How tax reform changed deductions The new law changed deductions used by millions of taxpayers.

Key takeaways

  • The new tax law increased standard deductions but limited or eliminated many other popular deductions.
  • The tax bracket income limits and rates were adjusted.
  • Far fewer people will claim itemized deductions in the future.

The Tax Cuts and Jobs Act enacted in late 2017 was more than 500 pages long, with detailed changes affecting everything from the taxation of trusts to the treatment of life insurance policy acquisition costs. But for most taxpayers, the biggest changes have to do with the new income tax rates, a higher standard deduction, and new limits on many popular deductions.

Here is a quick overview of the changes and details on how they may affect your taxes.

Standard versus itemized deductions

A major change from tax reform was a sharp increase in the standard deduction. For tax years 2018 through 2025, the standard deduction will be $12,000 for single filers and $24,000 for married couples filing jointly. That’s close to double the levels in 2017. The law also slightly increases the higher standard deduction for the elderly, the blind, and persons with a disability. But it eliminates the $4,050 personal exemption (see table below).

2017 2018–2025
Standard deductions Single $6,350 $12,000
Married filing jointly (MFJ) $12,700 $24,000
Elderly or blind (single and not a surviving spouse) Additional $1,550 Additional $1,600
Elderly (both over age 65 and MFJ) Additional $2,500 Additional $2,600
Exemption Personal exemption $4,050 per family member Eliminated

Changes to deductions and credits

During the debate about tax reform, lots of changes were proposed. Some didn’t make the final bill and remain unchanged—including capital gains rules for the sale of a primary residence, deductions for student loan interest, treatment of tuition waivers, adoption assistance, investment interest, teachers’ out-of-pocket expenses, and the credit for electric car purchases.

A number of important retirement savings incentives were unchanged as well, including deductions for 401(k)s, traditional IRAs, and health savings accounts (HSAs).

On the other hand, there were a wide range of other deductions and credits that were changed, added, or eliminated, including:

2017 2018–2025
Dependent credit (other than child) N/A $500 credit per qualifying dependent
Child/dependent tax credit $1,000 credit per qualifying child < age 17 (modified adjusted gross income [MAGI] limit $110,000 MFJ/$75,000 single) $2,000 credit per qualifying child < age 17 (MAGI limit $400,000 MFJ/$200,000 single)
Moving expenses Deductible (move >50 miles for a new job) Eliminated
State and local taxes Deductible (property and sales or income tax) Capped at $10,000 of expenses (property and sales or income tax, regardless of filing status)
Mortgage interest Limited to interest on $1,000,000 of debt on primary or secondary home Limited to interest on $750,000 of debt on primary or secondary home (no change for existing mortgages)
Home equity loan interest deduction Limited to interest on $100,000 of debt Eliminated (does not apply to home equity loans for substantial home improvements that comply with debt limit)
Medical expense deduction Deductible if >7.5% of AGI No change for 2018
>10% of AGI 2019–2025
Casualty and theft Deductible if >10% of AGI Eliminated (except in the case of federally recognized natural disaster)
Alimony Deductible by the payer;
taxable to the payee
The deduction for the payer is eliminated;
the recipient is no longer taxed
Investment interest expense Deductible up to the amount of net investment income Unchanged
Miscellaneous expenses, including:

  • Tax prep fees
  • Investment advisory fees
  • Unreimbursed work expenses (travel, parking, meals, and entertaining)
  • Depreciation on phone or computer required for work
  • Investment expenses
  • Job search expenses
Deductible in excess of 2% of AGI Eliminated
Charitable gifts of cash Limited to 50% of AGI Raised to 60% of AGI

Other major changes

The tax reform law included a number of other major changes for individual taxpayers. For one, the new law eliminates the Pease phaseout on itemized deductions for taxpayers with high AGIs from 2018 to 2025. In addition, the law made changes to the alternative minimum tax (AMT) and was designed to reduce the number of taxpayers forced to pay using that system.

