher tax bill.
Here’s why:
Assume a taxpayer is in the 30% bracket under the old and new law. If the property taxes on a home are $25,000, and state income taxes are $15,000, the deduction against federal taxes is $10,000 under the new law, instead of $40,000. With $30,000 no longer deductible, an additional $9,000 in taxes is due.
These items also affect home ownership:
(1) Under the new law, the deduction for mortgage interest is limited to acquisition debt of up to $750,000 for a mortgage incurred after December 15, 2017. The prior limit was $1 million.
(2) Interest on a home equity loan, previously deductible up to $100,000, is still deductible IF it is actually used for home improvements (so take care to keep records and receipts!).
In other news of note:
- 529 account holders can now use up to $10,000 per year to pay for tuition for elementary, secondary, public, private or religious school.
- For divorce or separation agreements entered after December 31, 2018, alimony is no longer deductible, nor is it additional income to the recipient.
- Job-related moving expenses (except active military), tax prep fees, and unreimbursed employee expenses are no longer deductible.
Under the new law, only those who itemize deductions can deduct charitable contributions. However, for big donors who itemize, the allowable deduction is increased from 50% of AGI to 60%. It may be a good idea to clump contributions and medical expenses to every other year, for example, so the taxpayer can itemize in some years – to maximize deductions.
The exemption for estate tax has doubled to $11,200,000. While it’s good news for some, 17 states still have some sort of estate or inheritance tax. This means tax planning will still be needed for many people. One publication reported that under the old law, 5,500 people paid estate tax, but with the new exemption, it seems the tax will only be imposed on 1,700 people!
Susan G. Parker specializes in estate planning, probate, elder law and business planning. She is licensed to practice law in NY and Florida and maintains a practice in Briarcliff Manor. Shehas authored four books on elder law and estate planning.141 North State Rd., Briarcliff Manor, NY 10510; 914-923-1600; susan@susanparkerlaw.com
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19 Mar 2018
0 Commentsthe new tax law: what changes for you?
The new tax law made sweeping changes on many fronts. The big change, especially affecting homeowners in our area, is a new $10,000 cap on deductions for property taxes and state and local income taxes (referred to as SALT). For those who itemize deductions, this could lead to a higher tax bill.
Here’s why:
Assume a taxpayer is in the 30% bracket under the old and new law. If the property taxes on a home are $25,000, and state income taxes are $15,000, the deduction against federal taxes is $10,000 under the new law, instead of $40,000. With $30,000 no longer deductible, an additional $9,000 in taxes is due.
These items also affect home ownership:
(1) Under the new law, the deduction for mortgage interest is limited to acquisition debt of up to $750,000 for a mortgage incurred after December 15, 2017. The prior limit was $1 million.
(2) Interest on a home equity loan, previously deductible up to $100,000, is still deductible IF it is actually used for home improvements (so take care to keep records and receipts!).
In other news of note:
Under the new law, only those who itemize deductions can deduct charitable contributions. However, for big donors who itemize, the allowable deduction is increased from 50% of AGI to 60%. It may be a good idea to clump contributions and medical expenses to every other year, for example, so the taxpayer can itemize in some years – to maximize deductions.
The exemption for estate tax has doubled to $11,200,000. While it’s good news for some, 17 states still have some sort of estate or inheritance tax. This means tax planning will still be needed for many people. One publication reported that under the old law, 5,500 people paid estate tax, but with the new exemption, it seems the tax will only be imposed on 1,700 people!