Gambling Losses Under New Tax Law

To report your gambling losses, you must itemize your income tax deductions on Schedule A. You would typically itemize deductions if your gambling losses plus all other itemized expenses are greater than the standard deduction for your filing status. If you claim the standard deduction. However, on your Hawaii tax return, you cannot deduct any of the $1,200 in the gambling losses, and you will be taxed on the $1,000 in winnings. With the beginning of the new year, now is a perfect time to remember that while gambling can be exciting and enjoyable, you should be mindful of the change in Hawaii law and take note of all your. Yes, the ability to claim Gambling losses on the Schedule A is a proposed part of the plan. Gambling Losses – Currently, gambling losses are only deductible in an amount equal to gambling winnings. Under the new proposed plan, these losses would no longer be deductible. This is all subject to change now that the Senate has it.

Itemized deductions are subtracted from adjusted gross income in arriving at taxable income; they may be claimed in addition to deductions for adjusted gross income. Itemized deductions are also referred to as “below-the-line” deductions. As discussed below, the 2017 Tax Act made substantial changes to the availability of itemized deductions.

1. How did tax reform impact the deduction for state and local sales, income and property taxes?

Under prior law, taxpayers were entitled to deduct (as an itemized deduction) taxes for (1) state and local real and foreign property taxes, (2) state and local personal property taxes, and (3) state, local and foreign income taxes. Taxpayers could also elect to deduct state and local sales taxes instead of state and local income taxes. Property taxes were allowed only as an itemized deduction unless they were incurred in connection with a trade or business.

The 2017 Tax Act limited the ability of taxpayers to deduct state and local taxes (including sales, income and property taxes), imposing a cap of $10,000 ($5,000 for married taxpayers filing separate returns) on this deduction. Foreign real property taxes can no longer be deducted.

Individuals will remain able to deduct state and local sales and property taxes when they are paid in connection with carrying on a trade or business.

These rules apply for tax years beginning after December 31, 2017, and before January 1, 2026.

2. Did tax reform impact the mortgage interest deduction?

The 2017 Tax Act limited the mortgage interest deduction to $750,000. This limit applies to debt incurred after December 31, 2017, and before January 1, 2026. After December 31, 2025, the $1 million mortgage interest deduction will be reinstated and will apply regardless of when the taxpayer incurred the relevant debt.

Home equity indebtedness interest cannot be deducted for tax years beginning after December 31, 2017, and before January 1, 2026.

The $750,000 limit does not apply with respect to debt incurred on or before December 15, 2017. If the taxpayer enters a binding contract on or before December 15, 2017, to close on the purchase of the taxpayer’s personal residence before January 1, 2018, and if the taxpayer actually purchases that residence before April 1, 2018, the debt will be treated as though it was incurred before December 15, 2017.

Debt amounts that are related to a refinancing will be treated as though incurred on the date that the original debt was incurred, provided that any additional amounts of debt incurred as a result of the refinancing do not exceed the amount of the refinanced debt. However, this exception does not apply if the refinancing occurs after the expiration of the term of the original debt. Further, it does not apply if the original debt was not amortized over its term, the expiration of the term of the first refinancing of the debt or, if earlier, the date which is 30 years after the date of the first refinancing.

3. Did tax reform change the rules governing the itemized deduction for charitable contributions?

The 2017 Tax Act substantially changed the treatment of itemized deductions at the individual level. However, the deduction for charitable contributions remained in place. Under the legislation, the 50 percent AGI limitation on cash contributions to public charities and certain private foundations increased to 60 percent. This provision is effective for tax years beginning after December 31, 2017, and before January 1, 2026. Amounts that exceed the 60 percent limitation can be carried forward for five years.

Further, the 2017 Tax Act repeals the previously existing 80 percent charitable contributions deduction for payments made in exchange for seating rights at college athletic events. This provision is effective for tax years beginning after December 31, 2017.

Gambling Losses Under New Tax Law

The 2017 Tax Act eliminated the exception under IRC Section 170(f)(8)(D) that relieves taxpayers of the obligation of providing a contemporaneous written acknowledgement by the donee organization for contributions of $250 or more when the donee organization files a return with the required information. This provision is effective for tax years beginning after December 31, 2016.

4. Can taxpayers still deduct casualty and theft loss expenses under the 2017 Tax Act?

Under the 2017 Tax Act, individuals are no longer entitled to deduct casualty and theft loss expenses as itemized deductions (when those losses were not related to property used in a trade or business). However, the Act contained an exception for losses that occur in federally declared disaster areas.

Further, if a taxpayer has personal casualty gains, the new rules do not apply (even if the loss does not occur in a federal disaster area) so long as the losses do not exceed the gains. This essentially means that casualty losses can be used to offset casualty gains.

This provision applies for tax years beginning after December 31, 2017, and before January 1, 2026.

5. Can taxpayers deduct loss expenses related to gambling under the 2017 Tax Act?

Yes. However, the 2017 Tax Act clarifies that the limitations on losses related to gambling that may be deducted also include other expenses incurred in connection with the gambling (i.e., the cost of travelling to and from a casino are subject to the Section 165(d) limitation). This essentially means that costs associated with a trade or business of gambling are now included in the loss limitation.

