Planning for 2018 – Itemizing vs. Taking the Standard Deduction

What does the 2017 vs 2018 standard deduction look like?

Filing Status 2017 Tax Year 2018 Tax Year (new tax law)
Single $6,350 $12,000
Married Filing Joint $10,700 $24,000

The increase in the standard deduction, and limitations on itemized deductions under the Tax Cuts & Jobs Act (“TCJA”) has many people wondering if 2017 was the final year they will itemize their deductions.   Examples of itemized deductions, taken in prior years, to name a few, include:

  • Mortgage Interest
  • State and local income or sales taxes
  • Property taxes
  • Charitable contributions

Statistics show that over a quarter of taxpayers have itemized their deductions because their total itemized deductions were greater than the standard deduction, based on their filing status. The most popular deductions include state and local income tax, charitable contributions and mortgage interest.  How is the TCJA changing this?

  1. State and Local Income Tax – Under the TCJA, the deduction for all state and local taxes combined cannot exceed $10,000. This deduction is inclusive of state and local income tax, real estate and/or property taxes.

What is the impact on New York State residents?  Since New York State is a high tax state, this change dramatically reduces the tax deductions for many of its residents.  According to the New York State Department of Taxation and Finance, “without any changes to the state tax system, the SALT limits will cost New York’s taxpayers an additional $14.3 billion per year and risk undermining the competitiveness of the state economy, investments and services for residents and progressivity of its tax system.”

In Governor Andrew Cuomo’s 2019 budget he has proposed three alternatives to the SALT limitations.  You can read more about that here.  We will have a full post on the Governor’s budget coming in the following weeks.  

Has the Tax Cuts & Jobs Act given you the last year to itemize your deductions?

  1. Charitable Contributions – the deduction for charitable contributions increases to 60% of your adjusted gross income (AGI), up from 50% of AGI. Most taxpayers do not get close to this income threshold, but if they do exceed the 60% of AGI, any excess contributions get carried forward.  There are some planning strategies that you can do to still itemize and get a benefit for your charitable contributions.  These strategies depend on each individuals overall situation so please contact your tax advisor beforeimplementation.
  2. Mortgage & Home Equity Loan Interest – Contrary to popular belief interest on home equity loans is often still deductible under TCJA. You can read our blog post on this topic here.

It is important to keep in mind that there are many situations that can impact a tax return.  A taxpayer may benefit from a higher standard deduction, when solely comparing itemized deductions, but there are many other aspects to consider.  One of the most impactful may be personal exemptions.  Personal exemptions including yourself, your spouse and your dependents, were completely eliminated under TCJA.  With the loss of the exemptions, there are other changes to help offset the loss of the exemptions which include a larger child tax credit.  Due to this there are many planning considerations to keep in mind.   For any questions that you have don’t hesitate to contact your tax advisor.

Learn more about DKB’s Business & Corporate and Individual & Family Tax Services.