Maybe you shouldn’t be pacing the floor at night! Are these misconceptions keeping you up?
1. Alimony is no longer deductible for anyone. Many folks believe that after the Tax Cuts and Jobs Act (TCJA) of 2017 that alimony received can no longer be included in income, and alimony paid is no longer deductible from total income. But this is only true for divorce or separation agreements executed on or after January 1, 2019. In other words, alimony paid “pursuant to a divorce or separation agreement executed before January 1, 2019,” will follow the old alimony rules before Tax Reform. If prior divorce or separation agreements are modified after December 31, 2018, the old alimony rules apply unless the modified agreement specifically states otherwise.
2. My home mortgage interest deduction is applicable on only $750,000 of indebtedness. Any home acquisition debt prior to December 16, 2017, is grandfathered into the $1,000,000 “acquisition indebtedness” ($500,000 if Married Filing Separately) and NOT the $750,000 limitation under the TCJA. Home loans prior to December 16, 2017, and refinanced after December 15, 2017, keep the $1,000,000 limit as long as additional debt was not added. However, if you refinance a grandfathered debt after December 15, 2017, and borrow an additional amount, even if for home improvements, the loan is no longer grandfathered in and is subject to the $750,000 limit.
Equity mortgage interest is still deductible, as long as it is used to improve the home. With the passage of TCJA, home equity indebtedness is generally no longer deductible unless the proceeds were used to improve or expand the home, subject to the mortgage debt limitations mentioned above. But proceeds used for non-home improvement are no longer deductible.
3. Our C-Corp should become an S-Corp to take advantage of the 20% QBI. It may not be the right move for some small businesses organized as C-Corporations to switch to a Sole Proprietorship or S-Corporation in order to take advantage of the Qualified Business Income deduction which is very complex. There are many limitations to this deduction. There may be important reasons why your business was organized as a C-Corp to begin with that go beyond taxes.
4. The ACA individual shared responsibility payment disappeared. Although TCJA reduced this payment to $0, it does not take effect until January 1, 2019. So taxpayers that did not have health insurance during 2018 still have to make this payment unless they qualify for an exception. Taxpayers are still required to pay back any excess Premium Tax Credit received during the year, so if you received an insurance subsidy through the Marketplace and your income increased, you may still face a payback amount.
5. Hobby losses are still deductible. If your side gig does not rise to the level of a trade or business, the hobby loss rules will apply. Hobby expenses are no longer deductible because they were considered miscellaneous itemized deductions which have been eliminated. Doesn’t matter if you are an Uber driver, renting your home on Airbnb, or making jewelry to sell, sorry!
Contact Us: Got questions regarding the difference between acquisition and equity loans? Got questions regarding the difference and advantages of different entity structures? Got questions about the new postcard Form 1040 and its 6 schedules? If you have questions, we have answers! Contact us toll free at 855-534-2727.
