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Standard Deduction & Itemized Deductions | Tax Reform Update

The Tax Cuts and Jobs Act brought significant changes to many individual tax regulations, including those dealing with the standard deduction and itemized deductions. There are several factors to consider that may change whether the standard deduction or itemized deductions are more beneficial for you beginning in 2018.

The Tax Cuts and Jobs Act also tweaks or eliminates various itemized deductions. The following is a brief summary of the changes to itemized deductions for 2018.

  • Medical and Dental Expenses. The threshold for deducting out-of-pocket medical costs was changed for 2017, and will stay the same for 2018, at 7.5% of adjusted gross income (AGI). Then beginning in 2019, all taxpayers will have a 10%-of-AGI threshold unless a change is made by Congress.

  • State and Local Taxes. Deductions for property taxes and all state and local income or sales taxes that would normally be deducted on Schedule A remain in place but are now limited. The amount you are deducting for all property taxes, and state and local income or sales taxes now may not exceed $10,000 ($5,000 for married taxpayers filing separately).

  • Home Mortgage Interest. The home mortgage interest deduction is still available but has been modified. As of December 15, 2017, you may only deduct interest on acquisition indebtedness - your mortgage used to buy, build or improve your home – up to $750,000 ($375,000 for married taxpayers filing separately). For mortgages that were taken out before December 15, 2017, the limit is still $1,000,000 ($500,000 for married taxpayers filing separately). The definition of acquisition indebtedness is important. It only includes indebtedness that is incurred to acquire, construct or substantially improve a qualified residence which secures the residence of the taxpayer. For 2018, there is no deduction allowed for interest on home equity debt (debt that is not “acquisition indebtedness”).

  • Charitable Donations. The limit on cash contributions by an individual taxpayer to qualified charities increased from 50% to 60% of AGI. The percentages for property contributions have not changed. No deductions will be allowed for contributions that entitle the donor to receive rights to purchase tickets or seating at college athletic events.

  • Casualty and Theft Losses. The deduction for personal casualty and theft losses is no longer available unless they result from a federally-declared disaster.

  • Job expenses and Miscellaneous Deductions Subject to the 2% Floor. Miscellaneous deductions subject to the 2% floor have been eliminated. This includes deductions for tax preparation fees, investment advisor expenses and unreimbursed employee expenses such as tools, supplies, required uniforms not suitable for ordinary wear, dues, subscriptions, travel, and mileage. Note that this elimination only affects taxpayers who claim employee-related deductions on Schedule A. If you are a self-employed business owner filing Schedule C, your business-related deductions are not affected by this elimination. Also, certain miscellaneous itemized deductions that are not subject to the 2% floor, such as gambling losses (to the extent of winnings), are still an allowable deduction.

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