The Future of Tax Deductions: What Businesses and Individuals Need to Know.

As Congress debates a new tax bill, several long-standing tax breaks may be on the chopping block. Proposed changes could significantly impact homeowners, investors, families, and businesses. Here’s what you need to know about potential tax law revisions and how they might affect your financial planning.

Home Mortgage Interest Deduction: A Possible Reduction

Currently, homeowners can deduct mortgage interest on loans up to $750,000 (down from $1 million before 2018). If Congress does nothing, the higher cap will return in 2025, but there is also a possibility that lawmakers could lower the cap further, limiting deductions for new home purchases.

Municipal Bonds Under Fire

Tax-free interest from municipal bonds (Munis) may be repealed as a revenue-raising measure. If this happens, interest earned on state and local bonds—including private activity bonds—would become taxable, potentially reducing their appeal to investors.

Tax Breaks for Families at Risk

Key family tax benefits under scrutiny include:

• Child and Dependent Care Tax Credit – Could be repealed, impacting working parents.

• Head-of-Household Filing Status – May be eliminated, leading to higher tax burdens for single parents.

• Child Tax Credit Adjustments – Parents may need Social Security numbers for dependents to claim this benefit.

  
  

Education Tax Benefits Could Disappear

Proposed changes may eliminate several education-related deductions and credits, such as:

• Lifetime Learning Credit

• American Opportunity Tax Credit

• $2,500 Deduction for Student Loan Interest

• Tax Benefits for Scholarships and Fellowships

  
  

The SALT Deduction Debate

The State and Local Tax (SALT) deduction, currently capped at $10,000, is under review. Lawmakers have several options, including:

• Repealing SALT deductions entirely.

• Doubling the cap to $20,000 for married couples.

• Increasing the cap to $30,000 for joint filers and $15,000 for individuals.

• Letting the cap expire while keeping property tax deductions.

• Eliminating the SALT deduction for businesses.

  
  

Other Potential Tax Changes

Several other tax provisions are being reconsidered, including:

• Repeal of the COVID-19 Employee Retention Credit (effective January 2024).

• Elimination of tax exemptions for nonprofit hospitals and credit unions.

• Raising the excise tax on private college endowments to 14%.

• Limiting corporate tax deductions for certain charitable contributions.

  
  

What This Means for You

With so many potential tax changes on the horizon, businesses and individuals should prepare now. Reviewing tax strategies, adjusting investment plans, and consulting with a tax attorney or CPA can help navigate these evolving tax laws.

If you need guidance on how these potential changes could impact your financial situation, our law firm is here to help. Contact us today for expert tax planning and legal advice.

Reference: The Kiplinger Tax Letter- Vol.100, No.3