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It’s that time of the year – the last deadline of the tax season, October 15, is quickly approaching. If you filed your extension before June 15, good for you! But even if you didn’t, now is great time to get started on that return. However, before you get out that shoebox full of receipts, take heed: there are several common deductions that are no longer available or have been restricted, courtesy of the TCJA, or Tax Cuts and Jobs Act. Most are expected to stick around until after December 31, 2025:
TCJA Deduction Eliminations and Restrictions
Personal exemption – no longer can you claim roughly $4,000 for every member of your tax household. It has been argued that doubling the standard deduction compensates for the elimination of the personal exemption. Not quite: it can especially hurt large families, where a taxpayer would claim a deduction for each child, and that would really add up.
Moving expenses – this is one of the more popular deductions taken among expats, especially during years in which one moves to another country. But alas – now only active duty military can take advantage, and only when they are moving for a service-related reason.
Foreign property taxes – here’s another common deduction that expats would often claim, now it is reserved just for homes in the US.
State and local income, sales and personal property taxes – if you owned your home before moving abroad in 2018, and that home was in a high tax rate state such as New Jersey or Illinois, you may be in for a shock. This is because you can only deduct up to $10,000 ($5,000 if married filing separately) of those property taxes. This has caused an uproar in the US, leading some of those affected states to file a lawsuit challenging its legality.
Mortgage interest deduction – once upon a time, one used to deduct interest on a mortgage of up to $1 million. Now the limit is $750,000, or $375,000 if married filing separately.
Alimony – not only can the paying spouse not take the deduction; the receiving spouse can no longer include such amounts as income. Alimony is now treated the same way as child support, nondeductible and tax-free. NB this only applies to divorce agreements formed after December 31, 2017.
Miscellaneous Itemized Deductions – usually entered on Schedule A, if the total of certain items exceeds 2% of your adjusted gross income, they would be deductible, but no more. They include:
• Unreimbursed employee expenses – such expenses used to include travel, transportation, professional dues, work-related education, work clothes, uniforms, etc. Going forward the best course of action would be to ask your employer to reimburse those expenses
• Investment fees
• Hobby expenses
• Tax prep fees (sorry!)
That said, here’s a short list of deductions that can still be taken:
• Student loan interest
• Classroom teacher deduction
• Medical and dental expenses (must exceed 10% of AGI, up from 7.5%)
• Graduate student tuition waivers
Benefits of TCJA
Standard deduction – perhaps one of the reasons why so many of the above deductions were eliminated was because the standard deduction nearly doubled for 2018 (from $12,700 in 2017 to $24,000 for married filing jointly, for example). But again, not everyone benefits, as mentioned earlier.
Child Tax Credit – not only has the amount of credit doubled from up to $1,000 per qualifying child to up to $2,000 per qualifying child, so has the income phaseout threshold. If your modified adjusted gross income exceeds the amounts below, then the amount of available credit is reduced by roughly $50 for each $1,000 above the threshold:
Married filing jointly - $400,000
Every other filing status - $200,00
Receiving this credit is one of the few situations in which a refund is possible. Thus, if your dependent children have a Social Security number, it’s worth learning more about it.
For more information, look no further than your tax advisor. If you don’t have one, get one, as they may help you find deductions of which you haven’t been aware. Just make sure you get your 2018 US tax return filed.
H&R Block Expat Tax Services is a specialized team of tax attorneys, CPAs and enrolled agents whose singular focus is preparing taxes for Americans living abroad. Remember that US tax reporting for expats is complex and specific to each person’s situation. www.hrblock.com.