The law also created a new opportunity for education funding, allowing taxpayers to use 529 accounts to fund up to $10,000 of K–12 qualified tuition expenses per student each year, in addition to the existing uses for higher education.

2017 2018–2025
AMT exemption, single $54,300 exemption $70,300 exemption
AMT exemption, MFJ $84,500 exemption $109,400 exemption
Pease itemized deduction phaseout, single Started at $261,500 Eliminated
Pease itemized deduction phaseout, MFJ Started at $313,800 Eliminated
529 education savings Qualified higher education expenses Expanded to include up to $10,000 in K–12 tuition per beneficiary per year

New tax rates

Tax reform also reset the tax brackets, setting new income thresholds and tax rates, while retaining the total number of 7 brackets. It’s worth remembering that the tax code is progressive, so your marginal tax rate is the top tax rate you pay—the rate you would pay on an additional dollar of income. But you will generally pay taxes at a variety of rates, depending on your taxable income. So looking at the chart below, a single filer with $85,000 in income would pay taxes at the 10% rate on the first $9,525, pay 12% on the income from $9,526 to $38,700, pay 22% on additional income up to $82,500, and have a marginal tax rate of 24%.

How these changes play out

Taken together, these changes will dramatically change the tax-filing experience for many Americans. For some, it will simplify the process. Because the higher standard deduction will exceed the value of itemized deductions for many taxpayers, the Tax Policy Center estimates that more than 25 million families will stop itemizing in 2018—that’s more than half the number of people who have itemized in recent years.

How do you know whether it will still make sense to itemize? A general rule of thumb is to start with your tax returns for 2016 or 2017. If your situation is similar in 2018, and your itemized deductions fall below the new standard deduction ($12,000 individual/$24,000 MFJ), you will likely not itemize. If your total deductions exceeded the new standard deduction, you need to consider the new rules for deductions.

However, the total impact of the changes to rates and deductions will vary dramatically from one taxpayer to another. Here are a few simplified case studies that show how some of these changes could play out. These are hypothetical, and to get an accurate sense of what the tax law means for you, consult a tax professional.

Case 1: A higher standard deduction

Let’s look at Julie and Frank, retirees who live in a state with no income tax, have paid off their home, and have limited deductions. They pay taxes as married filing jointly and have been taking the standard deduction for a few years. Let’s say that in both 2017 and 2018 they have income of $90,000 from pensions, a 401(k), and the taxable portion of Social Security. Their local property tax is $4,800, and state sales taxes were $3,200. They made charitable gifts worth $2,000.

In 2017, their total itemized deductions would have been $10,000. So they would have opted for the standard deduction of $12,700. They would also have been entitled to personal exemptions of $8,100, leaving them with taxable income of $69,200. Their 2017 federal tax bill: about $9,400.

In 2018, they would again opt for the standard deduction, because $24,000 would be greater than the $10,000 of itemized deductions. But in 2018, there would be no personal exemptions. Still, they would be better off, with taxable income of just $66,000. Their federal 2018 tax bill: about $7,500.

Case 2: No longer itemizing

Let’s look at Pete and Susan, another couple living in a state without income tax. We will assume that their financial situation is the same in 2017 and 2018: They are married and file jointly, have $150,000 in income from their jobs, and paid $9,000 in mortgage interest on a $350,000 loan, $4,500 in local taxes, and about $9,000 in state sales tax.

In 2017, their total itemized deductions exceeded the value of the standard deduction—$22,500 versus $12,700—so they itemized. They deducted the $22,500 from their income, along with the $8,100 personal exemption, leaving them with $119,400 in taxable income. Their 2017 tax bill: about $21,300.

