While some areas of the tax code were simplified under the tax reform law passed in 2017, taxpayers could find certain provisions more complicated, particularly for those who typically itemize deductions.
Chris Hennessey explains how the law, representing the most comprehensive tax reform package in decades, makes multiple changes to tax deductions and exemptions.
Standard deductions for both individuals and married couples will each nearly double.
Other changes include:
- The state and local tax deduction (SALT), which includes state income tax, property tax, and some sales taxes, on aggregate is capped at $10,000. This is a significant change for taxpayers in high-income tax states and areas with high property taxes.
- Charitable deductions may now be up to 60% of adjusted gross income.
- The mortgage interest rate deduction is capped at $750,000 for debt after December 15, 2017. Existing debt is grandfathered with the prior limit of $ 1 million.
- There is no deduction for home equity lines of credit taken out after December 15, 2017. However, if the funds were used partially to acquire a home loan, build a home, or improve a home, investors can still deduct the interest.
- Miscellaneous 2% tax deductions are eliminated.
- The personal exemption is repealed.
For more details on the tax reform law, read Putnam’s investor education piece, “Examining the Tax Cuts and Jobs Act.” To understand the new tax deduction provisions and how they may affect individual investment plans, it is important to consult with a financial professional or tax expert.