Tax Deductions That Survived the Tax Cuts and Jobs Act (More or Less)

The significant increase in the standard deduction and elimination of most itemized deductions under the new tax law means that more taxpayers will be claiming the standard deduction on their 2018 return. Nevertheless, you should always compare the standard deduction with the itemized deductions still available to you in order to ensure that you are selecting the option that ultimately will save you the most money on your next tax return.

In our last two posts we discussed tax deductions that were either eliminated or severely reduced by the Tax Cuts and Jobs Act of 2017. Here are a few tax deductions that survived – and that you should take care to include in your calculations for 2018:

Medical and Dental Expenses

Before tax reform, you could deduct medical and dental expenses that exceeded 10% of your adjusted gross income (AGI). What that means is that if your AGI was $80,000 and you had $10,000 in medical and dental expenses, you could take a $2,000 tax deduction ($10,000 – [$80,000 x 10%]). That 10% “floor” has been reduced to 7.5% — in the above scenario you would now have a $4,000 deduction ($10,000 – [$80,000 x 7.5%]).
Note that this provision was made retroactive to January 1, 2017, so it applies to your 2017 tax return as well.

State and Local Taxes

State and local tax (SALT) deductions are still in place, but with a cap of $10,000 ($5,000 for married filing separately). This change makes little difference to taxpayers in low-SALT states, but will dramatically affect taxpayers in states with high local and property taxes like California and New York.

The charitable deduction

With the exception of the elimination of the college athletic event ticket deduction, the charitable deduction was left untouched by the Tax Cuts and Jobs Act. This deduction may be taken for donations made in cash and other assets including but not limited to securities, real estate, vehicles, clothing, and other assets and services.

The deduction is also available for expenses incurred while carrying out charitable activities. Here are some examples of deductible expenses that many taxpayers tend to overlook:

  • Amounts spent on transportation, lodging and meals while doing charitable work (deductible so long as no significant part of your trip was for personal pleasure, recreation or vacation),
  • The price of stamps you contributed to your favorite nonprofit’s recent fundraiser mailing are deductible, and
  • The cost of ingredients for the cupcakes you baked for your annual church bake sale is deductible.

Note that the charitable mileage rate deduction remains at 14 cents per mile.

To claim the charitable deduction, you generally only need written acknowledgement from the charity if your contribution is more than $250, but we recommend that you obtain one even if your gift is worth less than that. Remember to keep all of your receipts and document your mileage in case you later need to prove what you claimed.

Student loan interest

Up to $2,500 per year of student loan interest is still deductible. As long as you aren’t claimed as a dependent on someone else’s tax return, you can also claim any student loan interest payments made by your parents — the IRS treats the payment as if your parents gave you the money and you paid the debt yourself.

In addition, as of 2018, a discharge of student loan debt as a result of death or permanent disability is not taxable either (note that this provision will expire in 2025).

California tax attorneys

The full service tax firm of Moskowitz, LLP can make sure that your financial and business affairs are structured to your maximum advantage under the new tax law. Contact our San Francisco office today for a consultation.