January 25, 2019 wagnertax

Tax Reform 101: Should I still itemize?

9 Major Deductions Affected by the New Tax Plan

If you have itemized your deductions in the past, you may be wondering what the Tax Cuts and Jobs Act will mean for your next return. In 2018, about 30 percent of America’s taxpayers reduced their taxable income by deducting for things like mortgage interest, property tax, and other miscellaneous items. The remaining 70% chose to take the standard deduction instead.

The new tax plan that was signed in to law last December put limits on several commonly-used deductions, and many taxpayers – maybe you! – are left wondering if they should itemize in 2019. Below is a list of the most significant changes that were made to income tax exemptions and deductions.

The Standard Deduction – increased

If you are a single filer and you took the standard deduction for 2017, you were able to subtract $6,350 from your taxable income. For those who were married and filing jointly, the deduction was $12,700.

Here is what the standard deduction looks like, by filing status, for 2018-2024:

  • Single: $12,000
  • Married, filing separately: $12,000
  • Married, filing jointly: $24,000
  • Head of Household: $18,000

If you are age 65 or over, blind or disabled, your standard deduction is worth an additional $1,300 ($1,600 for unmarried taxpayers).

As its name suggests, the standard deduction is a set amount offered to all taxpayers. Anyone can choose to take the standard deduction. Depending on your situation, taking the standard deduction could put you into a lower tax bracket.

The Personal Exemption – eliminated

You will no longer be able to take a deduction for yourself, the taxpayer, or your dependents. The personal exemption was deductible from your income in addition to your itemized deductions, but it has been eliminated 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.

Moving expenses – eliminated

Unless you are in the military*, you may no longer deduct the cost of moving household goods and personal items or travel related to your move.

*Taxpaying members of the military who are on active duty and moving on orders may still deduct moving expenses even after the TCJA.

Unreimbursed employee expenses – eliminated

Employees who get a W2–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. Small businesses can still deduct all these expenses.

Medical and dental expenses – no change until 2019

For 2018, you may deduct expenses above 7.5 percent of your adjusted gross income. Beginning Jan. 1, 2019, you may deduct any amount of unreimbursed medical and dental expenses that exceed 10 percent of your adjusted gross income.

State and local tax (SALT) – restricted

The amount you can deduct for any combination of State and Local Taxes – including income, property and sales tax – is capped at $10,000. This does not apply for RENTAL PROPERTY Owners. This relates to your personal first and second home(s) not other business properties you may rent out.

Student loan interest – no change

The student loan interest deduction was not changed by the 2018 tax reform. You may still claim up to $2,500 for interest on loans you are required to pay. And if you receive a tuition waiver, that remains tax-free in 2019.

Should I itemize?

Whether you should still itemize will depend on your unique tax situation. If you are unsure if you should itemize or take the standard deduction, Wagner Tax & Accounting can help you choose the option that will deliver the maximum refund.