Investment Interest Deduction: Currently, a deduction is allowed for investment interest in the amount of net investment income (investment income minus investment expenses). Support for this change is questionable, even among Republican senators, as representatives from states with income taxes will certainly want to retain the state income-tax deduction for their constituents. All but seven states have an income tax, with California, New York and New Jersey imposing the highest rates. Taxpayers residing in those states would no longer be able to deduct their state and local income taxes and thus would be double-taxed on the same income. Eliminating this deduction would have the most significant impact on taxpayers living in states that have income taxes. Now, it wants to eliminate them altogether.ĭeduction for State and Local Taxes: Currently, deductions are allowed for state income tax, city and other income taxes, real and personal property taxes and (under certain circumstances) sales taxes. What is curious about the elimination of the medical deduction is that, just a couple of months ago, as part of the failed ACA repeal, the administration wanted to reduce the medical AGI limitation and allow larger medical deductions. The Trump plan eliminates the medical deduction altogether, which would significantly impact senior citizens, especially those requiring significant elder care, and taxpayers who have incurred extraordinary medical expenses. Medical Itemized Deductions: Currently, medical deductions are already limited to those that exceed 10% of a taxpayer’s AGI. Itemized Deductions the Proposal Eliminates Presumably, in the new plan, this still would include traditional IRAs and self-employed retirement plan contributions. Retirement Contributions: Retirement contributions are deducted as an adjustment to income this is frequently referred to as an above-the-line-deduction. The proposal does not address one of the most complicated areas-and one that is significantly abused-contributions of overly valued property. It is also unclear if the incentives for home ownership would include second homes.Ĭharitable Contributions: Presumably, the plan would continue to be subject the 50%, 30% and 20% adjusted gross income (AGI) limits. However, it is unknown if the plan will include the existing restrictions that limit the home mortgage interest deduction to $1 million of home acquisition debt and $100,000 of equity debt. Incentives for Home Ownership: Although Trump’s proposal provides no details about what “incentives for home ownership” means, this category would presumably include deductions for home-mortgage interest and property taxes. This article will explore the deductions that the president’s proposal retains and those that it would eliminate, so you will be able to see how these changes could play out for your particular circumstances. Although the administration’s one-page outline of the proposed tax reforms provides little detail, if all of the deductions except those noted are eliminated, the reform will impact both itemized deductions and income adjustments. One of President Trump’s key tax reforms is to eliminate all individual tax deductions except for those that incentivize home ownership, charitable contributions and retirement contributions.
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