The Changing Schedule A – Itemized Deductions

In this newsletter we will give a brief explanation of how the Federal Schedule A will change from the 2017 tax year to 2018.

It is important to note at this time that California has not conformed to these changes. This means that you should continue to gather the same data as usual for preparing your California tax return.

The phase-out of itemized deductions (based on income limitations) is suspended for tax years 2018 through 2025.

The standard deduction has changed for all taxpayers. In 2018, the amounts are as follows: Single or MFS – $12,000; MFJ or QW – $24,000; HOH – $18,000. For taxpayers 65 or older, there is an additional deduction of $1,300 for MFJ, QW or MFS and $1,600 for Single and Head of Household (HOH).

Medical – for 2017 & 2018, the income threshold to be able to deduct medical expenses is 7.5% of Adjusted Gross Income; for 2019 this increases to 10%.
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Taxes – the new law limits the aggregate deduction for personal state/local real & property taxes and state/local income taxes to $10,000 ($5,000 for MFS). Foreign property taxes not connected with a trade or business are no longer deductible.

Home Mortgage Interest – the $1,000,000 debt limit continues to apply for acquisition debt incurred before 12/15/17 or refinanced on or after 12/15/17. For all new debt incurred after 12/15/17, the acquisition debt limit is now $750,000. Interest on home equity loans/debts is only deductible if the loan proceeds are used to buy, build or substantially improve the home that secures the loan.

Charitable Contributions – the percentage of AGI limitation increases from 50% to 60% for donations of cash to public charities and other organizations; for all donations of $250 or more the taxpayer must obtain contemporaneous written acknowledgement from the charity.

Casualty Loss (personal) – a personal casualty loss is now deductible only if such loss is attributable to a Federally Declared Disaster Area that is declared by the President.

Miscellaneous Itemized Deductions – all expenses that were subject to the 2% of AGI limitation are no longer deductible. These include investment expenses (advisory fees), tax preparation fees and unreimbursed employee business expenses.