This provision applies for tax years beginning after December 31, 2017, and before December 31, 2025.

6. Can taxpayers deduct medical expenses under tax reform? What should individuals know about the medical expense deduction under tax reform?

Yes. The 2017 Tax Act modified the medical expense deduction so that, for tax years beginning after December 31, 2016 and ending before January 1, 2019, a more generous 7.5 percent floor will apply to the medical expense deduction, so that taxpayers are entitled to deduct medical expenses to the extent that the exceed 7.5 percent of adjusted gross income.

For 2017 and 2018, this 7.5 percent threshold also applies for purposes of the alternative minimum tax.

Because of the short window for using the expanded medical expense deduction, individuals should be advised as to the wide array of expenses that qualify as “medical expenses” for purposes of the medical expense deduction. In addition to obvious expenses such as health insurance premiums, medical procedures and Medicare premiums, costs for items such as bandages, dental and vision care and certain travel and meal expenses may be included. Conversely, items such as contributions to HSAs and health FSAs are specifically made ineligible.

IRS Publication 502 provides a comprehensive list of items that both are and are not eligible for the medical expense deduction.

7. How does the 2017 Tax Act impact miscellaneous itemized deductions that are subject to the 2 percent AGI floor?

The 2017 Tax Act suspends all miscellaneous itemized deductions for tax years beginning after December 31, 2017 and before January 1, 2026. This includes the deduction for tax preparation services and the deduction for expenses attributable to the trade or business of being an employee. Investment advisory fees are also no longer deductible under the new tax law.

The provision for the above-the-line deduction for certain teacher’s expenses was retained.

The limitation on itemized deductions that applied to certain high-income taxpayers was also suspended for tax years beginning after December 31, 2017, and before January 1, 2026.

— Check out the new 2018 Tax Facts apps and more by National Underwriter.

The Tax Cuts and Jobs Act of 2017 (TCJA), which was passed into law in December 2017, took effect on Jan. 1, 2018. TCJA’s passage has resulted in the loss of three important tax deductions that are affecting individual tax returns.

This column discusses these lost deductions and how they may affect federal employees as they prepare their 2018 federal tax returns.

The first deduction discussed is the deduction for casualty and theft losses. Until 2018, personal casualty and theft losses were deductible as part of one’s itemized deductions. But for the years 2018 -2025 when TCJA is in effect, personal casualty and theft losses are not deductible unless these losses are incurred in a federally declared disaster or, if an individual has a personal casualty gain, to the extent of such gain. The gain is therefore “netted out” by this casualty loss and no capital gain taxes are paid. Personal casualty losses that are potentially deductible are reported on IRS Form 4684 (Casualty and Theft Losses, Part A).

What is a federally declared disaster?

A federally declared disaster is a disaster that occurred in an area directed by the President to be eligible for federal assistance. An ongoing list of federally declared disasters is available on the Federal Emergency Management Agency (FEMA) web site at www.fema.gov.

A loss to personal use property is deductible if the loss is due to fire, storm, shipwreck, or other casualty. A casualty is the damage, destruction or loss resulting from a sudden, unexpected, or unusual identifiable event. The casualty loss must be reduced by actual insurance reimbursement and by any expected reimbursement. If the property is covered by insurance, an insurance claim must be filed. Otherwise the casualty loss is not allowed.

Gambling Losses Under New Tax Law Firms

An example of a potentially deductible casualty loss is the loss of a home located in the areas affected by the California wildfires that occurred in the fall of 2018.

Miscellaneous itemized deductions

The second deduction that is not available for tax years 2018 -2025 under the TCJA is miscellaneous itemized deductions exceeding 2 percent of one’s adjusted gross income. Before the passage of TCJA, miscellaneous itemized deductions exceeding 2 percent of one’s adjusted gross income were deductible on Schedule A as an itemized deduction. Miscellaneous itemized deductions include:

• Tax preparation fees such as the cost of tax preparation software (for example, Turbo Tax), tax publications and fees paid for tax advice and electronic filing;
• Investment fees, custodial fees, trust administration fees and other expenses paid for managing one’s investments that produce taxable income;
• Union dues, professional fees and out-of-pocket employee business expenses.

Moving expenses

The third deduction that is not generally available for tax years 2018-2025 is moving expenses, except for members of the Armed Forces who are on active duty, and due to a military order, move as result of a permanent change of station.

Before 2018, individuals could deduct moving expenses in connection with a move only when the move was job-related, and a distance test and a time test were met. For example, a federal employee who changed job locations in which the jobs were more than 50 miles apart could potentially deduct certain moving expenses that were reimbursed by their new employer.

But under TCJA, these tests do not apply to moves made by members of the Armed Forces on active duty because of a permanent change of station. Deductible moving expenses include: (1) costs of moving household goods and personal effects; and (2) travel expenses, including lodging but not meals for one trip by the individual and each member of the household. Household members do not have to travel together or at the same time.

Form 3903 is filed to deduct qualified moving expenses in excess of any uniformed services reimbursements. The deduction is an adjustment to income and is reported on Form 1040, line 26, Schedule 1.