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1 1 (March 4, 2025)

handle is hein.crs/govesqf0001 and id is 1 raw text is: Congressional ____ Selected Issues in Tax Reform: Itemized Deductions March 4, 2025 P.L. 115-97, commonly known as the Tax Cuts and Jobs Act (TCJA), modified the treatment of various itemized deductions through the end of 2025. This Insight provides information on itemized deductions specifically and tax deductions more generally, upcoming changes in tax law, and the potential effects of making the TCJA reforms permanent. What Are Tax Deductions? Deductions allow individuals to reduce their taxable incomes, thus lowering the amounts they owe in taxes. For example, an individual earning $100,000 per year and qualifying for a $20,000 deduction would pay the same taxes as an individual earning $80,000 and not receiving a deduction. Policymakers may create deductions as a way of subsidizing certain activities (e.g., saving for retirement) or accounting for income that may not benefit the taxpayer (e.g., charitable contributions), or for other reasons. There are four types of deductions. Above-the-line deductions allow all taxpayers to deduct certain expenses, including student loan interest payments and alimony payments. The standard deduction allows taxpayers to reduce their taxable incomes by a flat amount; for tax year 2025, the standard deduction is $15,000 for single taxpayers and $30,000 for married couples. Itemized deductions allow taxpayers not claiming the standard deduction to deduct certain expenses. The three largest itemized deductions (in terms of foregone federal revenues) are the deductions for charitable contributions, mortgage interest payments, and state and local tax (SALT) payments. Finally, the Qualified Business Income (QBI) deduction allows certain business owners to exempt 20% of their QBI income from the personal income tax, subject to certain restrictions. Under current law, the QBI deduction will expire after 2025. Distributional Impacts Tax deductions generally benefit high-income households more than low-income households, for two reasons. First, tax deductions are generally based on taxpayers' expenses, and high-income people usually spend more than low-income people. Second, reducing taxable income is most valuable to people whose income would have been taxed at a high rate. Because marginal tax rates rise with income, deductions reduce tax payments the most for high-income taxpayers. Congressional Research Service https://crsreports.congress.gov IN12517 CRS INSIGHT Prepared for Members and Committees of Congress

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