Standard Deductions vs. Itemizing: New 2018 Tax Laws
Just when you think you know which documents your tax accountant needs, the government changes the rules. For many Americans the new tax laws have simplified the tax filing process. Hopefully the new laws also provide you with a refund on April 15th.
In the past, Americans that itemized usually owned their own home complete with mortgage interest and real estate taxes. They usually paid state income tax as well. All of these items, plus some others like charitable contributions and unreimbursed employee expenses, allowed the taxpayer a much larger deduction on their tax return over just the simple standard deduction. That not longer may be the case.
The Tax Cuts and Jobs Act or TCJA has changed many of these deductions Americans are used to. There are three major changes that will affect itemized filers.
- State and local taxes, or SALT, are limited to a maximum deduction of $10,000. This includes the income taxes paid to your state, as well as your real estate taxes.
- The mortgage interest deduction is capped at the interest paid on the first $750,000 of your mortgage. This includes your first mortgage and any line of credit you may have outstanding, as long as the line of credit was used on home improvements.
- Miscellaneous itemized deductions are gone. This includes unreimbursed employee expenses, tax preparation fees, and unreimbursed qualified employee education.
Don’t worry though, the TCJA has increased the standard deduction. You will be happy to find that it has almost doubled for 2018. If you file single, it has increased from $6,350 to $12,000. The married filing jointly deduction has increased from $13,000 to $24,000. This means that many Americans will have a higher deduction by using the standard deduction vs. itemizing.
I would suggest you continue providing your tax accountant with all the documents sent to you by your mortgage company, as well as all of your SALT documents. But don’t be surprised to find the standard deduction on your tax return on April 15th.