Tax Reform 101
The Tax Cuts and Jobs Act had a significant impact on the American tax code. Several of the key changes affected itemized deductions, and your clients might be asking if they should itemize or take the standard deduction. We have compiled all the changes that could affect which method your clients choose below.
The standard deduction – increased
The TCJA doubled the standard deduction in tax year 2018 and it increased even more for 2019. Below are the standard deduction amounts for 2018 and 2019.
||2018 (taxes filed in 2019)
||2019 (taxes filed in 2020)
|Married Filing Separately
|Married Filing Jointly (and Qualifying Widow/ers with Dependent)
|Head of Household
For your clients who are age 65+ or blind, the standard deduction is worth an additional $1,300 ($1,650 for unmarried taxpayers).
Shared Responsibility Payment - eliminated in 2019
As of 2019, if your clients don't have health insurance coverage, they won't face a penalty on their federal tax return. However, some states have health insurance mandates that might charge your clients with a fee on their state tax return.
Medical and dental expenses - increased in 2019
Beginning Jan. 1, 2019, your clients can deduct unreimbursed medical and dental expenses exceeding 10% of their AGI. If you are filing a client's taxes for tax year 2018, they can deduct unreimbursed medical and dental expenses that exceed 7.5% of their AGI.
Alimony deductions - eliminated in 2019
If your client's divorce is finalized on or after Jan. 1, 2019, they can no longer deduct alimony payments from their taxable income. This also applies if the alimony agreement was modified on or after this date. If your client is receiving alimony, it should not be reported as part of their taxable income.
The personal exemption – eliminated
Your clients will no longer be able to take an exemption for themselves or their dependents. It was eliminated by the TCJA as of Jan. 1, 2018.
State and local tax deduction (SALT) - restricted
The TCJA put a $10,000 cap on the amount your clients can deduct for state and local income, property, sales, and real estate taxes combined. For your clients who are filing married filing separately, the deduction is capped at $5,000 per return.
Home mortgage interest – restricted
Your clients can still deduct interest on mortgage indebtedness up to $750,000 ($375,000 for married filing separately) for mortgages taken out after December 16, 2017. For mortgages taken out on or before that date, the limit is still $1,000,000 ($500,000 for married filing separately).
Home equity loan interest - restricted
Interest on debt that is related to the purchase, construction, or significant improvement of your client's residence is still deductible. You can also help your client deduct refinanced mortgages if the amount is not more than what they paid for the home. If the money is used for any other reason, your client can't deduct the interest.
Moving expenses – eliminated
Your clients can no longer deduct the cost of moving their belongings or travel costs resulting from a move. However, active duty military moving on orders can still deduct their expenses under the TCJA.
Foreign real estate tax deduction – eliminated
Under the new tax plan, the foreign property tax deduction has been eliminated. If your clients own a vacation home or part-time residence outside the U.S., they will not be able to deduct their foreign real estate taxes.
Unreimbursed employee expenses - eliminated
Expenses related to your client's employment exceeding 2% of their adjusted gross income (AGI) can no longer be deducted due to the TCJA.