There were many notable changes with 2018 income tax reform.  In this post, we will cover the personal changes that will affect Schedule A Itemized Deductions. The concept will be similar for all taxpayers, but we will focus on Married Filing Jointly Taxpayers. These provisions will be in effect from 2018 – 2025.

As a refresher, taxpayers can either take the standard deduction or itemize. Some items that have shown up on Schedule A deductions are: medical and dental expenses (there is a calculation to arrive at the deductible portion), taxes you paid, interest you paid, charitable contributions, casualty and theft losses, and miscellaneous expenses. When choosing whether to take itemized or standard deductions, you would choose which ever option is more beneficial.

Here are the changes:

  1. One of the deductions on Schedule A (Itemized deductions) is “Taxes You Paid”. It includes state taxes you paid, real estate taxes, and personal property taxes. For 2018, this deduction will be capped at $10,000. Because of this, itemized deductions could decrease.
  2. If you buy a home between now until 2026, you can deduct the mortgage interest on up to $750,000 in mortgage debt. Note that this cap affects homes purchased after December 14, 2017. If you purchased a home before then, you are grandfathered in and can use the prior $1 million cap. Deducibility of Home equity interest is suspended.
  3. The portion of medical expenses that exceeds 7.5% of Adjusted Gross income can be added to itemized deductions for 2017 and 2018. For 2019 and onward, it will increase back to 10%.
  4. Miscellaneous itemized deductions are suspended (Schedule A Itemized Deductions including unreimbursed employee expenses, income tax preparation fees, investment advisory fees).
  5. Casualty losses will be only for losses in a federally declared disaster area. Note – there is a calculation for this.
  6. The standard deduction increased from $12,700 to $24,000 (for Married Filing Joint taxpayers).

With all of these changes combined, you may find that it is more beneficial to take the standard deduction, but it is important to provide your CPA with all information so that this determination can be properly made.