Overall Limitations on Itemized Deductions – Repealed
Through 2017 the total amount of most otherwise allowable itemized deductions (other than the deduction for medical expenses, investment interest, and casualty, theft or gambling losses) has been limited for certain taxpayers. The overall itemized deduction are reduced by three percent (3%) of the amount by which the taxpayer’s adjusted gross income exceeds a threshold amount. For 2017 the threshold amounts are as follows:
|Heads of households||$287,650|
|Married filing jointly||$313,800|
|Married filing separately||$156,900|
The itemized deductions cannot be reduced by more than 80% by reason of the overall limited on itemized deductions.
Beginning in 2018 and through 2025, there is no overall reduction in Schedule A deductions.
State and Local Taxes
The itemized deduction for state and local income tax and property tax is limited to a total of $10,000 starting in 2018 through 2025. The conference report on the bill specifies that taxpayers cannot take a deduction in 2017 for 2018 state income taxes prepaid during 2017.
Under the new law, for 2017 and 2018, medical expenses are deductible to the extent they exceed 7.5 % of adjusted gross income for all taxpayers. Previously, the AGI “floor” was 10% for most taxpayers.
Casualty and Theft Losses
The itemized deduction for casualty and theft losses has been suspended except for losses incurred in a federally declared disaster starting in 2018 through 2025.
The deduction for job-related moving expenses has been eliminated beginning in 2018 and through 2025, except for certain military personnel. The exclusion for moving expenses reimbursements has also been suspended.
For post-2018 divorce decrees and separation agreements, alimony will not be deductible by the paying spouse and will not be taxable to the receiving spouse.
Alternative Minimum Tax (AMT) Exemption
The AMT has been retained for individuals by the new law but the exemption has been increased as follows beginning in 2018:
|Married filing jointly||$109,400|
|Married filing separately||$ 54,700|
|Unmarried taxpayers||$ 70,300|
The exemption will be phased out for taxpayers with alternative minimum taxable income over $1million for joint filers and over $500,000 for all others.
The new law increases the income-based percentage limited for charitable contributions of cash to public charities to 60% (from 50%) of modified adjusted gross income beginning in 2018. This will increase the tax deductible amount for taxpayers making significant charitable contributions in relationship to their modified adjusted gross income.
Miscellaneous Itemized Deductions
The new law disallows all miscellaneous itemized deductions subject to the 2% floor under current law from 2018 through 2025.
Caution: This explanation is general in nature and should not be used for specific planning. Contact a tax professional for your specific planning needs.