In December 2017, major tax reform that affects both individuals and businesses was enacted. It is commonly referred to as the Tax Cuts and Jobs Act of 2017, or TCJA for short. Read this article for a few reminders of changes affecting individuals for the 2019 tax year.
Changes to Itemized Deductions
The nearly doubling of the amount of the standard deduction will drive the need to itemize a lot less frequent for many taxpayers from 2018 through 2025. Those who still benefit from itemizing will need to note the changes in what they can or can’t itemize. Following are a few changes that effect individuals that itemize.
Deductions for medical and dental expenses were available for unreimbursed medical expenses that exceed 7.5% of your adjusted gross income in 2017 and 2018. Previously, in 2016, these expenses had to exceed 10% before being deducted (7.5.% if age 65 and older). Unreimbursed medical expenses for 2019 will revert to having to exceed the 10% floor in order to be deductible, regardless of age.
The itemized deduction for state and local income, sales, and property taxes is limited to a combined total deduction of up to $10,000. Taxes paid in these categories over $10,000 are not deductible on the individual return. However, this limit will not affect property taxes associated with carrying on a trade or business (that would otherwise be reported on Schedules C or E).
Deductions for mortgage interest paid may be limited in some circumstances. The interest deduction on loans secured after December 15, 2017 on your primary or second home is only available if the loan proceeds were used to buy, build, or substantially improve that home (home acquisition indebtedness). For example, home equity loans taken to pay off other debt or for personal expenses will no longer be deductible. Also, for loans secured after December 15, 2017 the total amount you can treat as home acquisition indebtedness is $750,000 ($375,000 for married filing separate).
The income limit has been raised from 50% to 60% of adjusted gross income on charitable contributions of cash to public charities.
The deduction for personal casualty and theft losses are deductible only to the extent they are attributable to a federally declared disaster. The loss must still exceed $100 per casualty and the net total loss must exceed 10% of your AGI.
If you had deductions that were characterized as miscellaneous itemized deductions previously, the total of those deductions had to exceed 2% of your AGI before they became deductible. These deductions have been suspended through 2025. This included unreimbursed employee expenses such as uniforms, union dues, and the deduction for business related meals, entertainment and travel (business related meals on schedule C may still apply). This repeal also applies to 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 are also categorized as miscellaneous deductions and are no longer deductible.
The deduction for moving expenses is now allowed only for members of the U.S. Armed Forces on active duty who move pursuant to a military order related to a permanent change of station. In addition, moving expenses reimbursed by an employer will be included as taxable income in the employee’s wages.
Changes to Benefits for Dependents
For 2019, you can no longer claim a personal exemption deduction for yourself, your spouse, or your dependents. For most families this is offset by the larger standard deduction and the child tax credit (CTC).
The maximum CTC in 2019 is $2,000 for each 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 CTC begins to phase out is increased to $400,000 for MFJ ($200,000 for Single). This will allow for the tax credit to reach more families with children under 17. (Note: to claim the CTC, the qualifying child must have a Social Security number that was issued on or before the due date of the return.)
A new, non-refundable credit of up to $500 is available for each of your non-child dependents, other than those who qualify for the CTC. The qualifying dependent must be a U.S. citizen, U.S. national, or U.S. resident alien. The non-refundable credit of up to $500 is available for each of your qualifying dependents. This credit for other dependents may be claimed if you have children age 17 or over, children with ITINs, or other older relatives in your household.
The Alternative Minimum Tax (AMT) exemption amount for 2019 is increased to $71,700 ($111,700 if married filing jointly or qualifying widow(er); $55,850 if married filing separately). The income level at which the AMT exemption begins to phase out has increased to $510,300 or $1,020,600 if married filing jointly. Compare the phase out to 2017 levels of $120,700 or $160,900 married filing jointly, this means far fewer taxpayers will pay the AMT.
Prior to the TCJA, student loans discharged due to death or disability were included in taxable income. This is no longer the case for indebtedness discharged after December 31, 2017, and before January 1, 2026.
Amounts paid in exchange for the right to purchase tickets for seating at college athletic events are no longer deductible.
The shared responsibility payment is reduced to zero under the TCJA for 2019 and beyond. Previously, under ACA, taxpayers were obligated to obtain minimum essential health insurance coverage, qualify for a health coverage exemption, or make a shared responsibility payment with their federal income tax return. Beginning in 2018, there is no individual shared responsibility payment due if an individual fails to maintain minimum essential coverage. Other ACA provisions, such as the state health insurance marketplaces and employer shared responsibility mandates will still be in effect.
Before making any decision or taking any action, you should consult a qualified professional advisor who has been provided with all pertinent facts relevant to your situation. The professionals at Gilliam Coble and Moser, LLP have the tools and experience necessary to guide you through the myriad of tax law changes, so contact us today!
If you have any questions about tax reform for individuals, contact the professionals at Gilliam Coble & Moser, LLP