With the national debt and tax simplification taking front burners these days, there has been a great deal of discussion by both political parties and bi-partisan groups about doing away with or substantially altering itemized deductions. Itemized deductions have been around for as long as most of us can remember, and altering these deductions would have a profound effect on many taxpayers.
Itemized deductions include medical expenses, tax deductions, home mortgage and investment interest, charitable deductions, and miscellaneous investment and business expenses.
Home mortgage interest is the cornerstone of the itemized deductions, making home ownership possible for many who would otherwise be unable to afford home ownership. As evidenced in some of the proposals below, this factor was carefully considered, along with charitable contributions.
An overview of various proposals that have been made (by both political parties) to eliminate or modify itemized deductions follows.
• Cap the Deductions—Both political parties have suggested capping the itemized deductions at a certain level. Suggestions have ranged from $12,500 to $50,000. The general income ranges that would be affected are given in the chart above.
• Eliminate Itemized Deductions—A bipartisan task force calls for eliminating itemized deductions altogether and replacing them with a non-refundable credit for mortgage interest and charitable contributions.
• The Wyden-Coats Bipartisan Tax Fairness and Simplification Act of 2011—Would have repealed all itemized deductions except for mortgage interest and charitable contributions and would have raised the standard deductions to $30,000 for joint filers and to $15,000 for single filers.
With both political parties considering itemized deduction caps, some form of limitations may come about. Will it happen? Congress has attempted tax simplification in the past, and it only got more complicated. But who knows, maybe this time will be different.
This office is closely following tax changes and is here to keep you up to date with regard to the ever-changing tax laws. Please call if you have questions, wish to do some year-end planning, or if family members or friends need assistance.