The Tax Cuts and Jobs Act of 2017 (TCJA), which was passed into law in December 2017, took effect on Jan. 1, 2018. TCJA’s passage has resulted in the loss of three important tax deductions that are affecting individual tax returns.
This column discusses these lost deductions and how they may affect federal employees as they prepare their 2018 federal tax returns.
The first deduction discussed is the deduction for casualty and theft losses. Until 2018, personal casualty and theft losses were deductible as part of one’s itemized deductions. But for the years 2018 -2025 when TCJA is in effect, personal casualty and theft losses are not deductible unless these losses are incurred in a federally declared disaster or, if an individual has a personal casualty gain, to the extent of such gain. The gain is therefore “netted out” by this casualty loss and no capital gain taxes are paid. Personal casualty losses that are potentially deductible are reported on IRS Form 4684 (Casualty and Theft Losses, Part A).
What is a federally declared disaster?
A federally declared disaster is a disaster that occurred in an area directed by the President to be eligible for federal assistance. An ongoing list of federally declared disasters is available on the Federal Emergency Management Agency (FEMA) web site at www.fema.gov.
A loss to personal use property is deductible if the loss is due to fire, storm, shipwreck, or other casualty. A casualty is the damage, destruction or loss resulting from a sudden, unexpected, or unusual identifiable event. The casualty loss must be reduced by actual insurance reimbursement and by any expected reimbursement. If the property is covered by insurance, an insurance claim must be filed. Otherwise the casualty loss is not allowed.
An example of a potentially deductible casualty loss is the loss of a home located in the areas affected by the California wildfires that occurred in the fall of 2018.
Miscellaneous itemized deductions
The second deduction that is not available for tax years 2018 -2025 under the TCJA is miscellaneous itemized deductions exceeding 2 percent of one’s adjusted gross income. Before the passage of TCJA, miscellaneous itemized deductions exceeding 2 percent of one’s adjusted gross income were deductible on Schedule A as an itemized deduction. Miscellaneous itemized deductions include:
- Tax preparation fees such as the cost of tax preparation software (for example, Turbo Tax), tax publications and fees paid for tax advice and electronic filing;
- Investment fees, custodial fees, trust administration fees and other expenses paid for managing one’s investments that produce taxable income;
- Union dues, professional fees and out-of-pocket employee business expenses.
The third deduction that is not generally available for tax years 2018-2025 is moving expenses, except for members of the Armed Forces who are on active duty, and due to a military order, move as result of a permanent change of station.
Before 2018, individuals could deduct moving expenses in connection with a move only when the move was job-related, and a distance test and a time test were met. For example, a federal employee who changed job locations in which the jobs were more than 50 miles apart could potentially deduct certain moving expenses that were reimbursed by their new employer.
But under TCJA, these tests do not apply to moves made by members of the Armed Forces on active duty because of a permanent change of station. Deductible moving expenses include: (1) costs of moving household goods and personal effects; and (2) travel expenses, including lodging but not meals for one trip by the individual and each member of the household. Household members do not have to travel together or at the same time.
Form 3903 is filed to deduct qualified moving expenses in excess of any uniformed services reimbursements. The deduction is an adjustment to income and is reported on Form 1040, line 26, Schedule 1.