After the Tax Cuts and Jobs Act of 2017, it is estimated that most people that have itemized their deductions in the past will likely end up taking the standard deduction this year instead. There are multiple reasons for this, but the primary one is the nearly doubling of the standard deduction from $6,350 to $12,000 for single taxpayers this year.
Before the TCJA of 2017, there was a phase-out limitation for each of the filing statuses that was determined by their adjusted gross income. However, starting in 2018, that will no longer be the case and the limitation on itemized deductions for higher income taxpayers will no longer be a factor.
What If My Itemized Deductions Were Greater Than $12,000 Last Year and Likely Will Be Again This Year?
You may have to recheck that because many of the itemized deductions that were allowable in tax year 2017 have either been severely limited or repealed altogether.
All of the deductions that were subject to the 2% floor have been suspended, including tax preparation fees, investment fees, unreimbursed employee expenses, the home office deduction, and many more. This suspension is going to be in effect until December 31, 2017.
In addition to the deductions subject to the 2% floor, there has been a major modification to the medical expenses deduction. For tax years 2017 and 2018, you may deduct your qualified medical expenses in excess of 7.5% of your adjusted gross income. However, in tax year 2019, this amount increases to 10% of your adjusted gross income, helping to limit this deduction.
For a list of qualified medical expenses that are allowed to be deducted, click here.
Another factor in limiting itemized deductions is the change to the home mortgage interest deduction. The new law lowers the amount of interest on mortgage debt that can be deducted to $750,000. Under the old law, the amount was $1,000,000 in home mortgage debt that could be deducted.
And with the change in the home mortgage deduction comes the change to state and local taxes that are allowed to be deducted. This includes property taxes and other taxes or sales and use taxes. The new law caps the deduction of state and local taxes at $10,000, forcing high-taxing states and localities to rethink their policies to remain competitive.
So Should I Itemize?
After reviewing the most impactful changes to itemized deductions after tax reform, it is clear that Congress’ intentions was to simplify the process and reduce the amount of people that would be claiming itemized deductions over the standard deduction.
That being said, there are still people who will likely reach the cap of each of the itemized deductions allowable and find it advantageous over taking the standard deduction. Even with the limitations, the only way to tell may be just to fill out the forms and compare which is greater.
This article does not constitute legal, financial, or tax advice. For help reviewing your tax situation and to help determine if itemizing your deductions is advantageous to your situation after tax reform, consult a local CPA or EA.