Standard Deduction vs. Itemized Deductions

 When filing your federal income-tax return, taxpayers can choose to either use the standard deduction or to itemize their deductions. It is anticipated that the number of filers who will itemize for the 2025 tax year will significantly increase with the new tax law (OBBBA) in effect.

Standard Deductions Amounts:

The standard deduction amounts will increase to $12,200 for individuals, $18,350 for heads of households, and $24,400 for married couples filing joint and for surviving spouses. Also, the additional standard deduction amount for the aged (over 65) or the blind is $1,300. The additional standard deduction amount increases to $1,650 for unmarried taxpayers.

Itemized Deductions Amounts:

Medical Expenses Deduction-Under TCJA, you can only claim a deduction for the portion of your medical and dental expenses that exceed 10 percent of your adjusted gross income (AGI).

State and Local Taxes Deduction (SALT)-Under TCJA, there is an overall limit to how much you can deduct. It caps out at $10,000. If you pay $6,000 in property taxes and $5,000 in state income taxes for a total of $11,000, you will lose $1,000 of that deduction. This is a real blow to those who live in states with higher state income taxes and property taxes. If you file married filing separately you are allowed only $5,000. Additionally, foreign real estate taxes cannot be deducted anymore.

Deduction for Mortgage Interest-Under TCJA, this deduction is now more restrictive and those who can afford sizable mortgages will be affected. Through 2017, you could deduct interest on mortgage loans up to $1 million if one used the proceeds to acquire a first or second residence. The TCJA cuts this deduction to $750,000.

Charitable Contributions Deduction-The UJCA enhanced the deduction for contributions by raising the limit that can be contributed in any one year. The limit is now 60 percent of AGI, up from 50 percent.

Casualty-and-Theft Losses Deduction- This deduction has been pared way back. You can only claim this deduction if you suffered a loss due to a Federally-declared disaster.

Miscellaneous Deductions- The TCJA eliminates the deduction used to pay for job-related expenses. Additionally, investment fees and tax preparation costs are gone. These were deductions subject to 2 percent of AGI threshold.

In conclusion, for taxpayers who used to itemize, it may no longer make sense if a new, higher standard deduction exceeds what the itemized deductions would have been.