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1 1 (November 15, 2017)

handle is hein.crs/govceyt0001 and id is 1 raw text is: 0,;0 , riE SE ,,$,-h ,.,, Updated November 15, 2017 Key Issues in Tax Reform: Itemized Tax Deductions 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, unreimbursed employee business expenses, and extraordinary medical expenses. For high-income filers, a limit on itemized deductions (Pease limitation) might apply, but this provision actually is structured more like an income surtax since it is triggered by income and not by the amount of deductions claimed. As shown in Table 1, 30% of all filers in the 2015 tax year chose to itemize. The average sum of itemized deductions among all filers was $28,214, but this total varied widely from one end of the income spectrum to the other. Table I. Tax Data on Itemizers, Tax Year 2015 Average Sum of Share of Tax Deductions Adjusted Gross Filers Who Claimed per Income (AGI) Itemize Itemizer $1 to $19,999 5% $15,596 $20k to $49,999 17% $16,115 $50k to $99,999 44% $19,199 $100k to $199,999 76% $25,517 $200k to $499,999 94% $43,427 $500k to $I million 93% $84,820 $1 million + 91% $436,732 All tax filers 30% $28,214 Source: CRS analysis of the Internal Revenue Service's Statistics of Income data, Tables 1.4 and 2.1, at https://www.irs.gov/uac/soi-tax- stats-individual-statistical-tables-by-size-of-adjusted-gross-income. 'Sk u d sget~akry ude r ckrre:,, Law Some itemized deductions rank among the largest individual tax expenditures, or revenue losses compared to a broader baseline of income. Specifically, the deductions for mortgage interest, state and local taxes, and charitable contributions rank within the top 10 largest individual tax expenditures, according to estimates by the Joint Committee on Taxation (CT). Figure 1 indicates that the five largest itemized deductions, in terms of revenue loss, account for $264 billion (without interaction effects), or 20% of all individual tax expenditures, in FY2018. Figure I. Itemized Deductions Estimated to Contribute Most to Revenue Losses ($ Bil.), FY2018 Mort ge -- Interest, ?% &$9L State and Loca Income or Sales Taxes, 6% $S72) Charitabte Gifts, 4% Ssu Real Estate Taxes, _%t5$9) Medcal Expenses, 1% Slz; Source: CRS analysis of JCT, Estimates of Federal Tax Expenditures, For Fiscal Years 2016-2020, 1 15th Congress, I st session, January 3, 2017, JCX-3-17. Notes: CRS tabulated the sum of all individual tax expenditures included in the JCT publication as $1,298 billion in FY2018. Numbers might not add to 100% due to rounding. The Ta. x Cu.,ts afd i 'L, a :, T ;HR ~J' o b\, AcJ T {C1A, H. R.I Table 2 summarizes changes to select itemized deduction provisions proposed in the House and Senate versions of the TCJA. Both versions would repeal most itemized deductions or at least restrict them, relative to current law, beginning in 2018. The House version retains individual itemized deductions only for mortgage interest, state and local real property taxes (up to $10,000), and charitable contributions. The House and Senate versions would also repeal personal exemptions, increase the standard deduction, and index the standard deduction to inflation using the Chained Consumer Price Index for all Urban Consumers (C-CPI-U) instead of the current unchained CPI-U. Under current law, the standard deduction in 2018 for married joint filers is $13,000 with a combined personal exemption of $8,300 (for a total of $21,300). Single filers can claim a standard deduction of $6,500 plus a personal exemption of $4,150 (for a total of $10,650). Within certain income limits, additional personal exemptions can be claimed for any dependents. Economic Issues. From an economic perspective, itemized deductions target a mixed bag of economic activities. Some provisions encourage certain types of behavior (e.g., purchasing a mortgaged house, charitable giving), account for circumstances that reduce a filer's ability to pay taxes (e.g., extraordinary medical expenses, unreimbursed employee business expenses, casualty and theft losses), or subsidize state and local government spending (e.g., deduction for state and local nonbusiness taxes). Some of these activities could have positive or negative spillover 0. _ .. 1 .... ... :::::: ::$:::$4 :: gogn, q -,\\mw-,' , goo g , q aS ' X 11LULANJILiN,

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