The Tax Cuts and Jobs Act (TCJA) brought major changes in 2019. Here’s what you need to remember as you prepare your tax returns.
1. Why itemize?
Generally, you itemize if your itemized deduction would be higher than the standard deduction.
It’s estimated that less than 14% of taxpayers will itemize in 2019, which is much lower than the projected 30% under pre-TCJA law.1 A reason for that drop is the increase in the use of the standard deduction.
2. Standard deduction
If you’re married and filing jointly, your standard deduction for 2019 will be $24,400. If you’re single or filing as an individual, your standard deduction will be $12,200. Previously the standard deduction was $13,000 for married couples filing jointly and $6,500 for those filing as an individual.
3. Tax rates
The top bracket starts for married couples with taxable income over $612,350 and individuals with taxable income over $510,300. The rate is now 37 percent, compared to 39.6 percent previously.
4. State taxes
The itemized deduction for state taxes is capped at $10,000, where in past years there was no limit. Residents of high tax states like California, New York and New Jersey will have a more difficult time surpassing the standard deduction because of that limitation.
5. Mortgage interest
Another deduction that has changed is mortgage interest. The new cap on mortgage debt that you can take interest deductions on is $750,000, down from $1 million. This applies to mortgages taken after December 15, 2017.
6. Charitable deductions
Charitable contributions are still fully deductible, but you may have to approach your giving strategy differently to take advantage of the tax benefits. For example, if you bunch your donations into one year instead of multiple, you’re more likely to exceed the standard deduction.
7. Only one way to find out
There’s no substitute for running the numbers. Look at your mortgage interest expense, charitable expense and state deductions. This is where charitable donations might play the biggest role.
8. What should you do?
If your deductions put you over the standard deduction threshold after running the numbers, then itemizing may work for you. If you’re below the threshold, taking the standard deduction might make more sense.
Read more about strategies for charitable tax deductions.