WTOP Interview: A Closer Look at the Tax Bill Changes: What It Means for Your Taxes
Hillary Howard: The timing of the new tax bill and the early media coverage about the loss of certain deductions, cost a lot of people to rush and prepay their state and local taxes before the end of the year. And now that the initial frenzy is over, it’s time to take a look at other tax changes that have gone largely unnoticed.
Shawn Anderson: Well, joining us live to talk more about it, Nina Mitchell co-founder of Her Wealth and Senior Wealth Advisor at the Colony Group. Good to have you back Nina, thanks so much.
Nina Mitchell: Thank you very much!
Shawn: I tell us about some of the lesser known tax changes that could have an effect on our tax bills.
Nina: Well, one tax change in particular that’s going to impact some of our Her Wealth audience, relates to how alimony will be taxed starting in 2019. And under current law, the person paying alimony gets a tax deduction against his adjusted gross income or her, and the recipient includes alimony as taxable income. But under the new rules for alimony, which take effect for agreement starting in 2019, the payer can no longer deduct alimony and the recipient can no longer include alimony as taxable income. So, some divorce attorneys worry that the significant tax change to alimony might actually make negotiations tougher and lead to less spousal support, since the divorcing couple will actually be paying higher overall taxes. And then secondly, an important group of expenses called miscellaneous itemized deductions, will no longer be tax deductible starting in 2018. So, miscellaneous itemized deductions includes tax preparation fees, investment management and consulting fees, as well as an reimbursed employee business expenses, such as mileage and travel dues and subscriptions. So, many taxpayers are going to need to review their itemized deductions from Schedule A and just compare that to the increase in the standard deduction going forward.
Hillary: That’s a pretty big deal!
Nina: It’s a big deal.
Hillary: For people who deduct their mortgage interest, will they still be able to do that Nina?
Nina: Well, the home mortgage interest deduction is still allowed as an itemized deduction, but it’s now been reduced to 750,000 on homes purchased after December 15, 2017. So, if you purchased your home before that date, you’re grandfathered under the old rule, which is the $1,000,000 mortgage level. And in addition, interest paid on new and existing home equity lines are no longer tax deductible. So, taxpayers are going to want to compare their tax equivalent borrowing rate with what they’re earning on their investments. For example, if you’ve got a non-deductible 5% home equity line, then you might want to ask yourself if you’re better off keeping it or should you just pay it off because your investments may not be earning 5% anymore.
And just keep in mind, these changes for itemized deductions are for years 2018, through 2025 only, then they sunset back to 2017 rules, starting in year 2026.
Shawn: Okay, we have about 30 seconds here. What other tax surprises are we finding here in the early part of the year?
Nina: Well, just one pleasant surprise.
Hilary: Yes, please.
Nina: Is that the child care credit doubled from a $1,000 to $2,000 per child, under age 17 and the income limits were raised on those who can claim the credit for up to $200,000 for single filers and $400,000 for married filing joint. So, that’s a nice little bump. We’ve only scratched the surface and there’s going to be a lot more to come the rest of the year. A lot of confused people.
Hillary: Thank you Nina. That is Nina Mitchell, with The Colony Group. For more about tax changes, head to wtop.com, search Her Wealth.