Tax deductions

2022 Changes to Popular Tax Deductions

The Tax Cuts and Jobs Act (TCJA) has been a game changer for many taxpayers. Notably, the TCJA is suspending or modifying certain deductions while essentially doubling the standard deduction for 2018 through 2025. As a result, millions of taxpayers are no longer itemizing and claiming the standard deduction, at least temporarily.

For 2021 filings, the standard deduction is $12,550 for single filers and $25,100 for joint filers. Consider these key TCJA provisions that may affect your filing prospects.

National and local taxes: As was the case prior to the TCJA, an itemized deduction is available for any combination of state and local tax (SALT) payments of (1) property taxes and (2) income taxes Where sales tax. But the total annual SALT deduction cannot exceed $10,000. This is a significant hurdle for many taxpayers, especially those in high-tax states, and may result in a switch to the standard deduction. Note: The proposed legislation would repeal the SALT cap, but there has been no real progress in Congress.

Mortgage interest: Previously, you could deduct mortgage interest paid on the first $1 million of acquisition debt and the first $100,000 of home equity debt. However, the TCJA reduces the threshold for new acquisition debt to $750,000 and eliminates the home equity debt deduction. Note that a home equity loan may be considered acquisition debt if the proceeds are used to improve the home.

Injuries and theft: The TCJA suspends the deduction for accident and theft losses, except for losses incurred in an officially designated federal disaster area. Previous loss claim rules, including the 10% Adjusted Gross Income (AGI) floor, continue to apply. Note: You can elect to claim a disaster area loss in the tax year preceding the year of the event.

Miscellaneous costs: You cannot deduct miscellaneous expenses such as employee business expenses and eligible income-producing expenses. Previously, the miscellaneous expense deduction was limited to excess over 2% of Adjusted Gross Income (AGI).

Moving expenses : This claimed “above the line” deduction is no longer available, except for certain military members. Also, if a regular employer reimburses an employee for moving expenses, the reimbursements are taxable under the TCJA.

Alimony costs: The deduction above the line for alimony (and the corresponding inclusion in taxable income) is permanently eliminated. But the crackdown generally takes effect for deals signed in 2019 or later. For example, if you received child support last year under a 2018 divorce decree, you can still deduct the payments on your 2021 return.

Medical fees: Count this one on the plus side. The TCJA has temporarily lowered the threshold for deducting unreimbursed medical expenses from 10% of AGI to 7.5% of AGI. Subsequent legislation made this change permanent. This may give you a better chance of getting a medical expense deduction on your 2021 return.

Finally, in conjunction with other amendments, the TCJA suspends the “Pease Rule” reducing the tax benefit of certain itemized deductions for high-income taxpayers. Unless Congress takes additional tax action, this rule will be reinstated in 2026. Stay tuned.