U.S. House Tax Bill: Standard Deduction vs. Itemized Deductions

As the battle for tax reform continues in Washington, many people don’t understand the impact of proposed changes to the standard deduction and itemized deductions. Based on the latest IRS averages listed below, which use data from 2014 tax returns, we can show you the averages of the itemized deduction and compare those averages between current tax law to the proposed changes in the Tax Cuts and Jobs Act.

Table 1: 2014 Itemized Deductions Averages[1]

Adjusted Gross Income Medical Expenses Taxes Interest Charitable Contributions Total Deductions
Under $15,000 $8,787 $3,566 $7,129 $1,427 $20,909
$15,000 to $30,000 $8,477 $3,376 $6,619 $2,339 $20,811
$30,000 to $50,000 $8,209 $4,098 $6,511 $2,594 $21,412
$50,000to $100,000 $9,614 $6,679 $7,553 $3,147 $26,993
$100,000 to $200,000 $11,122 $10,983 $9,147 $4,130 $35,382
$200,000 to $250,000 $18,092 $17,763 $11,642 $5,786 $53,283
$250,000 or more $36,992 $50,679 $16,982 $21,596 $126,249

 

Based on the IRS Statistics, approximately 30% of all tax returns filed have itemized deductions claimed. For the other 70% of tax returns that claim the standard deductions, those taxpayers will receive a 200% increase in the deduction under the Tax Cuts and Jobs Act. Table 2 below, shows what the average itemized deductions would look like under tax reform, along with the difference compared to current tax law, assuming the taxpayer’s filing status is married, filing jointly.


 

Table 2: 2014 Itemized Deductions Averages Applied to Tax Cuts and Job Act

Adjusted Gross Income Real Estate Taxes Mortgage Interest Charitable Contrib. Total Deductions Standard Deduction or Itemized Deductions Increase/ (Decrease) in Deduction
Under $15,000 $1,248 $6,630 $1,427 $9,305 $24,000 $3,091
$15,000 to $30,000 $1,182 $6,156 $2,339 $9,677 $24,000 $3,189
$30,000 to $50,000 $1,434 $6,055 $2,594 $10,083 $24,000 $2,588
$50,000to $100,000 $2,338 $7,024 $3,147 $12,509 $24,000 $(2,993)
$100,000 to $200,000 $3,844 $8,507 $4,130 $16,481 $24,000 $(11,382)
$200,000 to $250,000 $6,217 $10,827 $5,786 $22,830 $24,000 $(29,283)
$250,000 or more $10,000 $15,793 $21,596 $47,389 $47,389 $(78,860)

 

Under the Tax Cuts and Job Act, the following major changes have been proposed for itemized deductions:

  1. Only property taxes, mortgage interest, and charitable contributions are allowed;
  2. Property taxes are limited to $10,000; and
  3. Mortgage interest is limited to the taxpayer’s primary residence, up to $500,000 mortgage balance.

The standard deduction and itemized deductions are not a dollar for dollar decrease in tax. The taxpayer’s tax bracket also need to be taken into account to truly see the tax effect.

Each person’s tax situation is unique. We suggest contacting one of our tax advisors should you have any questions regarding your specific tax situation.

[1] https://www.cchgroup.com/news-and-insights/wbot2017/average-itemized-deductions

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