Individual tax filers who were accustomed to itemizing their deductions may be in for a surprise when they file their 2018 federal income taxes. Although the Tax Cuts and Jobs Act of 2017 (TCJA) is projected to reduce many families' overall tax liability, it is also likely to reduce the number of individual taxpayers who itemize their deductions.
Higher Standard Deduction
In 2017, the $6,500 standard deduction for individual filers often didn't go far, especially for those in high cost-of-living areas with major mortgage payments. And for many married filers, itemizing made sense if they had more than $13,000 in deductible medical expenses, charitable contributions, mortgage interest, and state and local taxes (SALT).
Beginning in 2018, single filers under age 65 will be able to claim a $12,000 standard deduction, while married filers can deduct a whopping $24,000. Not many taxpayers have deductible expenses that exceed these thresholds, which means itemizing may no longer make financial sense.
Increase in the Floor for Deductible Medical Expenses
Taxpayers can only deduct the portion of their medical expenses that exceed a certain percentage of their adjusted gross income. This "floor" is set at 7.5 percent for 2018 but will increase to 10 percent beginning in 2019—so a taxpayer with an AGI of $50,000 and only $4,500 in medical expenses won't be able to deduct any of these costs, and the same taxpayer with $6,500 in medical expenses can only deduct $1,500.
This essentially means that anyone who doesn't devote a sizable proportion of their income to healthcare costs for a particular tax year won't find much benefit in itemizing their deductions—and with the elimination of the individual mandate in 2019, some taxpayers may seek out purely catastrophic health insurance coverage to save money.
Limits for SALT Deductions
Beginning in 2018, married taxpayers will only be able to deduct a maximum of $10,000 in state and local taxes. Single taxpayers are limited to a $5,000 SALT deduction. This change may disproportionately impact taxpayers in high-tax states, as the ability to deduct every penny paid in state and local taxes was often enough to halve a taxpayer's federal income tax obligation.
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