The Tax Cuts and Jobs Act (TCJA) of 2017—passed almost two years ago—continues to have a significant impact on year-end planning in 2019. Many of the changes in the TCJA for individuals are effective for 2018 through 2025. Accordingly, consider these six strategies for reducing your personal tax bill this year.
- Manage securities transactions. Depending on your situation, you might harvest capital losses that can offset prior capital gains, plus up to $3,000 of ordinary income. Conversely, you may realize capital gains that can be absorbed by prior losses. Note that long-term capital gains for securities owned longer than one year are generally taxed at a favorable 15% rate (20% for certain high-income taxpayers).
- Boost your charitable donations. If you expect to itemize deductions in 2019 despite the TCJA increase in the standard deduction, step up charitable contributions at year-end to maximize your deduction. Generally, you can deduct the full amount of monetary gifts and the fair market value (FMV) of appreciated property—for example, artwork or securities—that you have owned longer than one year, subject to annual limits.
- Bunch your medical expenses. For 2019, unreimbursed medical expenses are deductible only if they exceed 10% of adjusted gross income (AGI), after a two-year period where the TCJA lowered the threshold to 7.5% of AGI. When possible, move non-emergency expenses (e.g., dental cleanings and physical exams) into the tax year in which you may qualify for a deduction. Examine your situation for 2019 to see if you should accelerate or postpone these expenses.
- Arrange an installment sale. Generally, you owe capital gains tax on the sale of real estate and other property in the year you sell the property. But there is a special tax break for selling property on the installment basis over two or more years. Essentially, you are only taxed on income in the year it is received. Not only do you defer tax, you may also lower the overall tax liability by spreading the tax payments over several years.
- Split family income. Even though the TCJA lowered tax rates, you can still benefit from “income splitting.” For instance, if a parent in the new top 37% bracket shifts property generating $10,000 to a child in the 10% bracket, the family saves $2,700 ($10,000 x 27% difference). Caveat: If a dependent child under age 19 or full-time student under age 24 has unearned income above $2,200, the “kiddie tax” kicks in and generally results in higher tax on the excess.
- Key in on mortgage interest. Prior to the TCJA, you could deduct mortgage interest on up to $1 million of acquisition debt and $100,000 of home equity debt. The TCJA lowers the limit to $750,000 for new acquisition debt and eliminates the write-off for home equity debt. However, if you use home equity loan proceeds to substantially improve your principal residence (or one other home), it may qualify as deductible acquisition debt.
These are just six ways you may be able to improve your tax picture for 2019. Consult with your JMF tax advisers concerning your personal situation.