Keith Mack
Former President Donald Trump's tax policies have been a topic of discussion, with proposed changes to the individual tax code that could potentially reduce revenue by up to $6 trillion over a decade. The Tax Cuts and Jobs Act (TCJA) made significant changes to standard deductions and itemized deductions, nearly doubling the standard deduction and restricting or eliminating many itemized deductions. The TCJA also removed personal exemptions and reduced the number of taxpayers claiming itemized deductions. With the impending expiration of several TCJA provisions, lawmakers must carefully consider the long-term economic and financial implications to shape fair and effective future tax policies. Trump's proposed reinstatement of the Domestic Production Activities Deduction (DPAD) and tax credits for caregivers and clean energy, along with tariffs, aim to stimulate economic growth and protect US producers. However, the potential revenue loss and impact on the federal deficit remain key considerations.
| Characteristics | Values |
|---|---|
| Tax Cuts and Jobs Act (TCJA) | Nearly doubled the standard deduction and eliminated or restricted many itemized deductions from 2018 through 2025 |
| Standard deduction for single filers in 2023 | $13,850 |
| Standard deduction for married couples in 2023 | $27,700 |
| Standard deduction for heads of household in 2023 | $20,800 |
| State and Local Taxes (SALT) | Capped the total SALT deduction at $10,000 for tax years 2018 through 2025 |
| Home mortgage interest | Limited the deduction to the first $750,000 of mortgage debt for mortgage loans taken out after December 15, 2017 |
| Medical expenses | Taxpayers can deduct unreimbursed medical expenses that exceed 7.5% of their AGI |
| Miscellaneous deductions | Eliminated deductions for unreimbursed employee expenses, tax preparation fees, and other miscellaneous deductions |
| Pease limitation | Eliminated the "Pease" limitation on itemized deductions |
| Child Tax Credit | Increased to $5,000 and introduced a credit for other dependents |
| Domestic Production Activities Deduction (DPAD) | Proposed reinstatement at 28.5%, lowering the tax rate for domestic producers from 21% to 15% |
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What You'll Learn
State and local taxes (SALT)
The State and Local Tax (SALT) deduction allows taxpayers to subtract up to $10,000 in property, income, or sales taxes paid to state and local governments during the tax year. The SALT deduction is an itemized deduction that taxpayers can use when filing their annual tax returns. Taxpayers who use the SALT deduction cannot claim the standard deduction. The SALT deduction has been a subject of debate, and the rules for claiming it remain in place through the tax year 2025.
The concept of deducting state and local taxes from income has been part of the federal tax code since 1913. Initially, there was no dollar limit to the amount of paid taxes that could be deducted, but this changed when President Donald Trump signed the Tax Cuts and Jobs Act (TCJA) into law in 2017. The TCJA capped the total SALT deduction at $10,000 for tax years 2018 through 2025. The percentage of taxpayers with a tax benefit from the SALT deduction fell from about 25% in 2017 to 10% in 2018.
The SALT deduction can provide tax relief to individuals, particularly high-income earners who pay significant amounts of these deductible taxes. However, it is important to note that the SALT deduction is not available to all taxpayers. For example, if you are married and filing a separate return, the cap drops to $5,000. Additionally, you must choose between claiming the sales taxes or income taxes paid, as you cannot claim both.
There have been several attempts to change the $10,000 SALT deduction limit. In 2021, Senate Majority Leader Chuck Schumer countered with a bill to eliminate the SALT deduction, while Senator Susan Collins proposed legislation to increase the limit to $20,000 for married taxpayers filing joint returns. In 2023, the House of Representatives voted to increase the limit to $20,000 and eliminate it for very high earners through 2023. As of 2024, the House of Representatives is considering legislation to retroactively double the cap on SALT deductions for married filers for the 2023 tax year.
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$31.99
Medical expenses
Medical and dental expenses are deductible under the Trump tax law, but only if they exceed 7.5% of your adjusted gross income (AGI). For example, if your AGI is $45,000 and your medical expenses are $5,475, you can only deduct $2,100 ($5,475 minus $3,375). This is because you can only deduct expenses that exceed $3,375 ($45,000 x 0.075).
You can deduct unreimbursed payments for preventative care, treatment, surgeries, dental and vision care, visits to psychologists and psychiatrists, prescription medications, appliances such as glasses, contacts, false teeth and hearing aids, and travel expenses for qualified medical care. You can also deduct the cost of pregnancy tests, birth control, breast pumps, and other reproductive health supplies, as well as procedures such as in vitro fertilization, vasectomies, and legal abortions. Transportation costs to and from medical care are also deductible.
It's important to note that you must itemize your deductions on IRS Schedule A to deduct medical expenses. This means that you need to list and add up all your eligible medical expenses. You can then include this amount on your Schedule A, Itemized Deductions. You can use tax software or seek professional advice to help you with this process.
Additionally, if you have a parent as a dependent under a multiple support agreement, you can include unreimbursed medical expenses you paid for them in your deductions. You can also include medical expenses for a deceased spouse or dependent on your Schedule A in the year they were paid, regardless of whether they passed away before or after you paid the expenses.
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Mortgage interest
The Tax Cuts and Jobs Act (TCJA) of 2017 limited the home mortgage interest deduction (MID) to the first $750,000 in principal value, down from $1 million. This means that homeowners who deduct mortgage interest are limited to the amount they pay on $750,000 worth of debt. The MID is an itemized deduction that grants homeowners the ability to deduct mortgage interest paid on either their first or second residence.
