Individuals whose itemized deductions are larger than their standard deduction can choose to claim either the standard deduction or itemized deductions on their tax return. Beginning in 2018, the new standard deduction for single filers is $12,000 and $24,000 for married filing joint taxpayers. Starting in tax year 2019 the new standard deduction increases slightly to $12,200 for single filers and $24,400 for married filing joint taxpayers. Beginning in tax year 2020 the standard deduction increased slightly again to$12,400 for single filers, and $24,800 for married filing joint taxpayers. In 2021the standard deduction will increase to $12,550 for single filers, $25,100 for married filing joint taxpayers.
With the new tax reform (Tax Cuts and Jobs Act), many of the previously allowed itemized deductions are limited or suspended. This means many taxpayers that itemized before will no longer be able to itemize on their tax return.
The Tax Cuts and Jobs Act made the following changes to itemized deductions:
- State and Local Tax Deduction (SALT) – Limited to $10,000 ($5,000 if married filing separate) for state and local property taxes AND state income or state sales tax.
- Mortgage Interest Deduction – Beginning with mortgages dated December 15, 2017- taxpayers can deduct interest on the first $750,000 of mortgage debt. Mortgage interest limits before December 15, 2017 will remain at $1,000,000.
- Home Equity Interest Deduction – According to the IRS, interest on a home equity loan used to buy build or improve an existing home (addition) is deductible. However, interest on a home equity loan that was used to pay personal debt (credit card or living expenses) is not deductible.
- Medical Expense Deduction – The TCJA reduced the threshold from 10% to 7.5% for tax year 2017 and 2018. This threshold of 7.5% is also applicable for tax years 2019 and 2020. Qualifying medical expenses must be paid with post tax dollars or out of pocket to be considered eligible.
- Miscellaneous Itemized Deductions (subject to 2% floor) – Deductions for certain professional fees (licenses, union, etc.), investment expenses, and unreimbursed employee expenses have been suspended. This includes mileage and the Home Office Deduction for W-2 employees. Also included is tax preparation fees and safety deposit box fees.
- Casualty and Theft Loss – Losses from events other than federally declared disaster areas are no longer allowed.
- Charitable Contribution Deduction – Beginning in 2018, the limit on cash donations increases from 50% to 60% of AGI. It stays the same for tax year 2019 and 2020. Deductions for payments made in exchange for athletic event seating are eliminated.
- Itemized Deductions Limited by AGI – Itemized deductions are no longer limited based on your AGI.