Will You Still Itemize Deductions On Your Tax Returns for 2018? by Joanie B. Stein, CPA
Posted on February 21, 2019 by Joanie Stein
Many U.S. residents and resident aliens accustomed to itemizing the expenses they were once eligible to deduct annually on Schedule A of their federal income tax returns may find it more beneficial to claim the standard deduction on the 2018 tax returns they will file in 2019. Under the new tax law, the standard deduction for single filers and married filing separately nearly doubles from the prior year to $12,000 (or $24,000 for married taxpayers filing jointly) while many of the popular deductions itemizers previously enjoyed have been eliminated or limited beginning in the 2018 tax year. Therefore, it behooves taxpayers to take the time to look at the deductibility of the expenses they previously itemized and consider if they have enough to exceed the standard deduction when filing their taxes this year.
Elimination of Miscellaneous Expenses
Taxpayers no longer have the benefit of many of the miscellaneous itemized deductions that they relied on in the past to reduce their taxable income. Gone are deductions for tax preparation and investment management fees, safe-deposit boxes, unreimbursed employee business expenses, costs for business-related entertainment, travel and association dues.
Limit on State and Local Income, Sales and Property Tax Deductions
Taxpayers’ deductions for state and local income, sales and property taxes is limited to a total combined $10,000 for the year beginning in 2018. Amounts in excess of that threshold are not deductible. Therefore, a homeowner who pays property taxes of $9,000 in 2018, will be able to deduct no more than $1,000 for any state and local taxes he or she paid during the year.
Limit on Deduction for Mortgage Loan Interest
Taxpayers who originated new mortgages or home equity lines of credit (HELOC) after Dec. 15, 2017, may only deduct interest on up to $750,000 of that debt and only when the loan is used to buy, build or substantially improve the taxpayer’s primary or secondary home. As a result, taxpayers who take out HELOCs to pay down student loans or credit card debt may not deduct loan interest regardless of the amount they borrow. However, taxpayers whose loans originated on or before Dec. 15, 2017, may continue to deduct interest on loans of up to $1 million.
Limit on Deductions for Casualty Losses
Taxpayers may only deduct the casualty losses they incur due to a federally declared disaster. If the taxpayer’s residence or place of business is not located in an area the president declares as a disaster zone, such as those states and counties affected by 2018’s California wildfires and/or hurricanes Florence and Michael, the taxpayer cannot deduct those losses on their federal income tax returns.
Changes to Deductions for Charitable Contributions
Beginning in 2018, only those taxpayers who itemize their deductions can receive the benefit of a deduction for their contributions of cash or property to qualifying non-profit organizations.
Taxpayers who claim the standard deduction in a tax year cannot also claim deductions for charitable giving, no matter how much they give. However, itemizers who make significant donations to non-profit organizations can deduct more of their giving in 2018, thanks to the new tax law’s increase in the deduction for charitable contributions of cash to 60 percent of the taxpayer’s adjusted gross income.
Increased threshold for Medical and Dental Expense Deductions
For the 2018 tax year, individuals can deduct the portion of their out-of-pocket medical and dental costs, including un-reimbursed insurance premiums, that exceed 7.5 percent of their adjusted gross income (AGI). In 2019, this will increase to 10 percent of AGI.
Suspension of Income-Based Limits on Itemized Deductions
One of the bright spots in the new tax law is the repeal of the Pease limitations, which reduced the total amount of itemized deductions taxpayers could claim based on their adjusted gross income. As a result, high-income taxpayers will be able to deduct more of their qualifying itemized expenses in 2018 and through 2025, when many of the individual provisions of the new tax law are set to expire.
About the Author: Joanie B. Stein, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where she works with individuals and closely held businesses to implement sound strategies that are intended to preserve wealth and improve tax-efficiency. She can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at email@example.com.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.