Personal Tax Deductions Under the Law

Under the Tax Cuts and Jobs Act, individual taxpayers receive a far greater standard deduction than what was previously available. On the other hand, the Act removed or limited several other types of deductions. You still may be able to take certain types of deductions if you itemize them, though. One of the most common types of deductions involves state and local taxes, including income or sales taxes (whichever is greater) and property taxes. The Tax Cuts and Jobs Act imposed a limit of $10,000 on this deduction through 2025, regardless of whether you are filing jointly or separately. It will not be adjusted for inflation. This part of the law thus creates a significant burden for individuals who pay substantial state and local taxes.

Another important type of deduction for individuals involves the interest paid on a mortgage for either their primary or secondary home. The deduction covers the interest on up to $1 million in home acquisition debt if you purchased the home attached to the loan before December 15, 2017. Otherwise, the deduction covers up to $750,000, which is the amount at which it will remain through 2025. If a home that was purchased before December 15, 2017 is refinanced after that date, the homeowner can use the $1 million limit unless the amount of the second loan exceeds the amount of the original loan. You must actually make payments on your mortgage loan to qualify for this deduction.

Educational Expenses

A student loan interest deduction applies to up to $2,500 of these payments in each year throughout the duration of the loan. You do not need to itemize your deductions to take this deduction. Also, you can contribute up to $2,000 per year to a Coverdell education savings account, or potentially less if your income exceeds a certain threshold. While these contributions are not deductible, you will not need to pay tax on distributions that are used for tuition. A Section 529 plan is another type of education savings plan that permits tax-free withdrawals for certain college expenses. If your child goes to a private school, you also can withdraw a certain amount from a Section 529 plan each year to cover their tuition.

Retirement Plan and Health Care Deductions

A taxpayer can contribute a certain amount annually to a 401(k) plan offered through their employer. This amount increases for employees who are 50 or older. A taxpayer also can contribute a certain amount annually to an IRA and claim a deduction for that amount in most cases. Again, this limit increases for employees who are 50 or older. If your income exceeds a certain threshold, and your spouse and you have a retirement plan through work, the deduction will be more limited.

Medical and dental expenses may be deductible to the extent that they exceed a certain percentage of your adjusted gross income (most recently 7.5 percent). Medical expenses are defined as out-of-pocket costs that are not covered by insurance, as well as health insurance premiums. They can include costs and premiums for dependents as well as you.

You can deduct any contributions to a health savings account, which is a type of medical expense account set up in combination with a high-deductible health insurance plan. Also, you do not need to pay tax on interest earned through the account. Funds from a health savings account can cover most types of medical expenses.

Charitable Contributions

You can deduct any donations of cash or property to a qualified non-profit as long as you itemize and document them. This is true even for very small donations. If you contribute over $250 in cash or property to a qualifying non-profit, they must provide you with a receipt or acknowledgment of the contribution. Any contributions of assets worth over $500 require submitting Form 8283 with your tax return.

Last reviewed October 2024