Does the change in 2018 Itemized Deductions Impact you?

Article by by John Albrecht, CPA/PFS

In The Coming Kansas Tax Surprise, I discussed some potential issues created by changes in the federal tax law due to the Tax Cuts and Jobs Act (TCJA), and I realized people may not know whether they will be able to itemize.  In today’s post, I address what I perceive to be the most significant changes.  I have also created a basic calculator for your personal use to assess if you will be itemizing, which is explained below.

2017 Schedule A Form 1040

The image above is of the 2017 Schedule A.  The Schedule A is used by people who, rather than taking the standard deduction, used the listed expenses as deductions against personal income.  The broad categories of these deductions are as follows:

  • Section 1-Medical and Dental Expenses

  • Section 2-Taxes You Paid

  • Section 3-Interest You Paid

  • Section 4-Gifts to Charity

  • Section 5-Casualty and Theft Losses

  • Section 6-Job Expenses and Certain Miscellaneous Deductions

  • Section 7-Other Miscellaneous Deductions

There were two or three significant changes in deductions allowable for 2018, which you will note on the image above. The changes that I believe will affect the largest number of taxpayers will be changes to Section 2-Taxes You Paid, Section 5-Casualty and Theft Losses and Section 6-Job Expenses and Certain Miscellaneous Deductions.  The other categories are essentially unchanged from previous years; however, with the change in the aforementioned sections, it is estimated that only 7 or 8% of Americans will now find advantage from itemizing deductions (down from 22-23% in previous years)!

The Most Significant Changes

Section 2-Taxes You Paid

The deduction for taxes you pay was previously based on either the income taxes you pay to your state and local government or sales taxes plus real estate tax plus personal property tax (like boats, cars, mobile homes) plus any other taxes on income (like intangibles tax).  This often added up to a significant portion of a taxpayer’s deductions.  The TCJA placed a cap of $10,000 on the amount that could be deducted.

For example, if you previously paid $3,500 in state income tax, $7,200 in real estate taxes and $800 in property taxes, your deductions would have been $11,500.  In 2018 this would be limited to $10,000, which means you just lost $1,500 in deductions due to the tax law change.  This is why you may have heard on the news the push-back of “high-tax” states like California where the top income tax rate is over 11%.

Section 5-Casualty and Theft Losses

This is likely a deduction that doesn’t affect a great number of people, but for those affected, it would be a significant deduction and thus a significant change.  The change made under the TCJA determined only federally declared disaster areas now qualify for this deduction.

I’m sure there are other causes, but the most common occurrence where I’ve seen this deduction in practice is in the form of an uninsured or underinsured disaster.  This could be due to a house fire, flooding, bursting water pipes, tornado, theft or vandalism.  As you can see, this could be a large loss that was previously deductible (with limitations).  Now, only those falling in federally declared disaster areas will qualify.  (This would be a good reason to regularly review your insurance coverages to make sure you are properly covered for catastrophic events.)

Section 6-Job Expenses and Certain Miscellaneous Deductions

The deductions found in this section are numerous.  These types of deductions were completely eliminated under the TCJA.

What falls under job expenses?  Things like trade union dues, uniforms, travel costs not reimbursed by your employer and other costs an employer may not cover for a wage-earning employee.  This often affects over-the-road truck drivers, commission-based salesmen, construction workers, firefighters, teachers, nurses and professional athletes.  If you are a wage-earning employee, you may want to speak to your company about establishing an “accountable reimbursement plan” to try to minimize the effect of the loss of these deductions.

The certain miscellaneous deductions piece would be things like your tax preparation fee, investment advisor fees and legal tax advice.  It also includes safe deposit box fees and other various expenses.

Again, these deductions were completely removed under the TCJA and this could be a significant loss for many employees.

Itemized Deduction Calculator-Click Here to Use

The calculator (linked above) is extremely basic, but it should give you an understanding of approximately where your itemized deductions should land for the year 2018.  (For legal liability purposes, perhaps I should add a disclaimer that you should not construe this as tax advice and should seek the advice of a qualified tax advisor!)

I will note, if you type in your numbers from your 2017 tax return Schedule A and it does not match the calculator, you likely are subject to certain issues that fall outside of the purview of this post.  Please contact me directly at john@inherent-value.com if your total deductions don’t match.

How to use

If you click on the Itemized Deduction Calculator, you will access the calculator.  It is an Excel file.  You will first need to download and enable editing to type into the sheet.  If you are using a mobile device or tablet, you need to have the Microsoft Excel app to use.  Also, please be advised if you use Apple Numbers, only type in the highlighted cells!

The 2017 Input tab is where you can enter your 2017 Schedule A information.  The yellow highlighted cells should line up with numbers directly from your 2017 tax return Schedule A.  Once you enter this information, the output in the columns to the right will display your 2018 itemized deductions if your deductions were identical to 2017.

In the 2018 Input tab, you can adjust your figures for your actual 2018 numbers in the green highlighted cells.  The numbers you entered in the first tab will automatically transfer to the 2017 column of this tab.

If you are a Kansas resident, you have the added bonus of determining what your Kansas itemized deductions will be.



Doug Clark