Personal Finance

7 disappearing tax breaks: Here’s how many taxpayers could lose out

Key Points
  • Breaks that could be eliminated include those for medical expenses, adoption and student loan interest.
  • Several of the deductions are "above-the-line" breaks, meaning you don't need to itemize to claim them.
President Donald Trump promotes a newly unveiled Republican tax plan as he meets with House Republican leaders and Republican members of the House Ways and Means Committee in the Cabinet Room of the White House in Washington, November 2, 2017.
Carlos Barria | Reuters

President Donald Trump dubbed the GOP tax-reform effort as "The Cut Cut Cut Act," and digging into the 429-page bill shows plenty of popular or valuable tax breaks that are on the chopping block.

While changes to the legislation could make a big difference to your final tax bill, the loss of "special interest deductions" such as medical expenses, adoption costs or student loan interest can still pack a punch for affected taxpayers.

Here are seven breaks set to be eliminated under the plan, and how many taxpayers have benefited from them in recent years:

Medical and dental expenses

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Taxpayers who itemize can currently deduct medical and dental expenses paid for themselves, a spouse and dependents. But you can only deduct those expenses that exceed 10 percent of your adjusted gross income.

Under the proposal, this break would be eliminated.

In 2015, according to the latest available IRS records, an estimated 8.7 million taxpayers claimed medical and dental expenses in excess of the AGI limitation. That translated into roughly $46.8 billion in deductions.

Student loan interest

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This break is also set to be nixed. Currently, borrowers can deduct up to $2,500 in qualifying student loan interest paid, as an above-the-line deduction — meaning you don't need to itemize to claim it. The deduction starts to phase out for individuals with a modified adjusted gross income (MAGI) of $65,000; and $130,000 for joint filers.

In 2015, according to IRS records, an estimated 12.1 million taxpayers claimed the student loan interest deduction, for a total of more than $13.4 billion.

Alimony

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Under current rules, alimony is deductible by the spouse paying it. It's an above-the-line deduction. The proposal would eliminate it.

In 2015, according to IRS records, an estimated 598,888 taxpayers claimed the alimony deduction on their Form 1040, for a total of more than $12.3 billion.

Tax preparation expenses

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Under current rules, tax preparation fees are potentially deductible as a miscellaneous itemized deduction, to the extent that they exceed 2 percent of the taxpayer's AGI. (Other expenses that can be tallied to hit that total currently include unreimbursed employee expenses, gambling losses, hobby expenses and legal fees related to tax advice.)

In 2015, according to IRS records, an estimated 20.6 million taxpayers claimed tax preparation fees, for a total of more than $7.9 billion.

Moving expenses

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You can currently deduct qualified moving expenses if you are relocating due to a change in job or business location and meet certain IRS tests on time and distance. It's another above-the-line deduction; no itemizing necessary.

In 2015, according to IRS records, an estimated 1.1 million taxpayers claimed the moving expenses deduction on their Form 1040, for a total of nearly $3.7 billion.

Casualty, disaster and theft losses

Fire trucks monitor a fire that threatens the Oakmont community along Highway 12 in Santa Rosa on October 13, 2017.
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Under current rules, itemizers can take a deduction for losses related to the "damage, destruction or loss of your property from any sudden, unexpected or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption," according to the IRS. This also includes theft losses. It covers your home, vehicle or possessions that were damaged or destroyed, but does not include losses covered by insurance.

Under tax reform, this would be eliminated — unless the loss is related to disaster-relief legislation passed after a particular event.

In 2015, according to IRS records, an estimated 72,323 taxpayers claimed a casualty or theft loss deduction, for a total of more than $1.6 billion.

Adoption

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Families looking to adopt could also lose.

Under current rules, families can claim a credit of up to $13,570 per child to cover qualified adoption expenses. The credit is limited to your tax liability for the year and can be carried forward for up to five years. It starts to phase out for taxpayers with a MAGI of $203,540. Current rules also allow families to exclude from their income up to $13,570 of adoption assistance provided by an employer.

In 2015, according to IRS records, an estimated 63,960 taxpayers filed Form 8839 to claim the adoption credit, for a total of more than $251.2 million.

Clarification: An estimated 63,960 taxpayers filed Form 8839 to claim the adoption credit in 2015.

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