Gavin Howe
The Tax Cuts and Jobs Act (TCJA) of 2017 eliminated or restricted many itemized deductions, including those for state and local taxes (SALT), mortgage interest, charitable contributions, and medical expenses. Personal exemptions, which allowed taxpayers to deduct a specified amount for each eligible household member, were also removed. These changes simplified taxes for some but negatively impacted those in high-tax states or with substantial itemized deductions. The TCJA's provisions are temporary, set to expire on December 31, 2025, and Congress faces decisions about potential extensions.
| Characteristics | Values |
|---|---|
| Year | 2017 |
| Name of the Act | Tax Cuts and Jobs Act (TCJA) |
| Key Provisions | Elimination of personal exemption, nearly doubled the standard deduction, eliminated/limited itemized deductions |
| Impact | Reduced revenues, increased deficits, raised revenues by $600 billion over 10 years (2018-2027) |
| Changes | Eliminated deductions for moving expenses, alimony, tax preparation fees, unreimbursed employee expenses, etc. |
| Limitations | State and local tax (SALT) deductions capped at $10,000 for single or joint filers for 2018-2025 |
| Exemptions | Child Tax Credit, gambling losses, charitable contributions |
| Validity | Until December 31, 2025, unless extended by Congress |
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What You'll Learn
The impact of the Tax Cuts and Jobs Act (TCJA) on personal exemptions
The Tax Cuts and Jobs Act (TCJA) of 2017 eliminated personal exemptions, which allowed taxpayers to deduct a specified amount of money for every eligible member of their household when computing taxable income. This change had a significant impact on both federal tax filers and those who pay state income taxes.
Prior to the TCJA, taxpayers could claim personal exemptions for themselves, their spouse, and any dependents, which reduced their taxable income by a certain amount. The elimination of personal exemptions meant that taxpayers could no longer claim these deductions, resulting in an increase in taxable income for many individuals.
To compensate for the elimination of personal exemptions, the TCJA nearly doubled the standard deduction, which is a fixed amount that reduces a taxpayer's income subject to tax. This change simplified the tax filing process for many individuals, as they no longer needed to itemize their deductions. However, the increased standard deduction may not fully offset the loss of personal exemptions for some taxpayers, particularly those with larger households or significant itemized deductions.
In addition to the increased standard deduction, the TCJA also introduced other changes to the tax code. For example, it limited or eliminated certain itemized deductions, such as state and local tax (SALT) deductions, mortgage interest deductions, and deductions for moving expenses and alimony. These limitations further reduced the tax benefits available to some taxpayers, particularly those in high-tax states or those with substantial itemized deductions.
The impact of the TCJA on personal exemptions and other tax provisions was projected to raise revenues by $600 billion over a ten-year period (fiscal years 2018-2027). However, these changes were also expected to reduce revenues and increase deficits over the same period. The complex interplay between these provisions highlights the need for careful assessment by Congress before extending, ending, or modifying these temporary tax provisions beyond their initial expiration date of December 31, 2025.
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The effect of TCJA on itemized deductions
The Tax Cuts and Jobs Act (TCJA) of 2017 had a significant impact on itemized deductions. The act nearly doubled the standard deduction, which was increased from $6,500 to $12,000 for individual filers, $13,000 to $24,000 for joint returns, and $9,550 to $18,000 for heads of household between 2017 and 2018. As a result, many taxpayers who previously itemized their deductions began taking the standard deduction instead. This was due in part to the elimination or limitation of certain itemized deductions.
One notable change was the limitation on the deduction for state and local taxes (SALT). Previously, taxpayers could deduct an unlimited amount of state and local income taxes, real estate taxes, and personal property taxes. However, with the TCJA, the SALT deduction was capped at $10,000 ($5,000 if married and filing separately), impacting taxpayers in high-tax states like New York and California.
The TCJA also eliminated or restricted deductions for moving expenses, alimony, and tax preparation fees. Additionally, it placed limits on deductions for mortgage interest, reducing the limit on mortgage debt for which homeowners could deduct interest from $1 million to $750,000 for loans taken out after December 15, 2017. Homeowners could also no longer deduct interest paid on home equity loans unless the debt was used to buy, build, or substantially improve the home.
