New for 2018 – Changes to Itemized Tax Deductions for Individuals



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The Tax Cuts and Jobs Act, which became law last year, is just beginning to affect taxpayers with the filing of 2018 tax returns, and many may be pleasantly surprised at the impact these changes will have.  Our limited experience thus far suggests that for many taxpayers, these changes may be more form than substance and many times taxes have actually declined in our projections.

Following is a list and brief description of the changes for 2018 and the future.  In an effort to moderate the restrictions on deductions, the law allows for lower marginal tax rates along with an increased standard deduction, as described below.

Medical Expenses

Taxpayers received a one-year extension of previous law.  Through 2018, taxpayers are allowed the deduction of medical expenses that exceed 7.5% of adjusted gross income (“AGI”).  Beginning in 2019, however, the limit will increase to 10% of AGI.

State and Local Tax Deduction

There has been a great hue and cry, especially in so called “high-tax” states, because of the reduced deduction for state and local taxes.  Until 2018, state and local taxes were fully deductible, but going forward, there is a cap of $10,000 per year.  This has a significant impact on taxpayers who pay large state income taxes or property taxes.

Home Mortgage Interest Deductions

Home mortgage interest continues to be deductible, but limits have been imposed.  For 2018 and later, taxpayers may only take the mortgage interest deduction for amounts below $750,000 in acquisition indebtedness.

Charitable Contributions

Gifts to charity continue to be fully deductible, so there is no change in treatment.

Miscellaneous Itemized Deductions

Deductions are no longer allowed for tax preparation costs or investment management and financial and estate planning fees.

New Increased Standard Deduction

As of 2018, the law provides for a much more generous standard deduction on tax returns.   The new standard deduction for single taxpayers is $12,000 ($13,600 for seniors age 65 and older).  For those married filing jointly, the new deduction is $24,000 ($26,600 for seniors age 65 and older).

As before, if combined itemized deductions fall below these standard deduction amounts, the taxpayer will receive the standard deduction, rather than the sum of these itemized deductions.  So, if your state and local taxes, mortgage interest and charitable donations are lower than these thresholds, you will receive no benefit in excess of the standard deduction.  More taxpayers will be helped than hurt by this provision and it will hopefully make filing and record keeping much simpler for those claiming only the standard deduction.

We, at Horizon Wealth Advisors, and our comrades at Maddox, Thomson & Associates, are available to answer your questions.  Feel free to call or email.

Horizon Wealth Advisors is a Houston based fee-only wealth management firm. Horizon is a fiduciary advisor. We specialize in helping successful individuals and families understand, organize, and manage their often complex financial situations. Horizon offers integrated financial planning and investment management services.

Larry Maddox, CFP®, CPA
Larry founded Horizon Advisors, LLC in Houston, Texas in 1999 with fellow business partner Joe Thomson. He collaborates with our wealth management team and other external advisors to provide comprehensive wealth management services.

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