While many provisions of the Tax Cuts and Jobs Act (TCJA) went into effect in 2018 and apply through 2025 (or are permanent), there are two major changes under the act that will start in 2019. Here’s a closer look.
Medical expense deduction threshold
With rising healthcare costs, claiming related tax breaks is more important than ever. But there’s a threshold for deducting medical expenses that was already difficult for many taxpayers to meet, and it may be even harder to meet this year.
The TCJA temporarily reduced the threshold from 10 percent of adjusted gross income (AGI) to 7.5 percent of AGI. Unfortunately, the reduction applies only to 2017 and 2018. So, for 2019, the threshold returns to 10 percent — unless legislation is signed into law extending the 7.5 percent threshold. Only qualified, unreimbursed expenses exceeding the threshold can be deducted.
Also, keep in mind that you must itemize deductions to deduct medical expenses. Itemizing saves tax only if your total itemized deductions exceed your standard deduction. And with the TCJA’s near doubling of the standard deduction for 2018 through 2025, many taxpayers who have typically itemized may no longer benefit from itemizing.
Tax treatment of alimony
Alimony generally has been deductible by the ex-spouse paying it and included in the taxable income of the ex-spouse receiving it. Child support, on the other hand, hasn’t been deductible by the payer or taxable income to the recipient.
Under the TCJA, for divorce agreements executed (or, in some cases, modified) after Dec. 31, 2018, alimony payments won’t be deductible and will be excluded from the recipient’s taxable income. So, essentially, alimony will be treated the same way as child support.
Because the recipient ex-spouse would typically pay income taxes at a rate lower than that of the paying ex-spouse, the overall tax bite will likely be larger under this new tax treatment. This change is permanent.
TCJA impact on 2018 and 2019
Contact us at KraftCPAs you have questions about the medical expense deduction or the tax treatment of alimony — or any other changes that might affect you in 2019. We can also help you assess the impact of the TCJA when you file your 2018 tax return.