Another significant change was the elimination of the "Pease" limitation on itemized deductions. Before the TCJA, taxpayers reduced their itemized deductions by 3% of every dollar of taxable income above certain thresholds, up to a total reduction of 80%. However, the TCJA suspended this limitation from 2018 through 2025.
The TCJA also affected itemized deductions for charitable contributions. While taxpayers who claim the standard deduction can also claim a charitable deduction for cash contributions, those who itemize deductions for charitable contributions must reduce their deduction by 0.5% of their adjusted gross income. This change may have contributed to the decrease in taxpayers itemizing deductions for charitable donations in 2018 compared to 2017.
Overall, the TCJA significantly reduced the number of taxpayers claiming itemized deductions and is projected to raise revenues by $600 billion over 10 years (fiscal years 2018-2027). The changes made by the TCJA are currently set to expire after December 31, 2025, unless extended by Congress.
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Changes to standard deductions
The Tax Cuts and Jobs Act (TCJA), signed into law in 2017, made significant changes to the standard deduction. The act nearly doubled the standard deduction, increasing it from $6,500 to $12,000 for individual filers, $13,000 to $24,000 for joint returns, and $9,550 to $18,000 for heads of household between 2017 and 2018. These amounts are indexed annually for inflation. The TCJA also eliminated or restricted many itemized deductions, such as deductions for moving expenses, alimony, and unreimbursed employee expenses.
One of the key provisions of the TCJA was the elimination of personal exemptions, which had a major impact on both federal tax filers and those paying state income taxes. This change caused confusion in some states, particularly those that link their state income taxes to the federal code. While some states have made adjustments to their personal exemption rules, others have chosen to retain them or make changes to their tax codes to conform with the new federal law.
The TCJA also made changes to the measure used for inflation indexing, moving from the consumer price index for all urban consumers (CPI-U) to the chained CPI-U. This new measure is more accurate but results in a smaller upward adjustment each year. Additionally, the act limited the deduction for state and local taxes (SALT) to $10,000 for tax years 2018 through 2025 and reduced the limit on mortgage interest deductions for mortgage loans taken out after December 15, 2017.
The TCJA also increased the limit on deductions for charitable contributions from 50% to 60% of adjusted gross income (AGI). It also allowed taxpayers to deduct unreimbursed medical expenses exceeding 7.5% of their AGI, whereas the floor was 10% previously. Furthermore, the act eliminated the "Pease" limitation on itemized deductions, which previously reduced taxpayers' itemized deductions by 3% of every dollar of taxable income above certain thresholds.
In 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law, introducing further updates to the tax code. This legislation increased the standard deduction for single filers and married individuals filing separately to $15,000, married couples filing jointly to $30,000, and heads of households to $22,500. Seniors aged 65 and above by the end of 2025 may also be eligible for an additional standard deduction of up to $6,000 through 2028 if they meet certain modified adjusted gross income (MAGI) limits. These changes will impact how Americans file their taxes in 2025 and beyond.
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State and local tax (SALT) deductions
The State and Local Tax (SALT) deduction is a United States federal itemized deduction that allows taxpayers to deduct certain taxes paid to state and local governments from their adjusted gross income. The SALT deduction is intended to avoid double taxation by allowing taxpayers to deduct state and local taxes from their income that is assessed for federal income tax. Eligible taxes include state and local income taxes, property taxes, and either state and local sales taxes or state and local general sales taxes.
The Tax Cuts and Jobs Act (TCJA) of 2017 capped the use of this itemized deduction at $10,000 ($5,000 for married persons filing separately). Prior to the TCJA, there was no cap on the SALT tax deduction, so taxpayers could deduct 100% of their state and local taxes paid. The SALT deduction cap was modified by the One Big Beautiful Bill Act (OBBBA) in 2025 to $40,000 ($20,000 for married filing separately). The SALT deduction can be especially attractive for taxpayers in high-tax states and high-income filers as it avoids double taxation.
