Q. I have a simple question. My property tax for 2017 will be around $14,000, and I’m not in Alternative Minimum Tax (AMT). Will I be able to deduct the whole $14,000 property tax, and is the state deductibility from the federal return capped at $10,000?
A. While your question was simple, it pertains to a complex tax code.
As you know, there are new changes when it comes to what you can deduct on your 2018 tax return.
In the past, taxpayers were able to fully deduct what they paid in property, income and sales taxes from their federal returns, said Michael Green, a certified financial planner with Wechter Feldman Wealth Management in Parsippany.
But the new tax law caps these deductions — which include any combination of property, income, and state sales taxes — at $10,000.
Keep in mind that when you file your 2017 tax return, you will still be working with the old tax brackets and rules.
“The new brackets will affect your 2018 tax return,” Green said. “You will not be able deduct the full $14,000 of property tax beginning in the tax year 2018, however this amount may still be deductible on your 2017 tax return.”
Although there are expenses that are no longer fully deductible, Green said, there are still deductions and credits you may be able to use to help lower your taxable income.
For example, the Child and Dependent Care Credit — which allows parents to deduct qualified child care expenses — has been kept in place. This can be worth as much as $1,050 for one child under 13 or $2,100 for two children, he said.
The Lifetime Learning Credit and Student Loan Interest Deduction are still in place, and the exclusion for graduate school tuition waivers survives as well, he said.
“Some other common deductions that survived the tax reform are the mortgage interest, charitable contribution and medical expense deductions,” he said. “The mortgage interest deduction can only be taken on mortgage debt of up to $750,000, down from $1 million previously — this only applies to mortgages taken after Dec. 15, 2017.”
Also note that interest on home equity debt can no longer be deducted at all.
Green said the charitable contribution deduction remains almost the same, but there was a notable change.
Taxpayers can now deduct donations of as much as 60 percent of their income, up from a 50 percent limit, he said.
Lastly, the threshold for the medical expenses deduction has been reduced from 10 percent of adjusted gross income (AGI) to 7.5 percent of AGI.
“This means that if your adjusted gross income is $50,000, you can now deduct any unreimbursed medical expenses over $3,750 — versus over $5,000 in prior tax law,” Green said. “Unlike most other provisions in the bill, this is retroactive to the 2017 tax year.”
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