The tax reform package introduces huge changes to federal income taxes, but some of the most useful tax breaks will still be around.
Most, if not all, taxpayers will see some significant changes on their returns if President Trump’s tax reform plan were to become law in anything approaching its current form. Indeed, Trump’s plan affects some of the most fundamental aspects of how federal income taxes are structured and calculated. And while quite a few of the familiar old tax breaks are absent from his plan, others will be sticking around in one form or another.
Mortgage interest deductions
Nearly all itemized deductions would get the axe if Trump’s plan became law, but the mortgage interest deduction would remain unchanged. However, because so few itemized deductions would exist post-tax-reform, and because the standard deduction would be considerably larger, relatively few taxpayers would bother itemizing under the revised system. As a result, even though you might continue to qualify for a mortgage interest deduction, it probably wouldn’t make sense to take it, because the standard deduction would be a better deal.
Charitable contributions deduction
The charitable contribution deduction is the other big itemized deduction that’s sticking around in the tax reform package. Because it would continue to be an itemized deduction, like the mortgage interest deduction, it would have to be pretty huge to outweigh the super-sized standard deduction that Trump has proposed. However, unlike the mortgage interest deduction, you have more control over your charitable contributions and may be able to make the deduction worth taking. For example, if you normally give $1,000 per year to charities, you might instead group several years’ worth of charitable deductions into one year, making a $4,000 donation in a single year. If you also clear out your closets and attic and donate the unwanted items to an organization such as Goodwill, you could end up with a charitable deduction that’s higher than you’d get with the standard deduction, especially if you combine it with the mortgage interest deduction.
IRA contribution deduction
Unlike the mortgage interest deduction and the charitable contributions deduction, the IRA contribution deduction is not an itemized deduction and therefore won’t suffer the logistical problems that affect the first two tax breaks. At present, President Trump’s tax reform plan doesn’t make any alterations to this deduction; however, things could change, as the package has a long way to go before becoming law.
Premium tax credit
Low- and moderate-income taxpayers who buy private health insurance can claim a tax credit to help make up for the cost of the premiums. The premium tax credit would still exist under Trump’s plan, but in a substantially revised form. This particular credit is detailed in the healthcare reform…