Key Changes to Deductions and Itemizations
The Tax Cuts and Jobs Act put strict limits on several commonly-used deductions, and your clients may be asking if they should itemize in 2019. Below is a list of the major changes that could have a significant impact on their tax refunds this year.
The Standard Deduction - increased
Single filers electing to take the standard deduction in 2017 were able to subtract $6,350 from their taxable income. For joint filers, the deduction was $12,700.
The new Standard Deduction for tax years 2018-2024 is as follows:
- Single: $12,000
- Married, filing separately: $12,000
- Married, filing jointly: $24,000
- Head of Household: $18,000
For clients age 65 or over, blind or disabled, the standard deduction is worth an additional $1,300 ($1,600 for unmarried taxpayers).
The Personal Exemption - eliminated
Your clients will no longer be able to take the personal exemption for themselves or their dependents. It has been eliminated by the TCJA as of Jan 1, 2018.
Home mortgage interest – restricted
You can still deduct interest on mortgage indebtedness – that is, the debt you incurred when purchasing, building or significantly improving your residence – up to $750,000 for mortgages taken out after Dec. 15, 2017. For older mortgages, the limit is still $1 million.
Home equity loan interest – restricted
Interest on debt that is related to the purchase, construction, or significant improvement to your residence is deductible. If the money is used for any other reason, the interest is not deductible.
Foreign Real Estate Tax Deduction – eliminated
Under the new tax plan, the foreign property tax deduction has been eliminated. If your client(s) own a vacation home or part-time residence outside the United States, they will not be able to deduct their foreign real estate taxes beginning in tax year 2018.
Moving expenses - eliminated
Clients may no longer deduct the cost of moving household goods and personal items or travel related to a move. There is an exception for active duty military. Service members moving on orders may still deduct moving expenses under the TCJA.
Unreimbursed employee expenses - eliminated
Expenses related to employment can no longer be deducted. These would include uniforms, professional dues, work computer, job hunting expenses, licenses, equipment, and tools. It also includes travel and mileage expenses.
Tuition and Fees – eliminated
Clients who have previously claimed a deduction for college tuition and fees will no longer be able to do so under the TCJA. The student loan interest deduction, however, was not affected by tax reform. Clients may still claim up to $2,500 for interest paid on qualifying student loans.
Medical and dental expenses – no change until 2019
For 2018, your clients may deduct expenses over 7.5% of their AGI. Beginning Jan. 1, 2019, the threshold for deducting unreimbursed medical and dental expenses increases to 10% of AGI.
State and local tax (SALT) - restricted
The amount your clients can deduct for any combination of state and local taxes – including income, property and sales tax - is capped at $10,000. The limit applies to most filing statuses, though for married couples filing separately, the cap is $5,000 per return.