The SALT deduction primarily benefits those in high-tax states, which tend to be those with consistent Democratic legislative majorities. In 2016, the ten counties with the largest SALT deductions per filer (on average) were in New York, California, Connecticut, and New Jersey. These ten counties are in the New York metropolitan area and the San Francisco Bay Area, which have high concentrations of wealth and expensive real estate. Since the deduction was capped at $10,000 in 2017, many homeowners have been unable to deduct thousands of dollars that they previously could beyond what they pay in property taxes to state, county, and local governments in these places.
The elimination of the personal exemption under the TCJA had a major effect on both federal tax filers and those who pay state income taxes. The personal exemption is a relatively simple concept: you deduct a specified amount of money for every eligible member of your household when computing taxable income. Because every state with its own income tax links in some way to the federal code, the TCJA caused numerous changes in state income taxes. Some states have since eliminated their personal exemptions as part of a larger tax overhaul, while others have retained the pre-TCJA federal exemption rule.
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The future of tax law
- Simplification and Standardization: There has been a push towards simplifying the tax code and making it more standardized across different states. The TCJA (Tax Cuts and Jobs Act) of 2017 was a significant step in this direction, eliminating or restricting many itemized deductions and introducing a larger standard deduction. This led to a reduction in the number of taxpayers who itemize their deductions. Going forward, further simplification may occur to enhance clarity and ease of compliance for taxpayers.
- Revenue Considerations: Tax laws are closely tied to government revenue generation. The TCJA was projected to increase deficits by reducing revenues. With the impending expiration of several TCJA provisions in 2025, Congress will need to carefully assess the impact of extending, ending, or modifying these provisions. Future tax policies will need to balance revenue needs with economic growth and fairness for taxpayers.
- State Alignment: The elimination of personal exemptions at the federal level under the TCJA caused confusion at the state level, as many states linked their tax calculations to federal codes. Some states have since decoupled their personal exemptions from federal exemptions, while others have retained them. Going forward, states may continue to adjust their tax laws independently, potentially creating a more complex landscape for taxpayers filing in multiple states.
- Deduction Adjustments: Certain deductions that were previously restricted or eliminated may be adjusted in the future. For example, the $10,000 cap on state and local tax (SALT) deductions has been controversial, particularly in high-tax states. There have been ongoing debates about lifting or repealing this cap. Additionally, some crucial tax breaks that were temporarily removed may return after 2025 if Congress decides to extend them.
- Strategic Planning: As the tax landscape evolves, taxpayers and their advisors will need to adapt their strategies. This may include bunching donations into a single year or utilizing donor-advised funds to maximize deductions. Independent contractors and those in the gig economy may need to carefully assess which expenses qualify as deductible business expenses. Taxpayers should stay informed about changing regulations and seek professional guidance to optimize their tax positions.
- Technology Integration: Technology will likely play an increasingly significant role in tax compliance and administration. Tools such as the Interactive Tax Assistant (ITA) can help taxpayers navigate complex tax laws and make informed decisions. The integration of technology can enhance accuracy, streamline processes, and improve the overall taxpayer experience.
In summary, the future of tax law is likely to be shaped by a combination of legislative decisions, economic considerations, and technological advancements. While simplification and standardization may continue, revenue generation and fairness for taxpayers will remain key priorities. Taxpayers will need to stay agile and proactive in their tax planning to navigate the evolving landscape effectively.
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Frequently asked questions
The 2017 Tax Cuts and Jobs Act (TCJA) eliminated or restricted many itemized deductions for the years 2018 through 2025. The changes implemented by this legislation are currently set to expire on December 31, 2025, unless Congress decides to extend them.
Some examples of itemized deductions that were eliminated or restricted include deductions for moving expenses, alimony, unreimbursed employee expenses, tax preparation fees, and casualty losses.
The TCJA significantly decreased the number of taxpayers claiming itemized deductions, as many people who used to itemize took the standard deduction instead. The standard deduction was nearly doubled, which made a big difference in the taxes of many taxpayers.
Yes, some states such as California, Delaware, Hawaii, Indiana, Illinois, Kansas, Louisiana, New York, Oklahoma, Oregon, Virginia, and West Virginia have not made legislative changes to their personal exemptions or credits.
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