The Tax Cuts and Jobs Act (TCJA) enacted in December of 2017 is the most comprehensive overhaul of the Internal Revenue Code since the Tax Reform Act of 1986. The legislation includes provisions that curtail long-cherished write-offs for payments of mortgage interest and property taxes.
They also abolish deductions for casualty and theft losses claimed by individuals whose homes, household goods and other properties suffer damage or are destroyed due to events like burglaries, fires, landslides, and storms.
The new rules are prospective and apply to returns filed for calendar years 2018 through 2025. After the close of 2025, they’re scheduled to go off the books.
Decrease in allowable deductions for payments of mortgage interest
The old rules for 2017 and earlier years allowed mortgage holders to claim itemized deductions on Schedule A of Form 1040 for payments of interest of as much as $1 million of debt for a main home and a second home used as a vacation retreat. The cap of $1 million for married couples filing jointly and single persons dropped to $500,000 for married persons filing separate returns.
TCJA grandfathers the old rules for homeowners with existing mortgages. They remain entitled to write off interest of up to $1 million. Homeowners also are grandfathered should they opt to refinance their remaining mortgage debts.
The revised rules for post-2017 years decrease the allowable deduction for new buyers from $1million to $750,000 for married couples filing jointly and single persons and $375,000 for married person filing separate returns.
New buyers get only one bite at the apple. The new limits apply to the combined total of loans used to buy, build, or substantially improve a person’s main home and second home.
Caps for write-offs for state and local income and property taxes
The old rules for 2017 and earlier years allowed individuals to take itemized deductions for all of their state and local taxes, including state income taxes and city income taxes and property taxes.
The new rules for post-2017 years impose caps on those deductions. The ceilings are $10,000 for couples filing jointly and single persons and $5,000 for married persons filing separate returns. They aren’t indexed for inflation.
Deep-sixes deductions for casualty and theft losses
For 2017 and previous years, there were severe limitations on deductions for these losses.
Losses (after they were reduced for insurance reimbursements and $100 for each casualty or theft) generally were allowable only to the extent that the total amount in any one year surpassed 10 percent of a taxpayer’s adjusted gross income. The IRS defines qualifying losses as those caused by identifiable events that are “sudden, unexpected or unusual.”
For post-2017 years, they’re generally allowable only for losses attributable to natural disasters like hurricanes and floods that occur in disaster areas declared by the president to be eligible for federal assistance.
Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 250 and counting).
Attorney and author Julian Block is frequently quoted in the New York Times, Wall Street Journal, and the Washington Post. He has been cited as “a leading tax professional” (New York Times), an “accomplished writer on taxes...