April 2019 JD Supra
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Itemized Deductions Anyone? was published by JD Supra on 4/16/19.

Taxpayers can either itemize or take the

standard deduction.  They can’t do both. Many Taxpayers that were able to itemize deductions in prior tax years are unable to do so in Tax Year 2018 because the Tax Reform has made it more beneficial for many Taxpayers to take the standard deduction; which nearly doubled.    

There are still Taxpayers that can itemize deductions on Schedule A

Schedule A (Form 1040) is used to determine the Taxpayers itemized deductions. Federal income tax owed will be less when a Taxpayer takes the larger of their itemized deductions or their standard deduction.  Taxpayers may itemize when they:

  • Don’t qualify for the standard deduction
  • Had large uninsured medical and dental expenses during the year
  • Paid interest and taxes on their home
  • Had large uninsured casualty or theft losses
  • Made large contributions to qualified charities

Taxpayers need to do the math to determine if they should itemize:

  1. Medical and Dental Expenses:  Taxpayers can deduct only the part of the medical and dental expenses that exceed 7.5% of the amount of their adjusted gross income.  
  2. Taxes Paid:  The deduction for state and local taxes (SALT) is capped at $10,000 ($5,000 if married filing separate) of the total state and local taxes, including income taxes (or general sales taxes, if elected instead of income taxes), real estate taxes, and personal property taxes.
  3. Interest Paid:  Taxpayers are limited on the deduction for home mortgage interest as they are only able to deduct mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness incurred after December 31, 2017. For home equity loans (HELOCS), interest paid is not deductible unless the interest is paid on loan proceeds used to buy, build or substantially improve a main home or second home.
  4. Gifts to Charity:  Taxpayers can deduct contributions or gifts to organizations that are religious, charitable, educational, scientific, literary in purpose, or work to prevent cruelty to children or animals.  The amount that is deductible for charitable contributions can’t be more than 60% of a Taxpayer’s adjusted gross income.
  5. Casualty and Theft Losses: A taxpayer’s net personal casualty and theft losses must now be attributable to a federally declared disaster to be deductible.  
  6. Other Itemized Deductions:  The following are approved as itemized deductions:
  • Amortizable premium on taxable bonds
  • Casualty and theft losses from income producing property
  • Federal estate tax on income in respect of a decedent
  • Gambling losses up to the amount of gambling winnings
  • Impairment-related work expenses of persons with disabilities
  • Losses from Ponzi-type investment schemes
  • Repayments of more than $3,000 under a claim of right
  • Unlawful discrimination claims
  • Unrecovered investment in an annuity

Don’t be a victim of your own making

Taxpayers ought to be Tax Ready for tax year 2018 and understand how the Tax Cut and Jobs Act impacts them. Consult with a specialized tax representative to determine how the new income tax rates, higher standard deductions, and new limits on deductions affect you.