Hamill: Lawmakers bring back old tax cuts with a new spin

Being a tax columnist now is easy. There’s so much to write about! My August journey will be to discuss several provisions in the new tax act.

The legislation recently passed by Congress and signed into law by the president is 940 pages long. It includes much more than tax provisions.

Many tax experts have downplayed the tax provisions in the new law. Why? Because, as Yogi Berra would say, “it’s Déjà vu all over again.” Most of the tax provisions in the new law repeat the provisions enacted by the 2017 law, but which were scheduled to expire at the end of 2025. But there is some new stuff.

One is the new senior deduction. This is available to those who are 65 or older by the end of the tax year, and who have a Social Security number. This deduction can be as high as $6,000 per senior. It is available whether you itemize deductions or not. The deduction begins in the 2025 tax year but is scheduled to expire in 2028. That’s the end of the Trump era.

The deductions for tip income and overtime income also start in 2025 and end in 2028. The senior deduction begins to phase out at modified adjusted gross income, or MAGI, of $75,000 or $150,000 for those who are married filing jointly. The phase-out range is $100,000 of income, so the deduction gradually drops to zero when MAGI hits $175,000 or $250,000, based on filing status.

The Social Security Administration put out a strange communication suggesting this deduction had something to do with the taxability of Social Security income. The deduction is not tied at all to receiving Social Security. It is available for those who have decided to delay Social Security beyond the age of 65.

It is not available to those who are receiving Social Security but who have not reached age 65. It is available to those who have reached age 65 but who do not pay tax on Social Security because their income is too low. All you need to qualify is to be 65 or older and not have too much income. Oh, and have a Social Security number.

The big news for higher-income people is that the deduction for state and local taxes has been raised from a maximum of $10,000 to a maximum of $40,000. This increased deduction applies beginning in 2025 and ends in 2029. It returns to the $10,000 limit in 2030.

The deduction limit will also increase by 1% per year until 2029. It is reduced for those with MAGI above $500,000. The reduction cannot cause the deduction to drop below $10,000. The phased reduction from $40,000 to $10,000 occurs over a range of $100,000 of MAGI.

If you itemize deductions, you may now be able to deduct as much as $10,000 per year of interest paid to purchase a personal-use car. Personal interest expense is generally not deductible. This new deduction is not needed for business-use cars since that interest has always been deductible.

The personal car interest deduction begins in 2025 but ends in 2028. The loan must have been incurred after 2024 and must be secured by a first lien on the car. The taxpayer must be the original user of the vehicle. The “final assembly” of the vehicle must be in the United States.

The statute defines final assembly. Lenders will need to report information about the car to allow the IRS to verify eligibility.

The National Highway Traffic Safety Administration provides a VIN decoder. The first number in the VIN identifies where the car is built. Numbers 1, 4, and 5 indicate U.S. assembly.

But the law requires “final” assembly. Don’t assume that your “foreign” car will not qualify. For example, some Nissans are built in Tennessee, Hyundais in Alabama, Kias in Georgia, and Toyotas in Kentucky.

Does your particular model satisfy the “final” assembly requirement? No vehicle has 100% U.S.-made parts, so the law defaults to assembly. The $10,000 deduction limit drops as income exceeds $100,000 or $200,000 (joint filers). It drops to zero at $150,000 or $250,000 of income.

Each of the three above deductions are (1) new provisions; (2) available only for a limited time; and (3) available only if your income is not “too high.”