Two of the major changes by the TCJA that affects a large number of taxpayers were the changes to the standard and itemized deductions. Today let’s look at the highlights in these areas.
The Tax Cuts and Jobs Act – Changes to the Standard and Itemized Deductions
TCJA changes to the Standard Deduction
The TCJA eliminated the personal exemption and nearly doubled the standard deduction. Depending on your filing status, your standard deduction is as follows:
|Filing Status||Standard Deduction Starting in 2018||Increased from 2017|
|Single||$12,000||Up from $6,350 in 2017|
|Married filing jointly, Qualifying widow(er).||$24,000||Up from $12,700 in 2017|
|Married filing separately||$12,000||Up from $6,350 in 2017|
|Head of Household||$18,000||Up from $9,350 in 2017|
TCJA Changes to Itemized Deductions
It is expected that a significant number of taxpayers who itemized their deductions in the past will no longer find it beneficial. Many individuals who itemized last year may now take higher standard deduction simplifying their tax returns.
State and Local Income, Sales, and Property Taxes
A taxpayer’s deduction for state and local income, sales and property taxes is limited to a combined, total deduction of $10,000 ($5,000 if married filing separately). Anything above this amount is not deductible.
Deduction for Home Equity Interest
Unless the interest is paid on loan proceeds used to buy, build, or substantially improve a main home or second home, interest paid on most home equity loans will not deductible. For example, if a taxpayer used a home equity loan to build an addition to an existing building, this interest would be deductible. Interest on the same loan used to pay personal living expenses would not be deductible.Deduction for casualty and theft losses modified. A taxpayer’s net personal casualty and theft losses must now be attributable to a federally declared disaster to be deductible.
Miscellaneous Itemized Deductions
Previously, when a taxpayer itemized, they could deduct the amount of their miscellaneous itemized deductions that exceeded 2 percent of their adjusted gross income. These expenses are no longer deductible. This includes unreimbursed employee expenses such as uniforms, union dues and the deduction for business-related meals, entertainment and travel. It also includes deductions for tax preparation fees and investment expenses.
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Any tax advice herein is based on the facts provided to us and on our interpretation of tax legislation as it reads at the time the advice is provided. Tax law is subject to continual change, at times on a retroactive basis and may result in incremental taxes, interest or penalties. We are not responsible for updating our advice for changes in law or interpretation after the date the advice is provided. Every tax situation is different. We are not responsible for the tax implications to any individual or entity that may act on this advice.