Mar 20, 2018 | Tax Strategies |
Home ownership is a key element of the American dream for many, and the U.S. tax code includes many tax breaks that help support this dream. If you own a home, you may be eligible for several valuable breaks when you file your 2017 return. But under the Tax Cuts and Jobs Act, your home-related breaks may not be as valuable when you file your 2018 return next year. 2017 vs. 2018 Here’s a look at various home-related tax breaks for 2017 vs. 2018: Property tax deduction. For 2017, property tax is generally fully deductible — unless you’re subject to the alternative minimum tax (AMT). For 2018, your total deduction for all state and local taxes, including both property taxes and either income taxes or sales taxes, is capped at $10,000. Mortgage interest deduction. For 2017, you generally can deduct interest on up to a combined total of $1 million of mortgage debt incurred to purchase, build or improve your principal residence and a second residence. However, for 2018, if the mortgage debt was incurred on or after December 15, 2017, the debt limit generally is $750,000. Home equity debt interest deduction. For 2017, interest on home equity debt used for any purpose (debt limit of $100,000) may be deductible. (If home equity debt isn’t used for home improvements, the interest isn’t deductible for AMT purposes). For 2018, the TCJA suspends the home equity interest deduction. But the IRS has clarified that such interest generally still will be deductible if used for home improvements. Mortgage insurance premium deduction. This break expired December 31, 2017, but Congress might extend it....
Mar 6, 2018 | Tax Strategies |
Whether you’re claiming charitable deductions on your 2017 return or planning your donations for 2018, be sure you know how much you’re allowed to deduct. Your deduction depends on more than just the actual amount you donate. Type of gift One of the biggest factors affecting your deduction is what you give: Cash. You may deduct 100% gifts made by check, credit card or payroll deduction. Ordinary-income property. For stocks and bonds held one year or less, inventory, and property subject to depreciation recapture, you generally may deduct only the lesser of fair market value or your tax basis. Long-term capital gains property. You may deduct the current fair market value of appreciated stocks and bonds held for more than one year. Tangible personal property. Your deduction depends on the situation: • If the property isn’t related to the charity’s tax-exempt function (such as a painting donated for a charity auction), your deduction is limited to your basis. • If the property is related to the charity’s tax-exempt function (such as a painting donated to a museum for its collection), you can deduct the fair market value. Vehicle. Unless the vehicle is being used by the charity, you generally may deduct only the amount the charity receives when it sells the vehicle. Use of property. Examples include use of a vacation home and a loan of artwork. Generally, you receive no deduction because it isn’t considered a completed gift. Services. You may deduct only your out-of-pocket expenses, not the fair market value of your services. You can deduct 14 cents per charitable mile driven. Other factors First, you’ll...
Feb 27, 2018 | Tax Strategies |
If you purchased qualifying property by December 31, 2017, you may be able to take advantage of Section 179 expensing on your 2017 tax return. You’ll also want to keep this tax break in mind in your property purchase planning, because the Tax Cuts and Jobs Act (TCJA), signed into law this past December, significantly enhances it beginning in 2018. 2017 Sec. 179 benefits Sec. 179 expensing allows eligible taxpayers to deduct the entire cost of qualifying new or used depreciable property and most software in Year 1, subject to various limitations. For tax years that began in 2017, the maximum Sec. 179 deduction is $510,000. The maximum deduction is phased out dollar for dollar to the extent the cost of eligible property placed in service during the tax year exceeds the phaseout threshold of $2.03 million. Qualified real property improvement costs are also eligible for Sec. 179 expensing. This real estate break applies to: • Certain improvements to interiors of leased nonresidential buildings, • Certain restaurant buildings or improvements to such buildings, and • Certain improvements to the interiors of retail buildings. Deductions claimed for qualified real property costs count against the overall maximum for Sec. 179 expensing. Permanent enhancements The TCJA permanently enhances Sec. 179 expensing. Under the new law, for qualifying property placed in service in tax years beginning in 2018, the maximum Sec. 179 deduction is increased to $1 million, and the phaseout threshold is increased to $2.5 million. For later tax years, these amounts will be indexed for inflation. For purposes of determining eligibility for these higher limits, property is treated as acquired on...
