2018 Tax Law Changes for Individuals: Understanding Standard vs. Itemized Deductions

Now that the Standard Deduction has nearly doubled, many taxpayers won’t need to itemize their deductions, which will streamline the tax return process.

New Standard Deduction Amounts

  • Single filers = $12,000 deduction (up from $6,350)
  • Head of Household filers = $18,000 (up from $9,350)
  • Married Filing Joint = $24,000 (up from $12,700)

Changes to Itemized Deductions

If you have a greater tax benefit by itemizing your deductions, understand how the 2018 tax reform has changed what you can deduct.

  • Medical deduction has been retained and improved—for 2018, the threshold for deductibility is now 7.5% of Adjusted Gross Income (used to be 10% of AGI.)
  • Itemized deduction phase out—the deduction limitation phase out for higher income taxpayers has been suspended.
  • SALT (State and Local Tax) deduction—the SALT deduction has been capped at $10,000.  This is a combined total of your property taxes + state/local taxes + DMV fees.  In the past, the deduction was not limited.
  • Mortgage interest deduction—full interest deduction allowed for up to $750,000 of indebtedness on primary/secondary home mortgage.  For loans originated prior to 12/15/17, mortgage indebtedness can be as much as $1 million to qualify for full interest deduction.  Home equity (includes second mortgages) mortgage interest can still be deducted so long as funds from the equity loan was used to buy, build, or substantially improve the home that secures the loan.  The total of all loans must not exceed $750,000 ($1 million for loans originated prior to 12/15/17.)
  • Charitable contributions—the deduction amount has increased, but charitable contributions cannot exceed 60% of a taxpayer’s AGI (up from 50%.)
  • Miscellaneous deductions (subject to 2% of AGI)—miscellaneous deductions have been suspended through 2025.  Some examples of these types of deductions are unreimbursed employee business expenses, union dues, tax prep fees, investment expenses, casualty losses

If you’re unable to itemize for the 2018 tax year but just missed the limits, you may be able to time your deductions to itemize every other year.  Check with us on this common technique and other tax strategies so we can help you reduce your tax liability.