Tax Deductions You May (Or May Not) Have Lost This Year

In our last post, we listed some tax deductions that have been eliminated by the Tax Cuts and Jobs Act of 2017. In this post, we describe some deductions that you may have thought were gone, but could still be available to you:

Interest on your home equity loan

Contrary to popular belief, the home equity loan interest deduction has not been entirely eliminated. The key here is the purpose of the loan:

  • Was the loan taken out to buy, build or substantially improve your home? The interest is deductible!
  • Was the loan taken out for living expenses and/or to pay off credit cards? The interest is not deductible.

Note that there is also a lower limit to the home mortgage interest deduction — $750,000 for all new mortgages acquired as of December 15, 2017.

Moving expenses

The deduction for moving expenses has been taken away from most taxpayers, but if you are a member of the U.S. military, you still have it.

Casualty and theft losses

The casualty, disaster and theft loss deduction now only applies to losses that occur as a result of your being in a federally declared disaster area. If you are the victim of a robbery, house fire, or other misfortune, you are twice out of luck.

The home office deduction

The home office deduction is still available for self-employed taxpayers. If you are an employee who works remotely, no deduction for you.

Business expenses

In our last post, we noted that aside from a $250 deduction that teachers may still utilize for the purchase school supplies, all other unreimbursed employee expenses and subsidized parking (as well as many other miscellaneous deductions) have been eliminated as of January 2018.

However, if you are a sole proprietor you can still claim all of your business expenses! The elimination of the deduction for unreimbursed employee expenses applies only to employees who used to claim these items on their Schedule A. The tax law changes do not affect your Schedule C (sole proprietor) deductions.

Legal Fees

The new tax law has, for the most part, eliminated write-offs for legal fees and costs that are not business-related. What this means is that you will pay tax on 100% of your recovery, even if 30% of the money went to an attorney. There are a number of exceptions to this rule, however, including but not limited to attorney’s fees for:

  • Employment and select whistleblower claims – these are above-the-line deductions and are unaffected by the new tax law.
  • Personal injury cases if the recovery is for physical injury or sickness, which is tax free anyway (the portion of the legal fee attributable to an award for punitive damages, however, is not tax free and there is no deduction for that as of 2018).

We are also happy to report that your tax attorney’s services are deductible, in matters ranging from audit representation to estate tax planning, legal advice on the taxation of alimony payments, and other tax matters. Note, however, that the deduction for legal tax services is subject to the 2% rule (meaning, you are only allowed to deduct that portion of expenses that exceeds 2% of your adjusted gross income).

In our next post, we will cover tax deductions that remain for the most part intact in 2018 and thereafter.

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