With the standard deduction nearly doubling (from $6,500.00 to $12,000.00 for single filers and from $13,000.00 to $24,000.00 for married filing jointly) it necessarily follows that fewer taxpayers will be able to itemize their deductions. The Congressional Research Service (CRS) reports that in 2014 (the most recent calendar year with analysis available), 30% of all tax filers itemized their deductions, however, a much greater share of higher income earners itemized when compared with lower income earners.2
Presumably, those tax filers who took the standard deduction did so either because their itemized deductions did not exceed the applicable standard deduction in that year or because they simply didn’t know they could itemize. When you look at the statistical data for 2014, as analyzed by the CRS, you see that in the $100,000.00 to $200,000.00 income range, 77% of these tax filers itemized deductions with the average amount claimed by each filer of $25,598.00.3
When you move to the income range of $200,000.00 to $500,000.00 you find that 93% of these tax filers itemized with an average amount claimed by each filer of $43,131.00.4 Based on these figures, it is arguable that many, if not most, tax filers in these income groups will still itemize despite the increased standard deduction.
The Act limits the state and local tax deduction to a maximum deduction of $10,000.00 per household, so those in this group who depended on this deduction to allow them to itemize will likely be the ones who are the most affected, as such deduction is the single largest one claimed by households making over $200,000.00.5 However, the next two largest deductions, namely the charitable deduction and the home mortgage interest deduction, still remain and this income range is responsible for claiming 51% of all charitable deductions.6
This fact, combined with the $10,000.00 allowance remaining for the state and local tax deduction likely means that households making over $200,000.00 will still itemize and so will still see the direct tax savings from being able to claim a charitable deduction.
Further, the Act’s elimination of the Pease* limitation on itemized deductions may give higher income earners some additional relief.