At the monthly Silicon Valley Association of Realtors meeting in Los Altos, Dennis Young, CPA and partner with Young, Craig & Co. in Mountain View, discussed major changes and clarified some of the rules pertaining to the new tax law, noting that the code has “a lot of contradictions and confusion in it.”
Major changes include the new tax rates (now seven) and changes to the mortgage interest deduction. Taxpayers will no longer receive the personal exemption, but the standard deduction has doubled to $12,000 for individuals and $24,000 for joint filers. The child tax credit has increased to $2,000. The mortgage interest deduction is now capped at $750,000 for new loans made after Dec. 14, 2017. State and local tax deductions, as well as property-tax reductions, now have a total cap of $10,000, whether filing as an individual or jointly.
Other key changes include the reduction in corporate taxes to a flat rate of 21 percent from 35 percent, and a 20 percent pass-through deduction for small businesses. Young said specific service industries, such as health, law and professional services, are excluded. However, personal services businesses with income below $157,500 if single, or $315,000 if married, can claim the deduction.
Another change pertains to meals and entertainment. Businesses, including realtors, can still deduct their meals but can no longer deduct entertainment. For example, a business person who takes a client to a baseball game can write off a pre-game meal, but not the game tickets. Also corporate kitchens, which used to be 100 percent tax deductible, are now only 50 percent deductible.
According to IRS officials, interest paid on home equity loans and lines of credit is still deductible, as long as the money is used for improvements to the taxpayer’s home. Interest is not deductible if the money is used to pay for other expenses.
Young shared ways to maximize deductions, including setting up a donor-advised fund with a charitable foundation, like Los Altos Community Foundation.
The Silicon Valley Association of Realtors provided information for this article. For more information, email Rose Meily at rmeily.org or visit silvar.org.
Realtors learn ramifications of new tax code from Los Altos CPA