In 2018, their state and local tax deduction would be limited to $10,000, so their total itemized deductions would consist of the $9,000 in mortgage interest and the maximum of $10,000 in state and local taxes, a total of $19,000. At the same time, the standard deduction rose to $24,000. So in 2018, Pete and Susan choose to take the standard deduction, reducing their taxable income to $126,000. Their 2018 tax bill: about $19,600.

Case 3: Still itemizing

Let’s take another hypothetical couple, Lily and Joe. In this case, we will again assume identical financial situations for 2017 and 2018 and no state income taxes. The couple is married filing jointly, with income of $200,000 from jobs and investment interest, $10,000 a year in mortgage interest payments for their $500,000 home mortgage, $7,000 in property taxes, and another $5,000 in local income taxes. The couple also gives significantly to their local church, $8,000 per year, and a local hospital, $2,000 per year.

In 2017, the couple’s $32,000 in itemized deductions was greater than the standard deduction. After itemizing, they had taxable income of $168,000 and a tax bill of about $34,000.

The couple’s itemized deductions will still exceed the standard deduction in 2018, even after the limit on state and local taxes reduces their total itemized deductions to $30,000 ($10,000 mortgage interest + $10,000 state and local taxes + $10,000 charitable gift deduction). After deducting $30,000, the couple has taxable income of $170,000, higher than 2017, but new tax rates still lower their tax bill to about $29,379.

The bottom line—run the numbers

One of the goals of tax reform was simplicity through standard deductions and higher exclusions for the AMT. For some, it will still make sense to itemize, but many deductions have changed. So if you’ve considered the tax implications of a charitable giving program, property taxes, mortgage debt, or home equity debt, you’ll need to carefully examine how things will change starting in 2018.

If you have questions, it makes sense to work with a professional to see how the law may affect you, and whether there are strategies you should consider to help manage your tax situation going forward.


Taxpayers with #Expired #ITINs Should #Renew Them Now to #File Their #2017 #Taxes


Taxpayers with an expired Individual Taxpayer Identification Number should renew it as soon as possible if they need to file a 2017 tax return. They can renew it by submitting a Form W-7. Tax returns with expired ITINs will face delays. Affected taxpayers may also lose out on key tax benefits until they renew their ITINs. It can take the IRS up to 11 weeks to complete an ITIN renewal during tax season.

Expired ITINs

ITINs that expired at the end of 2017 include those:

  • Not used on a tax return at least once in the past three years.
  • With middle digits of 70, 71, 72 or 80.

ITINs that have middle digits of 78 or 79 expired on December 31, 2016, but taxpayers can still renew them.

Renewing an ITIN

After filling out the Form W-7 and gathering all required documentation, taxpayers have three ways to submit the package:

Taxpayers who are eligible for, or who have, a Social Security number shouldn’t renew their ITIN; instead, they should notify the IRS of their SSN and previous ITIN so the IRS can merge their accounts.

Taxpayers who have filing or payment obligations under U.S. tax law and don’t have or aren’t eligible for an SSN must file with an ITIN. This number is nine digits and formatted like an SSN. An ITIN page on provides links to FAQs and other resources.

Share this tip on social media — #IRSTaxTip: Taxpayers with Expired ITINs Should Renew Them Now to File Their 2017 Taxes.

Key #IRS #Identity #Theft Indicators Continue Dramatic Decline in 2017; #Security Summit Marks 2017 Progress Against Identity Theft

WASHINGTON –The #Internal_Revenue_Service today announced steep declines in #tax-related #identity #theft in 2017, attributing the success to the Security Summit initiatives that help safeguard the nation’s taxpayers.

Key indicators of identity theft dropped for the second year in a row in 2017. This includes a 40 percent decline in taxpayers reporting they are #victims of identity theft in 2016. Since 2015, the number of tax-related identity theft victims has fallen by almost two-thirds and billions of dollars of taxpayer refunds have been protected.

“These dramatic declines reflect the continuing success of the Security Summit effort,” said Acting #IRS Commissioner David Kautter. “This partnership between the IRS, states and the tax community is helping protect taxpayers against identity theft. More work remains in this effort, and we look forward to continuing this collaborative effort to fight identity theft and refund fraud.”

