5 tax deductions Republicans might take away -- How could you be affected?

The long-anticipated GOP tax framework was recently released, giving a few new details on a potential forthcoming tax reform bill. While several tax breaks would remain in place under the plan, the framework clearly states that many deductions are at risk of being eliminated. Here's what we know so far, and five particularly valuable deductions that might be eliminated.

 

What deductions are staying?

 

The recently released GOP tax framework makes it clear that the mortgage interest deduction, as well as the charitable contributions deduction aren't going anywhere. It also says that it "retains tax benefits that encourage work, higher education, and retirement security," although it does say that these benefits will be simplified. For our purposes, we'll assume that all deductions in these categories will remain.

 

Which deductions are on the chopping block?

 

Aside from what I just mentioned, virtually all other tax deductions are at risk of being eliminated. As the GOP's plan states, "In order to simplify the tax code, the framework eliminates most itemized deductions."

Here's a closer look at five of the deductions that could be eliminated under the GOP's tax reform plan, and how much each one may cost Americans.

RELATED: Here are the most tax-friendly states in America:

10 PHOTOS
Most tax-friendly states in America
See Gallery
Most tax-friendly states in America

10. Delaware

(DenisTangneyJr via Getty Images)

9. Mississippi

(SeanPavonePhoto via Getty Images)

8. South Dakota.

(Getty Images)

7. Alabama

(RobHainer)

6. Louisiana

(Alamy)

5. Arizona

(Dreamframer via Getty Images)

4. Nevada

(ddub3429 via Getty Images)

3. Florida

(TraceRouda via Getty Images)

2. Alaska

(yenwen via Getty Images)

1. Wyoming

(Putt Sakdhnagool via Getty Images)

HIDE CAPTION
SHOW CAPTION
of
SEE ALL
BACK TO SLIDE

 

 

1. State and local taxes paid

 

Under the current tax code, Americans can deduct either the income taxes they pay to state and local governments, or the state and local sales taxes they paid throughout the year. This deduction is a particularly big deal in high-tax states such as New York and California, just to name a few.

According to 2015 IRS data, the most recent year for which finalized numbers are available, Americans deducted a total of $335 billion in state and local income taxes and another $17.6 billion in state and local sales taxes. The average American who took this deduction was able to exclude $10,134 of income taxes, or $1,832 in sales taxes.

Just to illustrate what a big deal this is, consider that the deductions for state and local taxes represent 27% of all itemized deductions taken by U.S. taxpayers, and is the single largest itemized deduction -- bigger than the deductions for mortgage interest, charitable contributions, or medical and dental expenses.

 

2. Property taxes

 

In addition to state and local income/sales taxes, U.S. taxpayers are also allowed to deduct real estate taxes, personal property taxes, and certain other taxes they've paid. This is also a major tax break for many Americans.

In 2015, Americans deducted more than $200 billion in other taxes paid. Combined with the state and local tax deductions, the "taxes paid" deductions added up to $553 billion in 2015 -- an average of $12,514 per taxpayer who claimed the break.

 

3. Medical and dental expenses

 

U.S. taxpayers can deduct medical and dental expenses that are in excess of 10% of their adjusted gross incomes (AGI). Senior citizens, defined as taxpayers 65 and older, can deduct medical and dental expenses above a lower 7.5% AGI threshold.

As you might imagine, this isn't the most common deduction, as most Americans don't have unreimbursed medical expenses that exceed 10% of their incomes. Even so, this deduction was utilized by nearly 8.8 million taxpayers in 2015, with an average deduction of more than $9,900.

 

4. Casualty and theft losses

 

Generally speaking, if you have casualty and/or theft losses related to your home, its contents, or your vehicles that weren't reimbursed by your insurance, you can deduct these on your federal taxes. This deduction applies to relatively few people each year -- 72,000 in 2015 -- but it's certainly a high-value deduction to those who take it. The average taxpayer who claimed a deduction for casualty and theft losses in 2015 took a $22,861 deduction, making it the most valuable deduction listed here on a per-taxpayer basis.

 

5. Miscellaneous itemized deductions

 

This isn't a single item, but a collection of deductible items that are considered as one group for deductibility purposes. This includes things like unreimbursed employee expenses, job search expenses, and tax preparation fees. For most miscellaneous deductions, only the amount of deductible expenses over 2% of AGI are allowed.

If all of the miscellaneous deductions are eliminated by the GOP tax plan, it would take this deduction away from nearly 12.8 million Americans and would add nearly $8,900, on average, to the taxable income of people who currently claim it.

 

Will the Republicans' tax cuts make up for the loss of these deductions?

 

First of all, all five of these are itemized deductions, so if you generally take the standard deduction, your situation is unlikely to change. If you do itemize, however, the loss of these deductions combined with the higher standard deduction and loss of personal exemption could make itemizing no longer worthwhile, and could potentially lead to your taxes increasing.

To be fair, all we have so far is a rough outline of the GOP tax plan with very few specifics, and none of these deductions were mentioned by name as deductions that were definitely being eliminated. And just a few hours before I wrote this, White House chief economic advisor Gary Cohn said that, while the lucrative state and local tax deduction is not included in the current plan, the removal of the tax break is not a "red line," indicating that it's open to negotiation.

The bottom line is that the current framework doesn't retain these deductions, but whether they'll be included or excluded in a final tax reform bill remains to be seen at this point. However, it's fair to say that if they do go away, lots of Americans could lose some valuable tax benefits.

Should I Include a Dependent's Income on My Tax Return?

It may be easier and less expensive to include dependents' income on your tax return rather than have them file their own return—in certain circumstances.

Read More

Brought to you by TurboTax.com

Great Ways to Get Charitable Tax Deductions

Generally, when you give money to a charity, you can use the amount of that donation as an itemized deduction on your tax return. However, not all charities qualify as tax-deductible organizations. While there are many types of charities, they must all meet certain criteria to be classified by the IRS as tax-deductible organizations. There are legitimate tax-deductible organizations in many popular categories, such as those listed below.

Read More

Brought to you by TurboTax.com

Tax Tips After January 1, 2019

TurboTax gives you ten tax saving tips for the new year. Find strategies to lower taxes, save money when preparing your tax return, and avoid tax penalties.

Read More

Brought to you by TurboTax.com

Should You and Your Spouse File Taxes Jointly or Separately?

Married couples have the option to file jointly or separately on their federal income tax returns. The IRS strongly encourages most couples to file joint tax returns by extending several tax breaks to those who file together. In the vast majority of cases, it's best for married couples to file jointly, but there may be a few instances when it's better to submit separate returns.

Read More

Brought to you by TurboTax.com
Read Full Story