To deduct home mortgage interest, certain conditions must be met. The mortgage must be a secured debt on a qualified home in which the taxpayer has an ownership interest. The loan may be a mortgage to buy the home, or a second mortgage, and both the taxpayer and the lender must intend that the loan be repaid. Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer’s home that secures the loan.
The TCJA also eliminated or restricted many itemized deductions for 2018 through 2025, reducing the number of taxpayers who itemize deductions. The limitations are slated to expire at the end of 2025, but policymakers may consider extending them. The MID is one of the itemized deductions limited by the TCJA, along with the state and local tax (SALT) deduction, which grants individuals the ability to deduct state and local taxes against their federal taxable income.
The impact of the changes to the MID and SALT deductions has been felt disproportionately in left-leaning parts of the country, particularly in expensive coastal markets in California and the Northeast, where home prices are high and residents pay state taxes on income and property. Homeowners in these markets have seen the biggest changes in their housing-related tax deductions, with the loss of mortgage interest and property tax deductions potentially totaling more than $100,000 over the course of a 30-year mortgage for homeowners of median-priced houses in the Bay Area.
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Charitable contributions
The 2017 Trump tax law, also known as the Tax Cuts and Jobs Act, significantly increased the standard deduction, which is the amount taxpayers can deduct from their taxable income. This change meant that millions of taxpayers were better off claiming the standard deduction rather than itemizing their deductions, including those for charitable contributions.
Under the previous tax code, about 30% of taxpayers itemized their deductions, including charitable contributions, which provided an incentive for taxpayers to give to charity. After the Trump tax law took effect, the share of taxpayers choosing to itemize deductions dropped to just 7.5% of all returns. This decrease is because the higher standard deduction exceeded the combined total of other itemized deductions, such as mortgage interest, state and local taxes, and charitable contributions.
The impact of the Trump tax law on charitable giving has been mixed. On the one hand, the higher standard deduction reduced the financial incentive for many taxpayers to itemize their charitable contributions, potentially leading to a decline in donations. Indeed, some reports indicate that charitable giving in the United States decreased after the tax law took effect, with a particularly significant drop in New York and California.
However, it is important to note that the IRS data only captures itemized charitable contributions and cannot account for non-itemized donations. While there is evidence to suggest that total charitable giving decreased in 2022, it is challenging to determine the exact impact of the Trump tax law on charitable contributions, as other economic factors may also influence giving trends.
To address the potential decline in charitable giving, some lawmakers and policymakers have proposed making the charitable contribution deduction an "above-the-line" tax break, which would allow taxpayers to claim it regardless of whether they itemize their deductions or not. However, such a change is expected to be costly and may not be implemented in the near future.
In summary, while the Trump tax law may have reduced the incentive for some taxpayers to itemize their charitable contributions, it is challenging to quantify its precise impact on charitable giving due to the complex interplay of economic factors.
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Child Tax Credit
The Child Tax Credit (CTC) was doubled under the 2017 Trump Tax Law, increasing to $5,000 per child. This change was designed to provide tax relief for families. The CTC is currently available for children up to the age of 16, but there are proposals to expand the program to include 17 and 18-year-olds. This would provide benefits to millions of families, particularly those in poverty. Research has shown that tax credits for families with older teenagers can help these children finish high school, attend and graduate from college, and achieve higher earnings as young adults.
The CTC under the Trump Tax Law has been subject to analysis and discussion, with a focus on how benefits could be structured to have the greatest impact. There are several proposed policies for structuring the CTC benefits, each with its own phase-in and phase-out rates and associated costs and poverty reduction rates. For example, Policy A, with no phase-in and full benefits for all low-income families, would be the most cost-efficient approach, reducing child poverty by 50.7% at an annual cost of $303 billion. On the other hand, Policy D, with a 15% phase-in rate and starting at $2,500 in earnings, would reduce child poverty by 26.3% at an annual cost of $238 billion.
The 2017 Trump Tax Law has been criticized for being skewed towards the rich and failing to deliver on its promises. While the law lowered statutory tax rates at all income levels and increased the standard deduction, it also raised taxes on families through the elimination of personal exemptions and the new inflation adjustment for key tax parameters. As a result, most families received only modest tax cuts compared to the large net tax cuts for the wealthy.
Despite the increase in the Child Tax Credit under the Trump Tax Law, there are calls to make further changes to this credit to support families better. Extending and expanding the Child Tax Credit is a top priority for tax provisions in 2025. This includes making permanent the expansion of the Child Tax Credit under the American Rescue Plan, which contributed to a marked drop in the child poverty rate in 2021.
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Frequently asked questions
The TCJA is the Tax Cuts and Jobs Act, which came into effect under the Trump administration in 2018.
The TCJA nearly doubled the standard deduction and eliminated or restricted many itemized deductions. It also eliminated the "Pease" limitation on itemized deductions.
Some examples of itemized deductions that were restricted or eliminated under the TCJA include:
- Deductions for unreimbursed employee expenses, tax preparation fees, and other miscellaneous deductions.
- Deduction for theft and personal casualty losses (except in federally declared disaster areas).
- Deduction for mortgage interest on mortgage debt above $750,000.
- Deduction for interest paid on home equity loans (unless used to buy, build or improve the property).
- State and local tax (SALT) deductions were capped at $10,000 for single or joint filers for the 2018-2025 period.
