1. The standard $6,350 deduction
The biggest change for taxpayers from the 2017 tax overhaul was the increase to the standard deduction.
When you file your taxes, you can choose the standard deduction, or to itemize your deductions. Most Americans now opt for the standard deduction, especially after the 2017 law nearly doubled the amount.
While taxpayers were eligible for a $6,350 standard deduction in 2017, that amount jumped to $12,000 for the 2018 tax year. For 2020 tax returns, the standard deduction for individuals has risen to $12,400.
Though Biden plans to make small changes to itemized deductions, it appears the higher standard deduction is here to stay.
Invest in real estate without the headache of being a landlord
Imagine owning a portfolio of thousands of well-managed single family rentals or a collection of cutting-edge industrial warehouses. You can now gain access to a $1B portfolio of income-producing real estate assets designed to deliver long-term growth from the comforts of your couch.
The best part? You don’t have to be a millionaire and can start investing in minutes.
Learn More2. Mortgage interest deductions
In the past, homeowners could deduct mortgage interest for debt up to $1 million. But under the 2017 law, that cap is down to $750,000.
The Trump tax code changes also removed the unlimited interest deduction for new and existing home equity loans. Sometimes referred to as a second mortgage, these are loans you place against the equity you’ve built up in your home.
The interest you pay on these loans can still be deducted, but only if the money is used to “buy, build or substantially improve” your home, according to the IRS.
If the money is used to pay for any other expenses, the interest is not deductible. These loans also must follow the new cap on mortgage interest deduction of $750,000.
If you can’t deduct the interest on your loan, you could explore getting a more favorable rate. With mortgage rates hovering near all-time loans, homeowners can refinance and lower their monthly payments.
3. Unlimited state and local tax deductions
The state and local tax (SALT) deduction allows taxpayers who itemize deductions when filing taxes to deduct certain taxes paid to state and local governments.
SALT can still be deducted, but the law now caps it at $10,000 per year, to the detriment of those living in states like California and New York, which have above-average state income tax and property tax rates.
Democrats have been pushing to remove the cap since the 2017 law was passed. Senate Majority Leader Chuck Schumer has said that abolishing the SALT deduction cap would be among his top priorities.
Discover How a Simple Decision Today Could Lead to an Extra $1.3 Million in Retirement
Learn how you can set yourself up for a more prosperous future by exploring why so many people who work with financial advisors retire with more wealth.
Discover the full story and see how you could be on the path to an extra $1.3 million in retirement.
Read More4. Alimony deduction
If your divorce agreements were finalized before 2019, nothing changes.
But if your divorce was completed after 2019, alimony payments can’t be claimed on your taxes and the receiver of those alimony payments does not have to add the payments to their taxable income.
5. Unreimbursed employee expenses deduction
Before 2018, workers who made (unreimbursed) purchases related to their job could deduct any amount that exceeded 2% of their adjusted gross income.
That deduction is history. But, what about all the products you bought for your office during the pandemic?
In most cases, you still can’t deduct them. Now, that write-off is only available to self-employed people or independent contractors who use a space in their home exclusively for business.
6. Moving expenses deduction
If you had to move for work, or even moved to look for a new job, you used to be able to recoup some of those expenses.
But that deduction has been eliminated for virtually all workers. Only military members who are required to move for a new assignment qualify for the deduction.
While social-distancing regulations made for a surge in remote work, many Americans still chose to pack up and say goodbye to their city in 2020. Just don’t expect Uncle Sam to pay you back for those moving expenses.
7. Natural disaster loss deduction
Prior to the 2017 law, you were entitled to take a federal tax deduction for any disaster losses that weren’t covered by insurance.
As of 2018, only those living in a presidentially designated disaster zone are able to deduct uncovered losses on their tax forms.
8. Some school donation deductions
2020 wasn’t a good year for college sports, as the pandemic cut short — or wiped out — student athletics across the country. But in some regions, teams (and spectators) forged ahead.
Some colleges require alumni to make donations in order to purchase season tickets to watch games. Those donations were tax deductible before 2018, but the Trump tax law put an end to that.
9. Large charitable donation deduction
A deduction for charitable giving hasn’t been eliminated, it’s just harder for taxpayers to claim.
The CARES Act, the relief bill that produced the first round of stimulus checks, allows everyone to take a $300 deduction for cash charitable donations in 2020. But, what if you gave more than that?
To deduct more than $300, taxpayers will need to itemize their deductions instead. But, thanks to the big bump in the standard deduction amount, far fewer people choose to itemize deductions. Only about 18 million taxpayers chose to itemize in 2018 — down from 46.5 million the year before, according to estimates from the nonpartisan Joint Committee on Taxation.
The pandemic has already been on a strain on charities, with fundraising events cancelled and would-be donors feeling squeezed financially.
10. Other miscellaneous itemized deductions
In addition to work expenses, the 2017 tax law removed a number of other itemized deductions, including fees for financial services, costs related to tax preparation services, investment fees and professional dues.
Self-employed contractors — like gig workers or freelancers — can still claim union dues as a business expense.
Biden’s tax plan does limit some of the benefits of itemized deductions, but only for those with an income exceeding $400,000.
Not sure how tax changes can affect things like your retirement fund? Certified financial planners are available online to provide expert advice and guide you through a personalized plan.
Sponsored
Invest in real estate without the headache of being a landlord
Imagine owning a portfolio of thousands of well-managed single family rentals or a collection of cutting-edge industrial warehouses. You can now gain access to a $1B portfolio of income-producing real estate assets designed to deliver long-term growth from the comforts of your couch.
The best part? You don’t have to be a millionaire and can start investing in minutes.