The Internal Revenue Service, state tax agencies and the tax industry have started their third filing season working as the Security Summit, a private-public sector partnership formed in 2015 to combat identity theft. Summit partners have put in place multiple behind-the-scenes safeguards that are helping protect the nation’s taxpayers.

Because the IRS and Summit partners have stepped up efforts to stop suspected fraudulent returns from entering tax processing systems, there continues to be a substantial decline in the number of taxpayers reporting that they are victims of identity theft.

Here are key calendar-year 2017 indicators:

  • The number of taxpayers reporting to the IRS that they are victims of identity theft continued its major decline. In 2017, the IRS received 242,000 reports from taxpayers compared to 401,000 in 2016 – a 40 percent decline. This was the second year in a row this number fell, dropping from the 677,000 victim reports in 2015. Overall, the number of identity theft victims has fallen nearly 65 percent between 2015 and 2017.
  • The number of tax returns with confirmed identity theft declined to 597,000 in 2017, compared to 883,000 in 2016 – a 32 percent decline. The amount of refunds protected from those fraudulent returns was $6 billion in 2017, compared to $6.4 billion in 2016. In 2015, there were 1.4 million confirmed identity theft returns totaling $8.7 billion in refunds protected. Overall during the 2015-2017 period, the number of confirmed identity theft tax returns fell by 57 percent with more than $20 billion in taxpayer refunds being protected.
  • The financial industry is a key partner in fighting identity theft, helping the IRS recover fraudulent refunds that may have been issued. In 2017, banks recovered 144,000 refunds compared to 124,000 in 2016 – a 16 percent increase. The amount of refunds recovered was $204 million in 2017, compared to $281 million in 2016. In 2015, the financial industry recovered 249,000 refunds totaling $852 million.
  • In addition to these steep declines, the IRS also is continues reducing the year-over-year inventory backlog of taxpayers who file identity theft reports. For fiscal year 2017, the beginning inventory of identity theft reports submitted by taxpayers was approximately 34,000, under 10 percent of the fiscal year 2013 beginning inventory of 372,000 taxpayer identity theft cases.

These declines follow extensive Summit education efforts in 2017. The Summit partnership conducted awareness campaigns for tax professionals – Don’t Take the Bait – and for taxpayers – National Tax Security Awareness Week – because everyone has a role in fighting against identity theft.

Cybercriminals Looking for New Lines of Attack

Last year, multiple data breaches from outside the tax system means cybercriminals have basic information on millions of Americans, such as names, Social Security numbers and addresses. The steps taken by the Summit partners since 2015 help protect against fraudulent tax filings that use this basic data. As the IRS and Summit partners have strengthened their defenses, identity thieves are looking to steal more detailed financial information to help provide a more detailed, realistic tax return to better impersonate legitimate taxpayers. Because they need more personal data, cyberthieves increasingly are targeting tax professionals, human resource departments, businesses and other places that have large amounts of sensitive financial information. The IRS continues to see a number of these schemes in attempts to get taxpayer W-2 information from tax professionals and employers.

Everyone must be vigilant and alert. Both taxpayers and tax professionals are encouraged to:

  • Use Security Software. Always use security software with firewall and anti-virus protections. Make sure the security software is always turned on and can automatically update. Encrypt sensitive files, such as tax records, stored on computers. Use strong, unique passwords for each account.
  • Watch out for scams. Learn to recognize and avoid phishing emails, threatening calls and texts from thieves posing as legitimate organizations such as banks, credit card companies and even the IRS or a tax software firm. Do not click on links or download attachments from unknown or suspicious emails.
  • Protect personal data. Don’t routinely carry Social Security cards and make sure tax records are secure. Shop at reputable online retailers. Treat personal information like cash; don’t leave it lying around.

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