Contributed by: Protax Consulting Services Inc., USA
Executive summary: How the TCJA 2017 act severely limited Itemized Deductions starting on January 1, 2018, while eliminating the phaseout entirely. Gone are unreimbursed employee expenses, investment expenses and personal casualty & theft losses unless the casualty is declared a federal disaster area by the President, the SALT deduction is limited to $10,000 ($5,000 if married filing separate), and HELOC deductibility is severely restricted.
Tax law changes in the Tax Cuts and Jobs Act affect almost everyone who itemized deductions on tax returns they filed in previous years.. One of these changes is that TCJA nearly doubled the standard deduction for most taxpayers. This means that many individuals may find it more beneficial to take the standard deduction. However, taxpayers may still consider itemizing if their total deductions exceed the standard deduction amounts.
Here are some highlights taxpayers need to know if they plan to itemize deductions:
Medical and dental expenses
Taxpayers can deduct the part of their medical and dental expenses that’s more than 7.5 percent of their adjusted gross income.
State and local taxes
The law limits the deduction of state and local income, sales, and property taxes to a combined, total deduction of $10,000. The amount is $5,000 for married taxpayers filing separate returns. Taxpayers cannot deduct any state and local taxes paid above this amount.
The new law suspends the deduction for job-related expenses or other miscellaneous itemized deductions that exceed 2 percent of adjusted gross income. This includes unreimbursed employee expenses such as uniforms, union dues and the deduction for business-related meals, entertainment and travel.
Home equity loan interest
Taxpayers can no longer deduct interest paid on most home equity loans unless they used the loan proceeds to buy, build or substantially improve their main home or second home.