Feb 20, 2018 | Tax Strategies |
If you moved for work-related reasons in 2017, you might be able to deduct some of the costs on your 2017 return — even if you don’t itemize deductions. (Or, if your employer reimbursed you for moving expenses, that reimbursement might be excludable from your income.) The bad news is that, if you move in 2018, the costs likely won’t be deductible, and any employer reimbursements will probably be included in your taxable income. Suspension for 2018–2025 The Tax Cuts and Jobs Act (TCJA), signed into law this past December, suspends the moving expense deduction for the same period as when lower individual income tax rates generally apply: 2018 through 2025. For this period it also suspends the exclusion from income of qualified employer reimbursements of moving expenses. The TCJA does provide an exception to both suspensions for active-duty members of the Armed Forces (and their spouses and dependents) who move because of a military order that calls for a permanent change of station. Tests for 2017 If you moved in 2017 and would like to claim a deduction on your 2017 return, the first requirement is that the move be work-related. You don’t have to be an employee; the self-employed can also be eligible for the moving expense deduction. The second is a distance test. The new main job location must be at least 50 miles farther from your former home than your former main job location was from that home. So a work-related move from city to suburb or from town to neighboring town probably won’t qualify, even if not moving would have increased your commute significantly....
Feb 13, 2018 | Tax Strategies |
Whether you had a child in college (or graduate school) last year or were a student yourself, you may be eligible for some valuable tax breaks on your 2017 return. One such break that had expired December 31, 2016, was just extended under the recently passed Bipartisan Budget Act of 2018: the tuition and fees deduction. But a couple of tax credits are also available. Tax credits can be especially valuable because they reduce taxes dollar-for-dollar; deductions reduce only the amount of income that’s taxed. Higher education breaks 101 While multiple higher-education breaks are available, a taxpayer isn’t allowed to claim all of them. In most cases you can take only one break per student, and, for some breaks, only one per tax return. So first you need to see which breaks you’re eligible for. Then you need to determine which one will provide the greatest benefit. Also keep in mind that you generally can’t claim deductions or credits for expenses that were paid for with distributions from tax-advantaged accounts, such as 529 plans or Coverdell Education Savings Accounts. Credits Two credits are available for higher education expenses: 1. The American Opportunity credit — up to $2,500 per year per student for qualifying expenses for the first four years of post-secondary education. 2. The Lifetime Learning credit — up to $2,000 per tax return for post-secondary education expenses, even beyond the first four years. But income-based phaseouts apply to these credits. If you’re eligible for the American Opportunity credit, it will likely provide the most tax savings. If you’re not, consider claiming the Lifetime Learning credit. But first determine...
Jan 24, 2018 | Tax Strategies |
Working from home has become commonplace. But just because you have a home office space doesn’t mean you can deduct expenses associated with it. And for 2018, even fewer taxpayers will be eligible for a home office deduction. Changes under the TCJA For employees, home office expenses are a miscellaneous itemized deduction. For 2017, this means you’ll enjoy a tax benefit only if these expenses plus your other miscellaneous itemized expenses (such as unreimbursed work-related travel, certain professional fees and investment expenses) exceed 2% of your adjusted gross income. For 2018 through 2025, this means that, if you’re an employee, you won’t be able to deduct any home office expenses. Why? The Tax Cuts and Jobs Act (TCJA) suspends miscellaneous itemized deductions subject to the 2% floor for this period. If, however, you’re self-employed, you can deduct eligible home office expenses against your self-employment income. Therefore, the deduction will still be available to you for 2018 through 2025. Other eligibility requirements If you’re an employee, your use of your home office must be for your employer’s convenience, not just your own. If you’re self-employed, generally your home office must be your principal place of business, though there are exceptions. Whether you’re an employee or self-employed, the space must be used regularly (not just occasionally) and exclusively for business purposes. If, for example, your home office is also a guest bedroom or your children do their homework there, you can’t deduct the expenses associated with that space. 2 deduction options If you’re eligible, the home office deduction can be a valuable tax break. You have two options for the deduction:...
