According to 2015 IRS statistics, approximately 30% of all taxpayers itemize their deductions. And with Tax Reform affecting many areas of the Tax Code, Schedule A and itemized deductions are no exception.

If you have itemized deductions previously, or are considering future itemization, below are some of the significant changes and considerations when deciding what works best for you.

Doubling the Standard Deduction

An initial question when deciding whether to itemize your deductions or use the standard deduction is: which method is the most beneficial in reducing taxable income? Tax Reform changes part of that equation since for tax years 2018 – 2025, the standard deduction has nearly doubled.

STANDARD DEDUCTION COMPARISON CHART
FILERS PRE – 2018 2018 – 2025
Single $6,500 $12,000
Head of Household $9,550 $18,000
Married Filing Jointly $13,000 $24,000
Married Filing Separately $6,500 $12,000

Elimination of Personal Exemption

While the near doubling of the standard deduction is beneficial, it comes with a cost: the deduction for personal exemptions. For 2017, the personal exemption was $4,050 each; it is suspended for tax years 2018 – 2025.

Enhancement of Child Tax Credit

The Tax Reform increased the child tax credit to $2,000 per child under the age of 17 and added a $500 credit per non-child dependent. Additionally, the phase-out threshold increased to $400,000 for married filing jointly ($200,000 for everyone else). Like many other individual tax changes, this enhanced credit only lasts from 2018 – 2025.

Mortgage Interest Limitation

Farewell to the home equity line of credit (second mortgage) interest deduction…for now. While the Tax Reform generally preserves the first mortgage home interest deduction, there are two significant changes effective for tax years 2018 – 2025 of which to be mindful.

  • The Tax Reform lowers the home “acquisition indebtedness” limit to $750,000 ($375,000 for married taxpayers filing separately), down from $1 million ($500,000 for married taxpayers filing separately). This limitation applies to debt incurred after  December 15, 2017.
  • The deduction for interest paid on certain types of home equity line of credit (HELOC) is suspended.

State and Local Tax Limitations

The deductions for state and local real property taxes, personal property taxes, and general sales taxes (if elected) are combined and limited to $10,000 total ($5,000 for married taxpayers filing separately) for tax years 2018 – 2025.

It’s worth noting that the $10,000 aggregate limitation rule does not apply to taxes paid and associated with carrying on a trade or business activity. So deductions continue to be allowed for state and local taxes paid related to an individual’s Schedule C, Schedule E, or Schedule F  activity. For example, an individual’s bona fide rental property — even if not held by a separate business entity — remains deductible and not subject to the $10,000 limitation.

Other Notable Changes

Additional changes effective for tax years 2018 – 2025, include:

  • “Miscellaneous itemized deductions” are no longer allowed.
  • The prior 3% phase-out of certain itemized deductions (the “Pease limitation”) is removed.
  • Personal casualty losses are non-deductible unless attributable to a federally declared disaster.
  • Charitable deduction is denied for contributions to a college or university in exchange for athletic event seating rights.

One other notable change that does not sunset in 2025:

  • The Affordable Care Act’s individual mandate penalty imposed for individuals not having health insurance is repealed beginning in 2019.

Celebrate This Year’s New Tax Breaks for Individual Taxpayers

While the holidays are officially over, many of us will be celebrating the tax breaks now available to individuals for many upcoming months — and years! CRI’s tax professionals deliver a spectrum of tax services — planning, compliance, and consulting — that can help mitigate your tax liabilities for 2018 and beyond. And if you have enough savings for that nice bottle of bubbly, feel free to invite us to your celebration!