Which federal tax deductions have been suspended by tax reform?
In December 2017, Congress passed the largest tax reform bill in over 30 years. Included in the bill was the suspension (repeal) of several federal deductions for tax years 2018 – 2025, which we've summarized below. Note that while some states will conform to (follow) the 2018 federal tax law changes, others may decide not to.
An exemption is a specific amount you get to deduct for each taxpayer and dependent on your return.
In tax year 2017, the exemption was $4,050 per taxpayer or dependent, subject to a phase-out at higher income levels. The 2018 exemption was set to increase to $4,150 before it was suspended (repealed) through tax year 2025 by tax reform legislation.
For many families, the higher standard deduction coupled with the increased Child Tax Credit and the new Family Tax Credit is expected to offset the lost exemptions. However, this may not be true for everybody, especially families with older dependents.
This hypothetical example compares the associated tax savings for a married couple taking the standard deduction with an AGI of $50,000 and 2 child dependents under 17:
Tax savings: $6,880*
Tax savings: $6,440*
Tax savings: $6,335*
Same situation, except this time both dependents are 17 or older:
Tax savings: $3,880*
Tax savings: $4,440*
Tax savings: $4,335*
*For illustration purposes only. Does not take into consideration any other deductions/credits, other tax situations, or state/local taxes.
Miscellaneous deductions subject to the 2% limit, including unreimbursed job expenses (reported on Form 2106) have been repealed for tax years 2018 – 2025. Affected deductions include:
- Job-search expenses
- Home office†
- Union dues†
- Work-related travel, mileage, and transportation (including DOT per diem)†
- Work-related meals, entertainment, gifts, and lodging†
- Work-related tools and supplies†
- Specialized clothing or uniforms†
- Work-related education†
- Investment fees and expenses
- Safe deposit box rental fees
- Depreciation on computers used for work† or investments
- Membership in professional societies†
- Subscriptions to professional journals or trade magazines†
- Licenses and regulatory fees†
- Malpractice insurance†
- Tax-preparation fees†
- Tax advice fees†
- Educator expenses in excess of $250
- Appraisal fees for casualty losses or donations
- Hobby expenses
†Self-employed (Schedule C) filers can still deduct these business-related expenses, as they have in the past. The repeal of unreimbursed work-related deductions only affects wage- and salary-earning employees who don’t own a business or work as a contractor.
The moving expense deduction (Form 3903) has been repealed for tax years 2018 – 2025, except for military members who were ordered to move as the result of a permanent change of station (PCS). These filers can still deduct their moving expenses.
Interest on home equity loans or lines of credit are still deductible, but only if the loan is used to buy, build, or substantially improve the home and the total mortgage doesn’t exceed $750,000.
If the loan proceeds are used for something else (for example, to pay off debt) in 2018 – 2025, the interest is not deductible.
The deduction for personal casualty or theft losses has been repealed in tax years 2018 – 2025, unless the loss occurred in a federally-declared disaster area.
Previously, uninsured losses exceeding $100 due to fire, theft, or natural disaster could be deducted if the total loss amount exceeded 10% of the AGI, regardless of location.
The deduction for entertaining business associates and clients has been repealed for tax years 2018 – 2025. Prior to that, businesses could deduct 50% of the face value of entertainment (like sports events, theater, or golf) and 100% of the ticket cost to qualified charitable events, if the purpose was business-related.
If business meals are considered entertainment, then the 50% deduction for business meals will go away in 2018 – 2025. The IRS has issued Notice 2018-76 and intends to issue proposed regulations as to when a business meal is deductible. Under the notice, a 50% deduction is allowed for business meals if all of the following requirements are met:
- The expense is an ordinary and necessary expense paid or incurred during the table year in carrying on a business.
- The expense is not lavish or extravagant under the circumstances.
- The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food and beverage.
- The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact.
- In the case of food and beverages proved during or at an entertainment activity, the food and beverages are purchased separately from the entertainment or the cost of the food and beverage is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts. The entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverage.
Meals you provide for the benefit of your employees will be 50% deductible in 2018 – 2025 and nondeductible after that. Formerly, these were 100% deductible.
Donations to college athletic departments and booster clubs in exchange for tickets (or the right to buy them) are no longer deductible in tax years 2018 – 2025.
Prior to that, taxpayers were able to deduct 80% of donations made to colleges and booster clubs if the donation procured tickets (or purchase rights) to college athletic events.
The Qualified Bicycle Commuting Reimbursement has been repealed for tax years 2018 – 2025.
Previously, bike commuters could deduct up to $20 a month in employer reimbursements for qualified bicycle commuting expenses if they didn’t receive any other transit-related employee benefits.