While most of the provisions in the Tax Cuts and Jobs Act (TCJA) came into effect in 2018 and either apply through 2025 or are permanent, there are two significant changes under the act for 2019. Here is a closer look.
1. Medical expense deduction threshold
Claiming whatsoever tax breaks related to health care that you can is more important than ever with rising health care costs. However, there is a limit for deducting medical expenses that were already difficult for many taxpayers to meet, and it might be even harder to achieve this year.
The TCJA temporarily reduced the limit from 10% of adjusted gross income (AGI) to 7.5% of AGI. Regrettably, the reduction applies only to 2017 and 2018. So, for 2019, the limit returns to 10% —unless legislation is signed into law extending the 7.5% threshold. Only qualified, unreimbursed expenses surpassing the threshold can be deducted.
Also, consider that you have to itemize deductions to deduct medical expenses. If your total itemized deductions surpass your standard deduction, then itemizing can save you tax. Also, with the TCJA’s near doubling of the standard deduction for 2018 through 2025, many taxpayers who have typically itemized might no longer benefit from itemizing.
2. Tax treatment of alimony
Alimony has usually 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, has not been deductible by the payer or taxable income to the recipient.
Under the TCJA, for divorce agreements executed (or modified) after December 31, 2018, alimony payments will not be deductible—and will be omitted from the recipient’s taxable income. So, basically, alimony will be treated the same way as child support.
Because the recipient ex-spouse would usually pay income taxes at a rate lower than that of the paying ex-spouse, the overall tax bite will likely be more abundant under this new tax treatment. This change is permanent.
TCJA impact on 2018 and 2019
A lot of TCJA changes went into effect in 2018, but not all. Contact us if you have questions about the medical expense deduction or the tax treatment of alimony—or any other changes that may affect you in 2019. We can also help you assess the impact of the TCJA when you file your 2018 tax return.
Ben R Shull CPA LLC provides clients with tax, transaction, and advisory services. The insights and quality services we deliver help lead our clients through the next generation of changes, and accelerate growth while reducing risk. CPA Katy, TX.