By Michael Cohn
The Tax Cuts and Jobs Act that Congress passed last December is likely to produce some winners and losers when taxpayers file their returns next tax season.
TaxAudit, a tax audit defense service, came out with a list Wednesday of what it predicts will be the taxpayers who will be hit hardest on their taxes.
Among those who it expects will be paying more this year in taxes are those homeowners who have high loan balances, homeowners with nonqualified home equity debt, itemizers whose combined state and local taxes amount to more than $10,000, and parents whose dependents are 17 years of age and older.
TaxAudit’s list of taxpayers who will suffer the most harm under the new tax law include:
Homeowners
• Taxpayers whose home mortgage loans are above $750,000 and loans were originated after Dec. 15, 2017. These taxpayers are subject to the new $750,000 mortgage loan limit.
• Taxpayers with acquisition debt of more than $1 million from loans originated on or before Dec. 15, 2017. (Previously, interest from an additional $100,000 in acquisition debt was deductible.)
• All taxpayers that have a HELOC (home equity line of credit) that wasn’t used for acquisition, building or improvements on their principal home – interest is no longer deductible.
Itemizers
• Taxpayers who have combined state and local taxes over $10,000.
• Taxpayers who pay foreign property taxes, which is no longer a deduction under the new tax law.
• Employees who are no longer permitted to deduct unreimbursed expenses such as office-in-home, mileage, travel, meals and entertainment.
Self-Employed Taxpayers
• Self-employed taxpayers whose income is above the threshold will be ineligible for the new Section 199A deduction if they belong in a “specified service trade or business” such as accounting.
Parents and Taxpayers with Dependents
• Taxpayers with dependents who are 17 years of age and over will lose the dependent exemption and the Child Tax Credit.
Divorcing Taxpayers
• Taxpayers who pay alimony and were divorced after Dec. 31, 2018. The deduction of alimony is no longer a valid deduction.
• Taxpayers who receive alimony and will have a final divorce decree before Jan. 1, 2019 will need to claim the alimony as ordinary income.
“There still remains an incredible amount of confusion and worry around the new tax law, and many Americans are concerned they will owe the IRS a lot more this year,” said Dave Du Val, chief customer advocacy officer at TaxAudit, in a statement. “We’re hoping to put taxpayers at ease with a few easy tips and advice to minimize their tax bill, so no one has to pay the IRS more than they have to.”
For those taxpayers who are likely to be hit hardest by the Tax Cuts and Jobs Act, the company had a few recommendations:
• Certain factors, such as a home office (not as an employee, though), can help to maximize a home mortgage interest deduction.
• Taxpayers with foreign taxes paid generally would benefit by using Form 1116 if they’re over the $10,000 limit.
• There’s a new $500 credit for eligible taxpayers who support a dependent that doesn’t receive the Child Tax Credit.
Originally published on Accounting Today.