Unable to itemize deductions next year? You're not alone.
It's highly likely that your tax return will look different for 2018. It's also likely that you may feel anxious about the dramatic change - change is hard. For the most part, things you may notice that will be different are:
No more personal exemptions... they're gone.
Unless you have a high level of mortgage interest and/or charitable donations, you likely won't itemize. You'll get a set $24,000 deduction instead
You will no longer be allowed to deduct state taxes and Real Estate taxes in full. The combined cap is now $10,000.
If you used to itemize, and won't next year, it's likely that you also used to get trapped in AMT so your itemized deductions didn't matter. I'd bet you don't see AMT again...
So what's the purpose?? The premise of all of this was to simplify (and I'm sure more nefarious & political things). Many people who were itemizing were also falling into AMT. AMT is an alternate calculation of your taxes where they add back many of your itemized deductions and then tax you at a flat rate. Whichever tax calculation is higher, is the one you pay. So it is possible that your itemized deductions didn't do much to help you in the first place thanks to AMT! But regardless, you may have felt like they did.
Next year, it's possible you may lose itemization (and it may feel terrible), but remember.... for those deductions lost you will likely not have to pay AMT tax! Also, it's likely that you may fall into a lower tax bracket and SAVE taxes. So in the end, the simplification could possibly save you from having to track all of your deductions and just take the $24,000 deduction given to you.
If one of your main concerns is charitable donations, we have ideas for you. Give us a call to talk through it.
And don't forget to check out the 2017 in Review and 2018 Strategies update Kelly wrote in the newsletter below.
Kelly, Julie, Denise and Merissa
Annual Market Review: 2017 in Review
and 2018 strategies...
How did the tax reform that passed the last few days of 2017 impact the market? Which asset class had the best returns? How did the international markets do?