Tax Cuts and Jobs Act: Itemized Deductions

Posted By Amy Henretty, CPA

Itemized Deductions - Delaware CPA FirmThe new tax law resulted in several changes to deductions individuals can take on their personal income tax returns. When planning for the 2018 tax year it is important to be aware of these changes and how they will impact each individual filing an income tax return. The list below describes the changes to the standard and itemized deductions beginning in 2018 through 2025 unless otherwise stated.

  • The standard deduction dollar amounts are increased to:
    • $12,000 for single filers and married filing separately
    • $18,000 for head of household
    • $24,000 for joint filers and surviving spouses
  • Personal exemption deductions for the taxpayer, spouse, and dependents have been suspended,resulting in zero personal exemptions.
  • Miscellaneous itemized deductions are suspended. The miscellaneous itemized deductions subject to the 2% of adjusted gross income (AGI) previously applied included unreimbursed employee business expenses, investment expenses, tax preparation fees, safe deposit box fees, job searching costs, business vehicle expenses, and expenses under the “hobby loss” rules. These deductions are no longer available.
  • The overall limitation on itemized deductions is suspended. Under prior law, the rule limited the total amount of otherwise allowable itemized deductions for certain higher-income taxpayers.
  • The medical expense deduction of 7.5% of AGI floor has been retroactively extended through 2018. Therefore, any taxpayer may deduct medical expenses to the extent they exceed 7.5% of the taxpayer’s AGI through December 31, 2018. This applies for AMT as well.
  • The aggregate deduction for state and local income taxes, foreign income taxes, state and local property taxes and state and local personal property taxes (but not foreign property taxes) is limited to $10,000 ($5,000 for married filing separately). There is an exception for state and local taxes incurred for a trade or business.
  • The maximum mortgage interest deduction acquisition debt has been lowered. Beginning after December 15, 2017, the aggregate amount treated as acquisition indebtedness can’t exceed $750,000 ($375,000 for married filing joint). There is a grandfather rule for pre-December 16, 2017 acquisition indebtedness interest in which up to the prior $1 million can still be deducted. The $1 million ($500,000 married filing separately) of existing acquisition debt for refinancing continues to be grandfathered if the proceeds do not exceed the amount of refinanced debt.
  • The deduction for home equity interest has been suspended. Thus, the deduction for qualified residence interest (QRI) paid on home equity indebtedness doesn’t apply unless the equity loans are used for substantial improvements to a primary residence.
  • The contribution-base percentage limit for deductions of cash charitable contributions has increased from 50% to 60%. If the aggregate amount of an individual’s cash contributions exceeds 60% of their contribution base (AGI without deducting any net operating loss carryback) then the excess may be carried forward and deducted for up to five years.
  • A charitable deduction is denied for contributions to a college or university in exchange for athletic event seating rights.
  • The gambling loss limitation has been broadened so that a deduction for any expense incurred in gambling, not just the losses, are limited to gambling winnings. The gambling loss limitation now applies not only to the actual costs of wagers incurred by the taxpayer, but to other expenses incurred in connection with the taxpayer’s gambling activity.

The new tax law created many changes to the itemized deductions an individual could previously take on his or her tax return. If you have any questions on the above list or would like to discuss how these changes impact you, please give us a call.

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