The tax code is complicated, and unfortunately, there are few changes that simplify the code. Instead, every change brings with it a series of unintended consequences. One of the changes in the tax code that will come under a Republican administration is the capping of the itemized deduction. For the most part, the itemized deductions include Mortgage Interest, Property Tax, Investment Interest, State Income Tax, and Charitable Donations. Before we continue, let me share the average itemized deduction across different income groups.
The proposal is to cap itemized deductions at $17,000. You can see, this won’t impact those with adjusted gross incomes under $60,000, which is certainly a good thing, but even those who are in the $60K-$200K family income range will get hit. The whole tax plan isn’t out yet, but it’s rumored to include an across the board rate cut. It remains to be seen what this combination will do to the tax bills overall. Aside from these specifics, we have no hint what the fate of the AMT will be or whether the taxation of Social Security will be adjusted to a more reasonable phase-in or even eliminated altogether. No judgement here, the plan may actually be a good thing, we just don’t have the full story yet.
Above graphic courtesy of The Tax Foundation.