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1 1 (February 4, 2019)

handle is hein.crs/govydt0001 and id is 1 raw text is: CIgesoa Resarc Serve S February 4, 2019 2019 Tax Filing Season (2018 Tax Year): Itemized Deductions P.L. 115-97, often referred to as The Tax Cuts and Jobs Act (TCJA), temporarily changed some personal income tax deductions taxfilers will claim for tax years 2018 through 2026. This In Focus explains the changes made to itemized deductions in P.L. 115-97 and their potential impacts. For more details about the changes enacted by P.L. 115-97, see CRS Report R45092, The 2017 Tax Revision (P.L. 115- 97): Comparison to 2017 Tax Law, coordinated by Molly F. Sherlock and Donald J. Marples. Summary of Current Law Individual tax filers have the option to claim the standard deduction or itemize their tax deductions, typically choosing whichever provides the larger tax benefit. Itemized deductions are available for a diverse set of activities, such as mortgage interest, charitable giving, state and local sales or income taxes, real property taxes, and unreimbursed medical expenses. Itemized deductions are distinguished from above-the-line deductions (e.g., IRA contributions, student loan interest) that can be claimed regardless of whether a taxfiler itemizes or claims the standard deduction. Comparison to Prior Law Among some of the major changes in individual income taxes for 2018 are the increased standard deduction amounts. Table 1 compares the standard deduction amounts that would have been in effect for 2018 pre-P.L. 115-97 and the actual amounts for 2018 under P.L. 115-97. As a result, more taxpayers will be better off claiming the standard deduction rather than itemizing. Table I. Standard Deduction Amounts, 2018 Under Pre- Post-TCJA Filing Status TCJA Law Current Law Single (Unmarried) $6,500 $12,000 Married Filing $13,000 $24,000 jointly Married Filing $6,500 $12,000 Separately Head-of- $9,550 $18,000 Household Source: IRS Rev. Proc. 20 18-18, May 5, 2018, https://www.irs.gov/ pub/irs-irbs/irbl8-10.pdf; and IRS Rev. Proc. 2017-58, November 6, 2017, https://www.irs.gov/irb/2017-45_1RB. These amounts, though, are permanently indexed for inflation using the chained Consumer Price Index (CPI) instead of the unchained or traditional CPI, pre-P.L. 115- 97. Historically, the chained CPI has grown at a slower rate, because it allows for consumer substitutions in the prices of goods and services used to calculate inflation. Because of the larger standard deduction and the limit or repeal of some itemized deductions, some taxfilers might be better off claiming the standard deduction in 2018 even if they itemized in the past. Before 2018, taxfilers were allowed to claim an unlimited deduction for state and local income or sales taxes paid, as well as property taxes paid. In 2018, those deductions are limited to a combined amount of $10,000 per taxfiler, regardless of filing status. Additionally, the deduction for mortgage interest was limited. In 2017, a homeowner was allowed an itemized deduction for the interest paid on the first $1 million of combined mortgage debt associated with a primary or secondary residence. A homeowner was also allowed to separately deduct the interest paid on the first $100,000 of home equity debt regardless of whether or not the taxpayer incurred the debt to finance costs associated with the home. Starting in 2018, the amount of interest that is deductible depends on when the mortgage debt was incurred. For mortgage debt incurred on or before December 15, 2017, the combined mortgage limit is $1 million. For mortgage debt incurred after December 15, 2017, the deduction is limited to the interest incurred on the first $750,000 of combined mortgage debt. Homeowners may still deduct interest on home equity loans, but the proceeds of that loan must be (or have been) used to improve the home (e.g., paying for a child's college is not allowed), and the taxpayer's total debt-including their home equity loan- must be below the applicable mortgage limit ($750,000 or $1 million). These limitations apply for taxable years 2018 through 2025. For more details, see CRS In Focus IF1 1063, 2019 Tax Filing Season: The Mortgage Interest Deduction, by Mark P. Keightley. Several other itemized deductions that affected narrower groups of taxfilers were also repealed beginning in 2018, such as deductions for: personal casualty losses-except for losses associated with federal disaster declarations-and all miscellaneous itemized deductions subject to the 2% of adjusted-gross -income (AGI) floor (including unreimbursed employee expenses). The floor for the medical expenses deduction, though, was temporarily reduced from 10% to 7.5% of AGI for 2017 and 2018. The deduction for charitable contributions was basically unchanged, except for increasing the percentage of AGI that can be given as cash to qualifying organizations from https://crsreports.congressg

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