You’ve been reading lots of stuff from that Stitely fella about how the how the new law benefits businesses and business owners. He hasn’t told you the whole story. I’d like to say he struck a deal with the devil, but well… that’s my department. Here are the parts of the new tax law that will cause you pain.
First, let’s enjoy the one you’ve probably heard about already. Your deduction for state and local taxes will be limited to $10,000 for 2018. That includes state income taxes, real estate taxes, personal property taxes, and any other local taxes that were previously deductible in full.
This will affect many, if not most, taxpayers in the Washington, DC metro area. If you live in Loudoun County, you might be paying $6K to $8K a year in real estate taxes on a townhouse. If you’re salary is six figures and above, you are paying $5K or more in state income taxes. Many families with incomes in the $150K to $200K range are paying well more than $10K between state income taxes and real estate taxes. If you are paying $16K combined in state income and real estate taxes, you’ll lose $6K in deductions and likely pay another $2K in taxes. You’re welcome.
Second, personal exemptions are gone. You no longer get a deduction of $4,050 just for being alive. That could cost you another $1,000 or more in taxes depending on your tax rate. No thanks are necessary for this one. Your pain is reward enough.
That Stitely guy will spout off about the new expanded $2,000 per rug rat child tax credit, but I’ll make him tell you more about that on his time.
Third, miscellaneous itemized deductions are gone. I get a warm feeling all over about this one. These deductions include tax breaks for unreimbursed employee expenses, investment fees, safe deposit box charges, and tax preparation fees. Eat that last one , Stitely.
Salespeople, who are company employees, lose all of their mileage, meals and entertainment, and supplies deductions. No more deducting the rent on your girlfriend’s apartment as a selling expense. Yes – I know who you are. No Pearly Gates for you.
While we’re talking about business expenses, entertainment is no longer deductible, period, for any type of business. I believe there is an exception for Redskins tickets, taking the position that the Redskins aren’t entertaining. This is known as the Dan Snyder rule. He’s a close personal friend.
Finally, the deduction for home mortgage interest is limited. I love the smell of a tax balance due in the morning. Mortgage interest on mortgage debt of more than $750K is no longer deductible. In Loudoun County, you can’t purchase a decent outhouse for $750K.
Even better, interest on home equity debt is no longer deductible. So you thought you were smart, borrowing against your home to deduct the interest on your BMW. No more, smart guy / lady. Stitely will tell you that borrowing on a home equity line to improve your home still yields deductible interest, but that’s his deal, not mine.
Unfortunately, the deduction for mortgage interest on rental properties is still allowed and not subject to the $750K limit.
As you can see, there are lots of things in the new tax law to make a Grim Reaper, like me, happy. I’m so happy that I shut down the IRS e-filing system to slow your tax refund for 2017.