To itemize or not to itemize. Here are some key changes to help you decide
You may be used to claiming itemized deductions on your tax return. There have been many changes made under the new tax reform known as the Tax Cuts and Jobs Act (TCJA) that may change the way you file your taxes in 2018. To give you a quick insight on the new changes, we have covered a brief overview of key changes.
What's Changed?
The Tax Cuts and Jobs Act (TCJA) eliminated or restricted many itemized deductions in 2018 through 2025. With this change and higher standard deduction, it has been estimated that the number of households who itemize deductions will shrink by 10 percent. TCJA will significantly decrease the number of taxpayers claiming itemized deductions and the average tax saving from claiming them.
- State and local taxes (SALT) has been capped
Taxpayers can still deduct state and local real estate, personal property, and either income or sales taxes in 2018, however it is now capped at $10,000 total. - Charitable contributions limit has increased
The limit on deductions for charitable contributions has increased from 50 percent to 60 percent of adjusted gross income (AGI). So if you are still itemizing your deductions, you can now donate more to your favorite charity. - The "Pease" limit has been eliminated
Prior to the tax reform, taxpayers reduced their itemized deductions by 3 percent of every dollar of taxable income above certain thresholds. The total reduction was capped at 80 percent of the total value of itemized deductions. This law named after a senator who wrote the bill has now been eliminated for the tax years 2018-2025. - Mortgage interest deduction for mortgage loans has been limited
The deduction to the home mortgage interest has been reduced to the first $750,000 of mortgage debt (from $1 million of mortgage debt prior to the new law) for mortgage loans taken out after December 15, 2017. Also, homeowners can no longer deduct interest paid on home equity loans. Prior to TCJA this was allowed for loans up to $100,000. There is an exception. If the loan is used to buy, build, or significantly improve the taxpayer’s home, it is allowable. Homeowners may still deduct mortgage interest on their primary residence and a second home. - Medical expenses limit changed
The medical expense deduction has been changed under the TCJA and has been made retroactive to include the 2017 tax year. Prior to the TCJA, taxpayers whose unreimbursed medical expenses exceeded 10% of their adjusted gross income (AGI) could deduct the amount over the excess. Under the new law it has been lowered to 7.5% of taxpayers' AGI. - Other changes
There have been itemized deductions which have been eliminated all together. The deductions for unreimbursed employee expenses, tax preparation fees, and other miscellaneous deductions is gone. Also eliminated are the deductions for theft and personal casualty losses. However the exception are certain casualty losses occurring in federally declared disaster areas.