Tax Cuts and Jobs Act Changes to Itemized Deductions
Wolters Kluwer Reviews Critical Changes to Itemized Deductions
(NEW YORK, NY, March 2019) — With the Tax Cuts and Jobs Act increases in the standard deduction, it is estimated that only around ten percent of taxpayers will be better off itemizing deductions this year. For those taxpayers that choose to itemize, there are also many changes to those itemized deductions effective generally for the first time on 2018 tax returns.
The following are some of the more significant changes to itemized deductions effective for 2018 tax returns:
- Mortgage Debt Limit
The mortgage debt limit for deductible interest is reduced from $1 million to $750,000 for new mortgage debt after December 17, 2017. Preexisting mortgage debt is grandfathered at the $1 million level. Home equity line of credit debt is reduced from $100,000 to $0 effective on January 1, 2018, with no protection for preexisting line of credit debt. Line of credit debt used to buy, build or improve a home can still count under the mortgage debt limit.
- State and Local Tax Deduction
The state and local tax deduction, including state and local income, sales and property taxes, has gone from an unlimited deduction to a maximum deduction of $10,000. Several states have adopted or proposed alternatives to circumvent the limit, such as a charitable contribution that qualifies for a state income tax credit. The IRS has indicated that it will challenge charitable contributions to the extent that they provide a state income tax credit, using language that appears to be broad enough to apply to many long-standing state income tax credits for charitable contributions.
- Medical Expenses
The threshold for medical expense deductions was lowered to 7.5 percent of adjusted gross income for 2017 and 2018, for both regular tax and the alternative minimum tax. It reverts to a 10 percent threshold for 2019.
- Charitable Contributions
The threshold for the maximum charitable contribution deduction was increased from 50 percent of adjusted gross income (AGI) to 60 percent of AGI beginning on 2018 tax returns.
- Casualty Loss Deduction
The casualty loss deduction was eliminated starting in 2018 for all except federally declared disasters.
- Miscellaneous Itemized Deductions
Miscellaneous itemized deductions subject to the 2 percent of adjusted gross income floor were eliminated starting in 2018. This includes deductions for tax preparation fees, unreimbursed employee business expenses, investment expenses, and hobby expenses.