Starting with the tax year beginning January 1, 2018, through tax year ending December 31, 2025, itemized deductions will be significantly impacted by the Tax Cuts and Jobs Act. The overall limitation on itemized deductions does not apply.
Itemized Deductions for Medical Expenses
Deductibility Limits for Long-Term Care Premiums
The deductible annual long-term care insurance premiums increased. See the chart below.
State and Local Tax Deduction ( An amount [often a personal or business expense] that reduces income subject to tax.
In 2019, the aggregate cap on these taxes is $10,000 for taxpayers of all filing statuses except Married Filing Separately, which is $5,000. Taxes on a foreign property is no longer allowed as a deduction.
Mortgage Interest Deduction
Mortgage Interest – Before 2018, the maximum combined acquisition debt on the home could not exceed $1,000,000 for all filing statuses except Married Filing Separately, which was limited to $500,000. In 2019, the deduction for mortgage interest is limited to underlying indebtedness of up to $750,000 ($375,000 for Married Filing Separately). Mortgages taken out before December 16, 2017, are still subject to the pre-2018 rules. Homes that were under a contract before December 16, 2017, and closed by January 1, 2018, are allowed to use the pre-2018 limits if the home was purchased before April 1, 2018.
Refinanced debt – The pre-2018 limits of $1,000,000/$500,000 continue to apply to taxpayers who refinance existing qualified residence indebtedness that was incurred before December 16, 2017, to the extent the amount of the new debt does not exceed the amount of the refinanced debt. If closing costs are rolled into the loan, they will not be deductible.
Home equity loans and lines of credit – Interest paid on home equity loans or lines of credit is still deductible if the loan is used to buy, build, or substantially improve the taxpayer’s home that secures the loan. It is not deductible if the loan is used to pay personal living expenses, such as credit card debt or buy a new car. The loan must be secured by the taxpayer’s main home or second home and is limited to $100,000 ($50,000 for Married Filing Separately).
Charitable contributions are deductible for taxpayers that itemize deductions. In 2019, the allowable contributions are limited to 60% of AGI for cash contributions only. Non-cash donations are still subject to a maximum of 50% of the taxpayer’s AGI. The five-year carryforward for excess contributions ( Contributions of cash or deferred arrangements for highly compensated employees that exceed the amount allowed under nondiscrimination rules) still applies after 2017.
Additionally, the rule for a written acknowledgment ( A report generated by the IRS to a Transmitter that indicates receipt of all transmissions. An ACK Report identifies the returns in each transmission that are accepted or rejected for specific reasons. ) from the receiving organization for contributions of $250 or more is required for tax years after 2017. Contributions will not be allowed for tax years after 2017 if written acknowledgment has not been provided by the donee organization for contributions in excess of $250. Prior to 2017, the contribution was allowed if the donee organization filed a return verifying the contribution amount.
Prior to 2018, an 80% charitable deduction was allowed for payment to an institution of higher education for the right to purchase tickets or seating at an athletic event. This deduction will no longer be allowed in 2019.
Casualty or Theft Losses
Casualty or theft losses prior to 2018 were deductible if the losses exceeded 10% of AGI and the taxpayer itemized. (The loss was also subject to a $100 floor, or subtraction.) For 2019, this itemized deduction is no longer available except to the extent that it offsets any taxable casualty gains. Personal casualty losses in a federally declared disaster are the exception to this rule.
If these casualty losses are taken, they will still be subject to the $100 per casualty and 10% of AGI limitations.
Miscellaneous Deductions Subject to the 2% of the AGI Floor
Prior to 2018, taxpayers that itemized could deduct certain items that exceeded 2% of their AGI. This is no longer deductible in 2019.