For COVID-19 Resources, Click Here

THE TAX CUTS AND JOBS ACT: Changes to Itemized Deductions

Changes to Itemized Deductions

Most of the changes to deductions are temporary, effective from 2018 through the end of 2025. All of those listed below are among the temporary majority.

Mortgage Interest Deduction

The Act does not limit the amount of mortgage interest allowed to be deducted, but it lowers the limit on the amount of acquisition indebtedness which the interest is derived from $1,000,000 to $750,000 for those filing jointly ($375,000 for single and married-but-filing-separately taxpayers). This new limit only affects taxpayers who have acquired or will acquire a new mortgage between December 15, 2017 and January 1, 2026. Homeowners with mortgages prior to December 15, 2017 are allowed to keep their previous limitation of $1,000,000 ($500,000 for single or separate filers). The new law also permits deducting interest on a second home, as long as the combined mortgage interest falls within the new limitations. However, it now disallows interest deductions from home equity loans.

STATE AND LOCAL TAXES

A limit of $10,000 has been imposed on the combined total of state and local taxes, including real estate and property taxes. Prior to the new legislation, there was no cap on deductions for state and local taxes. Taxpayers may still choose between deducting state income taxes or sales taxes.

CASH CHARITABLE CONTRIBUTIONS

The current limitation of 50% of income has been increased to 60%. No changes were made to deductions for non-cash contributions. 

CASUALTY LOSSES

This deduction is repealed under the new law, unless covered by specific federal disaster declarations, which will be explained in a later section, “Disaster Relief Provisions”.

Gambling Losses

According to prior law, a taxpayer is allowed to deduct gambling losses to the extent of gambling wins. The new law modifies the definition of gambling loss to include other expenses incurred in connection to the gambling activity, such as traveling expenses, which must be added to their total loss in calculating the allowable deduction.

Miscellaneous Itemized Deductions

The new law disallows all miscellaneous deductions (i.e. tax preparation fees, unreimbursed job expenses, etc.) previously subject to the 2% adjusted gross income floor through the end of 2025.

Medical Expenses

The Act reduces the adjusted gross income threshold from 10% to 7.5%. This change is more temporary than others, however, and will only be effective for tax years 2017 and 2018. Beginning in 2019, the threshold will revert back to 10%.

Moving Expense Reimbursement

The new law requires qualified moving expense reimbursements to be included in taxable gross income, except in the case of active duty members of the Armed Forces of the United States who move because of a military order.

 

*Note: The phase-out or overall limitation on itemized deductions for higher-income individuals is repealed with The Act, for the tax years 2018 through 2025.

For more details related to the changes described above or if you have any questions, please feel free to contact us.