Our clients have been peppering me all year with questions about the new tax law that was passed in December 2017. Here are some of the most common ones I have received.
Is the ObamaCare penalty for not having health insurance gone? Yes, but not until 2019. Taxpayers will still face a penalty for not having health insurance in 2018. If you are faced with a penalty, meet with a tax advisor to see if any of the exemptions to the penalty might apply.
I have a part-time business along with a full time job. Can I claim the new 20% business deduction? Yes, if one of the many limitations doesn’t apply. The deduction applies to any taxpayer who reports income and expenses on a Schedule C or receives a K-1 from an S-Corporation or partnership. This is one of the more complicated areas of tax law, so get a professional tax preparer to help you file your 2018 return.
Can I deduct interest on a home equity loan used to remodel my home? Yes. A loan secured by your main home or a second home that is used to improve either property is still deductible as acquisition indebtedness. After 2017 you can’t deduct the interest where the funds are used for other purposes.
Is it true that home mortgages are now limited under the new law? Yes, but it will affect few people. Interest can only deducted for loans up to $750,000 of acquisition interest. This is down from $1 million. This applies to mortgages incurred after 12/14/17.
Does the new law limit my interest deduction on rental properties? No. Rental property interest is still 100% deductible. Remember, passive loss limitations may still apply.
Did the new law change the home sale exclusion? No. The proposal that extended the time the home needed to be your main residence was dropped from the final bill. You can still exclude gain up to $500,000 if married and $250,000 if single.
Did the new law end like-kind exchanges? The new eliminated all like-kind exchanges except for real estate exchanges. Prior to 2017, the gain on the exchange of equipment and vehicles were also deferred. This change means that if a business owner trades in a business vehicle they will have to report a gain or a loss on the trade-in.
Was the credit for installing solar panels eliminated? No. You can still claim a credit for 30% of the total cost for 2018 and 2019. It then drops to 26% for 2020 and 22% for 2021, and then ends after that.
Can I still write-off a personal casualty loss? No, unless it occurs in a presidentially declared disaster area. So if your car is totaled or your home is destroyed in a fire, you will not be able to take a deduction. This is a great time to double-check your insurance coverage.
Did the law make any changes to the dependent care credit? No. If you are paying for the care of children under the age of 13 so that you or your spouse can work or look for work, those expenses still qualify for the dependent care credit.
Can I still deduct medical expenses? Yes. For 2018, you can deduct medical expenses that exceed 7.5% of your adjusted gross income. It goes back up to 10% starting in 2019.
Are my property taxes and sales taxes for my business also limited to $10,000 per year? No. The limit is only for individuals. Business owners can deduct 100% of property taxes, and state taxes are also deductible.
Can I still deduct my employee business-related expenses? No. All miscellaneous deductions that were subject to the 2% limit are eliminated for 2018 and beyond. These include unreimbursed employee business expenses, tax preparation costs, IRA custodial fees, hobby expenses, safety deposit boxes, union dues, uniforms, job search costs, attorney fees, etc.
Can I still deduct interest on margin loans? Yes. Investment interest is still deductible as an itemized deduction on Schedule A.
What about my other investment expenses? Management and IRA custodial fees are no longer deductible.
Were there any changes made on charitable donations? Yes. The write off was preserved and you can now deduct up to 60% of your adjusted gross income. This is up from 50%. The new law eliminated the deductions for gifts to colleges in exchange for the right to buy choice seats at sporting events.
Are itemized expenses still phased out for high income earners? No. The phase-out of itemized income for upper income earners was eliminated under the new law.
What is my tax rate for my C-Corporation if my income is less than $50,000? 21%. The tax law before 2018 had a corporate tax rate of 15% for the first $50,000 of income. Starting in 2018, all C-Corporation profits are taxed at a flat 21%.