What Tax Deductions Are Still Available to Me?
Tax reform measures are enacted frequently by Congress, which makes it hard for U.S. taxpayers to know which deductions are currently available to help lower their tax liability.
Taxpayers may be able to take deductions for student-loan interest, out-of-pocket charitable contributions, health savings account, home mortgage interest, contributions to a traditional IRA, and deductions for self-employed taxpayers (SE tax, SE health insurance, SE qualified retirement plan contributions). Of course, some tax deductions are limited or disappear as adjusted gross income increases.
Another key deduction is unreimbursed medical and dental expenses. For tax years 2023 and 2024, you may only deduct medical and dental expenses to the extent that they exceed 7.5% of your AGI and were not reimbursed by your insurance company or employer.
Home mortgage interest has several modifications. The Tax Cuts and Jobs Act of 2017, enacted Dec. 22, 2017, suspends from 2018 until 2026 the deduction for interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan.
Interest on a new home mortgage is limited to interest paid on a maximum of $750,000 ($375,000 if married filing separately (MFS)) of a new mortgage taken out after December 14, 2017. Taxpayers with a mortgage taken out before December 15, 2017 can continue to claim home mortgage interest on up to $1 million ($500,000 if MFS) going forward. Also, the $1 million ($500,000 if MFS) limit continues to apply to a refinanced mortgage incurred before December 15, 2017.
Personal casualty and theft losses are no longer generally deductible. The only exception is for certain losses in federally declared disaster areas.
The end of the year is the time to take one last good look to determine whether you qualify for a tax credit or deduction or whether you’re close to the cutoff point. If you’re not close, you may opt to postpone incurring some medical or other expenses until the following year, when you may be able to deduct them. On the other hand, if you’re only a little short of the threshold amount, you may want to incur additional expenses in the current tax year. With a little preparation and some help from a qualified tax professional, you may be able to lower your income taxes this year. You just have to plan ahead.
NOTE: Most of the changes to itemized deductions will remain in place through 2025. In 2026, itemized deductions will generally follow the rules in place before the the Tax Cuts and Jobs Act of 2017.
The passage of the SECURE Act in 2019 effectively eliminated the stretch IRA, an estate planning strategy that allowed an inherited IRA to continue growing tax deferred, potentially for decades. Most nonspouse beneficiaries, including children and grandchildren, can no longer stretch distributions over their lifetimes. Moreover, proposed IRS regulations require most designated beneficiaries to take annual required minimum distributions (RMDs) within the 10-year distribution period if the original account owner died on or after his or her required beginning date. This shorter distribution period could result in unanticipated and potentially large tax bills for nonspouse beneficiaries who inherit high-value IRAs.
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