The Medical Expenses Deduction
Changes to the itemized deduction for medical expenses have actually been favorable for taxpayers. Through the 2016 tax year, you could only claim a deduction for the portion of your expenses that exceeded 10% of your adjusted gross income (AGI). The TCJA reduced that threshold to 7.5% for tax years 2017 and 2018, and Congress extended it through 2019. Then the Taxpayer Certainty and Disaster Tax Relief Act of 2019 extended the 7.5% threshold for one more year, through the end of 2020. Finally Congress extended it permanently in December 2020. The other rules remain the same. You can claim expenses incurred for yourself, your spouse, or your dependents, and you must have paid them in the same year you claim them as a deduction. Cosmetic and elective surgeries and treatments generally aren’t deductible unless they’re preventative or treat existing problems.
The State and Local Taxes Deduction (SALT)
This deduction was a matter of hot debate as the TCJA made its way through Congress at the end of 2017. It used to be unlimited, and it covered a range of taxes, including property, sales, and income. You did have to choose between deducting sales taxes or state income taxes, however. You couldn’t claim a deduction for both. That’s still the rule, but the TCJA imposes an overall limit to how much you can deduct. The SALT deduction caps out at a cumulative $10,000 under the terms of the TCJA. This can be a real blow to those who live in states with high income tax rates or areas with high property tax rates. However, it was typically only high-earning households who claimed this deduction. You must cut that $10,000 figure in half if you’re married and file a separate return. Married separate filers are entitled to only a $5,000 deduction. This rule doesn’t apply to single or head of household filers, however—they can claim the full $10,000. Although some taxpayers hoped to prepay their 2018 taxes so they could still claim a deduction for the full amount before the law took effect, they were not able to. Taxes must be officially assessed at the time you pay them or you can’t deduct them. You must actually receive a bill for your 2022 taxes—and pay them—before Dec. 31, 2022. You can’t claim a 2021 deduction for what the IRS calls “anticipated" taxes.
The Deduction for Home Mortgage Interest
This deduction wasn’t eliminated, but it suffered a bit. It’s more restricted, although many taxpayers won’t feel the bite. Only those who can afford particularly sizable mortgages are affected. It used to be that you could deduct interest on mortgage loans of up to $1 million if they were used to acquire a first or second residence, or $500,000 if you were married and filed a separate return. You could also deduct interest on home equity loans. The TCJA reduced this interest deduction to the first $750,000, or $375,000 for married taxpayers filing separate returns, and you can no longer deduct interest on home equity loans unless the proceeds are used to “buy, build, or substantially improve” the home. The old $1 million limit applied to mortgages contracted for before Dec. 14, 2017, and you must have closed on the property by April 1, 2018.
Deductions Affecting Workers
The TCJA eliminated two advantageous deductions for working people. It used to be that you could deduct certain moving expenses if you had to relocate for work-related reasons, subject to several qualifying rules. This deduction was repealed by the TCJA. This was technically an above-the-line deduction, not an itemized deduction. You could claim it in addition to your itemized deductions or your standard deduction, which makes this loss particularly painful. The repeal doesn’t affect active duty military personnel, however. They can still claim this deduction if they need to move for service-related reasons. Those miscellaneous itemized deductions that you used to be able to claim for expenses you paid for work-related purposes are gone, too. But these were only deductible to the extent that they exceeded 2% of your AGI, and only if they weren’t reimbursed by your employer.
The Casualty and Theft Losses Deduction
The casualty and theft losses itemized deduction was changed. Starting in tax year 2018, you could only claim this deduction if you suffered a loss due to a federally-declared disaster. The U.S. President must officially cite the event as a disaster. Fortunately, this covers most catastrophic events like hurricanes, but you’re out of luck if your property was stolen at any point after January 1, 2018.
No More Pease Limitations
Charitable deductions are still alive and well and they remain unchanged, and here’s a bit of good news. This deduction—as well as the home mortgage interest deduction—was subject to Pease limitations through 2017. These limitations reduced itemized deductions by 3% for every dollar of taxable income over certain thresholds, ultimately up to 80% of their itemized deductions. The TCJA repealed Pease limitations. However, deductions for charitable contributions are usually limited to 60% of your adjusted gross income.
The Standard Deduction
Although some itemized deductions were removed and other deductions became more limited, the TCJA also nearly doubled standard deductions for all filing statuses. For tax year 2022, standard deductions for each filing status are:
$12,950 for single taxpayers and married taxpayers filing separately$19,400 for heads of household$25,900 for married taxpayers filing jointly
Your available itemized deductions might have shrunk, but your available standard deduction grew, potentially offsetting any loss.
The Bottom Line
This legislation cut some itemized deductions and removed the Pease limitation on deductions. However, it also increased the standard deduction. If you’re planning on itemizing your deductions in the 2023 tax year, make sure you know which deductions are available so you can plan your spending accordingly.
