Deductions are some of the many items affected by the Tax Cuts and Jobs Act of 2017. Many itemized deductions were either limited or completely removed, because of the Tax Cuts and Jobs Act. In effect, this change will lower the number of taxpayers choosing to itemize their deductions instead of taking the increased standard deduction. One of the limitations imposed was placed on State and Local Tax deductions. SALT deductions are now limited to $10,000. Mortgage interest deductions have now been reduced. You can now only deduct mortgage interest on the first $750,000 of a mortgage. This has been reduced from $1,000,000 from the previous law. The limit for charitable contributions has been increased to 60% of Adjusted Gross Income from 50%. The base amount for medical expense deductions has also been reduced. Taxpayers can deduct medical expenses that are greater than 7.5% of their AGI. This figure has been reduced from the previous floor of 10% of AGI.
Some other deductions that are no longer allowed are fees paid for tax preparation, unreimbursed employee expenses, and deductions for losses incurred due to theft or casualty. Due to the new limitations on or removal of some itemized deductions and the increase in the amount of the standard deduction, more taxpayers are choosing to take the standard deduction instead of itemizing. The standard deductions are $12,000 for individuals and $24,000 for couples who are married filing jointly. The standard deduction for head of household is now $18,000. Because of the new $10,000 limit on state and local taxes, fewer people, especially those who live in high tax states, will be able to benefit from the SALT deduction.
The Tax Cuts and Jobs Act also has an effect on exemptions and credits. Taxpayers are no longer able to claim personal and dependent exemptions. Filers no longer receive a benefit from claiming dependents. Although the TCJA removes personal and dependent exemptions, it also increases the child tax credit to $2,000 for taxpayers who are eligible for the credit. Single filers with income less than $200,000 and married couples filing jointly with income less than $400,000 are eligible to receive the child tax credit.
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