As we pick apart the new federal tax bill that is about to become law, this post summarizes the most significant portions that affect my own federal income tax return. The post is published incomplete and will be updated as more information becomes clear. But apparently the law will increase my taxes by about $2,000 in 2018 and I’m scared for our financial future because we are already stressed with high taxes, education and medical costs.
- Elimination of the casualty loss deduction except for national disaster. The largest factors affecting my life and my financial welfare over the past decade have been casualty losses and natural disasters. This is an accepted fact of life for those of us who live and make our living at the New Jersey Delaware Bay region. Casualty losses from local, not nationally declared natural disasters triggered by flash flooding (I lost a $30,000 sports car that I loved in 2011), storms, flowing ice (this was actually the largest uninsured out-of-pocket cost for me over the past decade topping $60,000 i 2014), storm damage (over $70,000 spanning several events), etc., have become commonplace for us. I’ve had five of these casualty losses (all unrelated) natural disasters totalling into hundreds of thousands of dollars of losses. Most of the cost was uninsured and, as a practical matter, insurance has become too expensive or is no longer available for some types of losses. In the past the financial loss for these types of casualty losses and natural disasters was partially deductible on my federal income taxes. Under the new law, any future disaster losses will not be deductible unless the loss is a federally declared disaster. This change could have a huge financial impact on me going forward.
- Elimination of state, local and property tax deductions. Collectively, these expenses total about 25% of our household taxable income. Losing the deductions hurts us because the new standard deduction of $24,000 is less than our total deductible expenses now.
- Elimination of personal exemption. Raising kids is expensive but having the personal exemption helped offset the cost a little bit. Losing this benefits hurts us.
I think my federal increase tax increase might be close to $2,000 in 2018. So far the only positive aspect of the new law is the reduction in tax rate. However, this isn’t enough to offset the larger negative effects.
I shouldn’t feel so bad. Some of my higher-middle-income clients in the Philadelphia and New Jersey area will apparently face tax increases in the range $20,000. Even so, at our modest lvel of household income, I feel stressed.