When Diane Thorsen began to show signs at an early age of the Alzheimer’s disease that had stolen her mother’s mind, she and her husband, Richard Davis, were as ready as they could be.
They sold their house in California to prepare for the cost of care and moved to Minnesota to live with one of Thorsen’s daughters. Davis planned their finances methodically; once Thorsen’s long-term care insurance ran out, the daunting $98,000 bill for her nursing home would be manageable — because they could deduct medical expenses from their tax bill.
But as the Republican tax plan took shape, Davis felt as though the rug was being pulled out from under them. He plugged numbers into a spreadsheet as details of the plan emerged, finally arriving at the conclusion that after all his budgeting to avoid digging into savings, he would need to withdraw about $24,000 next year.
“I kind of had everything all planned out. I had it planned out to where I really wasn’t spending any time worrying about the finances,” Davis said. “It’s kind of a kick in the stomach to have it all figured out and then to have it kind of all start falling apart.”
In their plan to cut taxes and declutter the tax code, Republicans have proposed repealing all but a small handful of tax breaks. But people rely on those tax breaks in budgeting for medical expenses, adopting children, replacing stolen or disaster-damaged property, and even paying for business expenses.
These credits and deductions don’t feel like loopholes to the people who depend on them. Those tax breaks have shaped people’s financial lives in fundamental ways, providing relief from taxes on spending that isn’t optional.
“As soon as they talked about eliminating these deductions, that’s when it caught my attention: Uh-oh, I’m in trouble now,” Davis said. “It’s going to throw out of whack all the projections I’ve made for what we’ll have available in 2018.”
The Republican tax plan aims to do away with itemization for most people by doubling the standard deduction to $24,000 for a married couple filing jointly. The plan preserves some of the most popular deductions — for mortgage interest, property taxes and charitable contributions — but it imposes new limits. For new home loans, interest payments can be deducted only for the first $500,000, and only up to $10,000 in property taxes can be deducted.
But the medical expense deduction, taken on about 8.8 million tax returns in 2015, is one of the many being repealed.
It isn’t the most common tax break — in part because it requires a person’s medical expenses to be greater than 10 percent of their adjusted gross income. But for those who do take it, the deduction can be crucial.
The most obvious scenarios include an older person with a pension who would otherwise owe tax, or a family that pays to care for an older parent in a nursing home. But it isn't just older people, several tax specialists said.
Eliminating the medical deduction could affect parents of children with special needs, who might use the tax break to deduct expenses not covered by insurance.
Working-age people with a serious illness such as cancer might also use it in the face of high out-of-pocket medical costs and earnings that are lower because they can't work.
“I just don’t see why these people should lose their deductions, just like that,” said Steven Kronzek, a certified public accountant based in the District. “It’s mostly elderly, it’s not wealthy people, and there’s no lobbyists running around to look out for these people.”
Republicans have argued that their proposed revisions would make the tax code simpler and result in savings for families.
“Our bill lowers the tax rates and increases the standard deduction so people can immediately keep more of their paychecks — instead of having to rely on a myriad of provisions that many will never use and others may use only once in their lifetime,” said House Ways and Means Committee spokeswoman Lauren Aronson. “This tax relief will give families the flexibility to use their paychecks for what’s most important to them — whether for home repairs, different medical expenses, or other unique expenses that come up at different stages of life.”
Tax preparers are still reviewing the bill to see whether it could have consequences for their clients. But Leon LaBrecque, chief executive of LJPR Financial Advisors in Michigan, said that given the current complicated system, simplifying the tax code might have a number of unintended consequences.
“What I call the slightly disingenuous version is that everyone gets a tax cut. It’s way too complicated a system,” LaBrecque said. He listed off people who might be losing a valuable deduction: salespeople who deduct big unreimbursed business expenses, as well as police, firefighters and others who deduct union dues.
In a year marked by major natural disasters such as hurricanes Harvey, Irma and Maria and devastating wildfires in California, some tax preparers raised concerns about eliminating tax deductions for casualty losses, such as major property damage due to storms.
“It definitely provides a huge benefit, particularly for those who are in our area who unfortunately did not have flood insurance,” said Jason Sanders, the tax department head at Briggs & Veselka, a certified public accounting firm in Houston. “If the bill were to pass as it stands now, the casualty loss deduction would be repealed and we would just have to rely on Congress to bring it back in the case of a disaster-type situation.”
Congress recognized the importance of the tax break for disaster recovery after this year's hurricanes, taking steps to waive limits on the casualty loss deduction. The tax bill would not interfere with that legislation, and Sanders said he was hopeful that Congress would act to reinstate the deduction in the case of future disasters, even if the tax plan passed.
The plan also strikes the adoption tax credit, worth up to $13,570 per child in 2017, even though Rep. Kevin Brady (R-Tex.), the chief writer of the tax plan, is father to two adopted sons. The credit is used to help families with adoption expenses, which can include legal fees, court costs and travel.
How or whether individuals will be affected by the loss of deductions will depend on their personal circumstances, but even provisions that may have a relatively modest effect on an individual’s tax bill could be significant in the message they send.
"What is the biggest piece of growth in the individual debt? When you look at that pie, these days it's student loan debt — more than a trillion dollars now. So, hey, congratulations, millennials!" said Mark Hamrick, senior economic analyst at Bankrate. "The modest benefit you got from deducting that interest? That's going away."
But those with very large medical expenses may be in the most difficult position of all, and it might lead to difficult choices — pushing some families to put parents on Medicaid rather than pay for the nursing home.
Davis knows there are families in worse situations; he and Thorsen are fortunate to have pensions, savings and family support. They met at work in Santa Cruz, Calif., nearly three decades ago. He worked as a supervisor at the data center, she as a computer programmer.
They got to know each other playing beach volleyball and softball, and they loved being active, skiing at Lake Tahoe and playing with their dogs.
But they knew what might loom in their future. Thorsen’s mother had an early-onset form of Alzheimer’s, and her father suffered from it later in life. They bought long-term care insurance when they were in their 40s.
Anticipation doesn’t make the relentless disease any easier to cope with; it’s painful to see Thorsen, who enjoyed socializing with friends and going out dancing, slowly vanish.
But Davis visits her often and says that some of the important pieces are still there, even if Thorsen can’t put them together.
Once when he was sitting with her and had a book in her lap, he was surprised to realize she could still read. And she knows the names of family members, although he isn't sure she knows who they are when they visit.
The disease is overwhelming on its own. To think about carefully laid financial plans crumbling — he anticipates his tax bill will jump by about $20,000 in a year — makes it harder.
“It entails dipping into savings. There’s no getting around that,” Davis said. “If it ever got to a point where it becomes too unmanageable — where we would see the end of the road in our savings — there is an end to the road.”