With Republicans'Â tax reform plan finally starting to take shape, it's a good idea to look into how your favorite tax breaks could change. While there are likely to be substantial changes to the tax reform plan before it potentially becomes law, it seems clear that many of today's itemized deductions will no longer exist. So if you qualify to take these deductions, now would be a good time to do so.
State and local taxes (SALT) deduction
The SALT deduction is the single most popular itemized deduction in America; in 2013, nearly 43 million households claimed this particular tax break. Unfortunately, it's not on the (very short) list of itemized deductions that the GOP plans to retain in tax reform.
The state and local taxes deduction allows you to deduct either income taxes or sales taxes applied at the state and local level. In addition to one of these two options, taxpayers can deduct real estate property taxes, personal taxes (such as the excise tax many areas charge on automobile registration renewals), and pretty much any other non-federal taxes.
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Medical expense deduction
The medical expense deduction is one of the trickiest to qualify for, because you can only deduct expenses exceeding 10% of your adjusted gross income, whereas most AGI-based itemized deductions allow you to claim expenses exceeding 2% of your AGI. However, for taxpayers with high medical expenses, this deduction can be a significant relief. In 2013, nearly 9 million households claimed the medical expense deduction.
Because this deduction may be gone as soon as next year, scheduling any upcoming expensive medical procedures for this year would be wise, even if that means getting the work done a few months early. Grouping a lot of big healthcare-related expenses in a single year will get you the biggest possible deduction, making these expenses somewhat more affordable.
Casualty and loss deduction
If you suffer financial losses due to some disaster, such as the recent spate of hurricanes, you can claim any losses not reimbursed by insurance as an itemized deduction. Losses caused by human disasters, including theft and vandalism, can also qualify for the deduction. To get this tax break, you fill out Form 4684 (a regrettably complicated form) and transfer the resulting figure over to your Schedule A, the primary form for reporting itemized deductions.
Job-related expense deduction
Any unreimbursed employee expenses can be deducted as an itemized expense. So if you did any driving related to your job (other than commuting from home to office and back, which doesn't count), took any business trips that your employer didn't reimburse in full, or paid for education that was directly related to your job, you can claim a deduction for any and all of these expenses. To claim job-related expenses, you fill out Form 2106 or 2106-EZ and transfer the final result to your Schedule A.
The tax framework document that the GOP released in late September makes it clear that the party's plan for tax reform retains just two itemized deductions: the mortgage interest deduction and the charitable contribution deduction. It's possible that some of the other existing itemized deductions will survive in a different form, perhaps as non-itemized deductions. But until more information on tax reform makes its way out of Congress, it's best to assume that these deductions are going the way of the dodo.
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