Q: Are the property taxes I pay for my rental property subject to the new $10,000 state and local tax (SALT) cap?
A: “Taxpayers can deduct property taxes for rental properties in addition to the $10,000 itemized deduction limit for state and local taxes,” says Robert Westley, a CPA and financial planner based in New York. “Also, if you lease part of your home to a full-time tenant or rent rooms part-time, you can deduct property taxes allocable to these rental uses without being subject to the SALT cap. However, these deductions would be subject to certain tax rules that govern rental real estate activities, including the guidelines about when activity rises to the level of a ‘trade or business.’”
Q: Since I no longer itemize my deductions, can I still get a tax benefit for my charitable contributions?
A: “An IRA owner who has attained age 70½ may direct the distribution of up to $100,000 per year from the IRA to one or more qualified charitable organizations,” Westley says. "This distribution counts toward satisfying your required minimum distribution (RMD) and will not be taxable to you. This is a smart way to gain an effective deduction for charitable gifts without the need to have itemized deductions over the newly increased standard deduction.”
Q: Will I continue to pay the alternative minimum tax?
A: “The majority of taxpayers will likely not have to pay the alternative minimum tax with their 2018 tax returns,” Westley says. “The new law raises the exemption on the alternative minimum tax from $86,200 to $109,400 for married joint filers and increases the phase-out threshold to $1 million. Given the increased exemption and new limitations on deductions that are preference items, or add backs for AMT, few taxpayers will find themselves paying the AMT.”
Q: Is it true that alimony is no longer deductible?
A: “For most people going through a divorce, alimony has been both an incentive to the payer and a useful settlement tool to avoid trial,” says Dave Stolz, a CPA based in Tacoma, Wash. “Soon, that will change. The elimination of the spousal support tax deduction will affect a lot of people. Divorces already finalized will not be impacted, but for those completed in 2019 or later, any alimony paid will no longer be deductible by the person paying, nor will it be taxable as income to the person receiving the money. Meaning, the spouse paying alimony will not only lose the deduction, they will now have to also pay the federal taxes on the money they are paying.”
Q: What receipts/records do I need to keep now that I’m not sure if I’ll be itemizing or taking the standard deduction under the new tax law?
A: “It is always important to keep a record of medical expenditures, charitable contributions, property and other tax payments,” says Brooke Salvini, a CPA based in California. “Even though the standard deduction has increased to $12,000 for individuals and $24,000 for married couples, when adding up expenditures at the end of the year you may discover that you’ll itemize when you thought you would take the standard deduction. If you keep ongoing records during the year for these expenditures even better so that you can make adjustments to optimize itemizing one year and taking the standard deduction the following year.”
Color of Money question of the week
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During the Michael Cohen hearing last week before the House Oversight Committee, Rep. Mark Meadows (R-N.C.) caused quite a stir when he trotted out Lynne Patton, a black woman and official with the U.S. Department of Housing and Urban Development, in an effort to prove President Trump wasn’t a racist.
Patton previously worked for the Trump family and the presidential campaign. And Meadows said she submitted a comment for the record saying Trump is not racist. Meadows was trying to assert that a black person wouldn’t work for a racist.
It was an absurd argument by Meadows, given the history of racism in this country.
So, last week I asked: Have you worked for a racist employer and were scared to come forward?
“I was promoted to work for a person who was openly racist during my interview,” wrote Deborah, of Bethesda, Md. “I gladly took the promotion and job, knowing he was racist. Of course, he thought he was in no way ‘racist,’ but demonstrated his racism in public and private. I never complained over his head, but I did stand for what was right each and every time he demonstrated his racism — and he backed down and acquiesced each and every time.”
Angela Rinaldi, of Carrollton, Tex., wrote, “I am white. I had, a boss who would not interview certain people based on their name (no foreigners, e.g., Indian, Middle Eastern). Blacks and fat people were considered lazy. I was responsible for providing him with people to interview for hiring. I would provide all qualified applicants, and he would go through the résumés and eliminate the names he did not like. He never said racist things in front of other employees. It was with me behind closed doors, because he trusted me. Finally I told him, you have to keep these opinions to yourself, because it is not right. I, like others, needed the job to pay my bills. So blowing up my world wasn’t really an option, just like the people who have to endure a racist environment to feed their families. I still feel guilty for not reporting my boss.”
Ayesha Martin, of Harrisburg, Pa., wrote, “The supervisor at my first state job just a few weeks after she hired me unreservedly told me that she ordinarily didn’t like to hire ‘blacks’ (I’m black) because we 'don’t work.’ ”
“I’m not black, but I am a woman working in a male-dominated field,” wrote Jan, of Memphis. “I work in it because I like what I do and the money is good. But I have been and still am subjected periodically to misogynistic behavior by the men I work for, male co-workers and male clients. So yeah, it’s not hard for me to believe at all that people continue to work for racist employers. I’d love to be able to leave my job to stand up for my principles, but a paycheck and health insurance are more important sometimes.”
Color of Money columns this week
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