Five Tax Breaks That Survived Tax Reform
Recent tax reform legislation affected many provisions in the tax code. Many were modified, either permanently or temporarily, while some were repealed entirely. Here are five that survived.
- Mortgage Interest Deduction
While the Senate bill would have temporarily repealed the mortgage interest deduction through 2025, the final version of the act retained it, albeit with modifications. First, the allowed deduction is limited to interest on mortgage principal of $750,000 on new homes (e. new ownership). For prior tax years, the limit on acquisition indebtedness was $1 million. Existing mortgages are grandfathered in, however, and taxpayers who entered into binding contracts before December 15, 2017, to close on the purchase of a principal residence before January 1, 2018, and who actually purchase such residence before April 1, 2018, are able to use the prior limit of $1 million. Interest on home equity indebtedness is not deductible from 2018 through 2025.
- Personal Taxes: State and Local Income Tax, Sales Tax and Property Tax
In prior years, taxpayers who itemized were allowed to deduct the amount they paid in state and local taxes (SALT) on their federal tax returns. Slated for repeal (with the sole exception of a state and local property tax deduction capped at $10,000) under both the House and Senate versions of the tax bill, SALT remained in the final tax reform bill in modified form. As such, for taxable years 2018 through 2025, the aggregate deduction for property taxes and either state, local and foreign income taxes or sales taxes is limited to $10,000 per year ($5,000 married filing separately).
- Educator Expense Deduction
Primary and secondary school teachers buying school supplies out-of-pocket are still able to take an above-the-line deduction of up to $250 for unreimbursed expenses. Expenses incurred for professional development are also eligible. This deduction was made permanent with the passage of PATH Act of 2015 and survived tax reform legislation that passed in 2017, as well.
- Plug-In Electric Drive Vehicle Tax Credit
Also slated for elimination in the House bill (but retained in the final tax reform act) was the tax credit for the purchase of qualified plug-in electric drive motor vehicles including passenger vehicles and light trucks. For vehicles acquired after December 31, 2009, the minimum credit is $2,500. The maximum credit allowed is $7,500. The credit begins to phase out for a manufacturer’s vehicles when at least 200,000 qualifying vehicles have been sold for use in the United States (determined on a cumulative basis for sales after December 31, 2009).
- Medical Expenses
The House version proposed a repeal of the itemized deduction for medical expenses, but it was retained (and the adjusted gross income (AGI) threshold temporarily lowered) in the final tax reform legislation. For tax years 2017 and 2018, the threshold amount for medical expense deductions is reduced to 7.5%. Under the PATH Act of 2015, the medical expense threshold increased to 10% of AGI (effective for tax years 2013 to 2016) for taxpayers under the age of 65.
Don’t miss out! If you’re wondering whether you should be taking advantage of these and other tax credits and deductions, don’t hesitate to call us.