Tax Reform Impact on the Standard Deduction & Itemized Deductions

Brittany Becker (Dec, 2018)

The Tax Cuts and Jobs Act (TCJA) has changed some tax provisions, effective in 2018. Several of the individual tax provisions are temporary. Also, many of the provisions expire at the end of 2025 at which time the rules will revert back to pre-2018 law. It is important to know how these changes will affect individuals during the current tax year. Listed below are summaries of the Standard Deduction and Itemized Deductions that were changed by the TCJA.

Standard Deduction

The choice in deciding whether to itemize or apply the standard deduction has not changed with The TCJA. The standard deduction has increased for each filing status. Married individuals filing a join return have a standard deduction of $24,000, Head-of-household filers standard deduction is $18,000, and all other taxpayers have a standard deduction of $12,000. The deduction is indexed for inflation in future years beginning after December 31, 2018. The additional standard deduction for the elderly and the blind was retained. This now includes an additional $1,300 deduction for both the taxpayer and spouse who are over the age of 65 and/or blind. This amount increases to $1,600 if the taxpayer is unmarried.

Medical Expenses

The medical expense deduction threshold was temporarily lowered to 7.5% of adjusted gross income for all taxpayers itemizing their deductions in 2017 and 2018. This applies to both regular tax and alternative minimum tax (AMT). Prior to the TCJA, the 7.5% was only available for taxpayers over the age of 65, while younger taxpayers had a 10% threshold. For AMT purposes, the 10% threshold was applicable to all taxpayers.

State and Local Taxes

The combined itemized deductions for state and local real property taxes, state and local personal property taxes, and state and local income or sales taxes for tax years, beginning after December 31, 2017 through the year ending 2025, may not exceed $10,000 for Married Filing Joint and $5,000 for married individuals filing separately. The TCJA also suspended the deduction for foreign real property taxes through 2025.   

Home Mortgage and Home Equity Interest

The itemized deduction for mortgage interest after the TCJA has been reduced for the tax years after December 31, 2017 through the year ending 2025. The deduction for the interest paid on acquisition indebtedness decreased from $1 million to $750,000 for Married Filing Joint. ($375,000 for Married Filing Separately). The $1 million limitation still applies to taxpayers who enter into a binding contract before December 31, 2017, who close on the purchase before January 1, 2018, and purchase the residence before April 1, 2018. Under the TCJA, the home equity interest deduction is suspended, unless it is used to buy, build, or substantially improve the taxpayer’s home that secures the loan. The interest from home equity loans used for personal reasons are no longer deductible (such as paying off student loans, paying off credit card debt, paying educational expenses, taking vacations, purchasing a vehicle, etc.).

Charitable Contributions

Under the TCJA two modifications were made to the charitable contribution rules. First, for tax years beginning January 1, 2018 and ending before January 1, 2026, the percentage limitation for cash contributions to public charities increased from 50% to 60% of adjusted gross income. The second modification under the TCJA eliminated the charitable deduction for payments made to universities in exchange for college athletic event seating rights. Prior to the TCJA taxpayers could deduct 80% of the amounts paid to a university in exchange for receiving athletic event seating rights.

Personal Casualty Losses

Under the TCJA, for tax years beginning January 1, 2018 through December 31, 2025, personal casualty losses have been suspended and are disallowed. However, taxpayers with a personal causality loss in a federally declared disaster area may deduct it.

Miscellaneous Deductions Subject to the 2% Floor

Under the TCJA for tax years beginning January 1, 2018 through December 31, 2025, all miscellaneous itemized deductions subject to the 2% adjusted gross income floor have been disallowed. This includes investment fees, tax preparation fees, unreimbursed employee business expenses, hobby losses, union dues, and all other miscellaneous deductions.

Gambling Losses

Under the TCJA for tax years beginning January 1, 2018 through December 31, 2025, gambling losses are still limited to the taxpayers gambling winnings. The definition of gambling losses has been broadened, however, to include other expenses incurred in gambling activities and losses incurred from wager transactions.

Overall Limitation on Itemized Deductions

The overall limitation on itemized deductions based on an adjusted gross income threshold (the Pease limitation) has been repealed through December 31, 2025. This allows taxpayers in tax years beginning January 1, 2018 through December 31, 2025 to claim 100% of their allowed itemized deductions.

This is a concise summary of the impact of the TCJA on the standard deduction and itemized deductions. Tax filing season is rapidly approaching, and these changes will affect taxpayers' 2018 taxes. The tax professionals at Dermody, Burke & Brown are here to discuss how these changes will affect you.


The information reflected in this article was current at the time of publication.  This information will not be modified or updated for any subsequent tax law changes, if any.

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