Standard or Itemized Deductions

By
Real Estate Broker/Owner with Morningside Homes, LLC 720-231-5200 DRE# ER300941
 

The Tax Cuts and Jobs Act of 2017 increased the standard deduction to $24,000 for married couples.  There will be some instances that homeowners may be better off taking the standard deduction than itemizing their deductions.  In the past, homeowners would most likely be better off itemizing but the $10,000 limit of state and local taxes (SALT) adds one more issue to consider.

Let's look at a hypothetical homeowner to see how a strategy that has been around for years could benefit them now even though they haven't used it in the past.  The strategy is called bunching; by timing the payments in a tax year so that they can be combined to make a larger deduction.

Let's say that the married couple filing jointly has a $285,000 mortgage at 5% for 30 years that has about $14,000 in interest being paid.  The property taxes are $6,000 and they have $4,000 a year in charitable contributions for a total of $24,000 of allowable itemized deductions on Schedule A.

Standard Itemized.jpg

Since that deduction amount is the same as the Standard Deduction, there is no monetary advantage one way or the other.  However, if the taxpayers were to pay their interest because they must make timely house payments but only pay $2,000 of the 2018 property taxes in December of 2018 and the balance of the $4,000 in January, they transfer part of the deduction into 2019.

Additionally, if they make their intended charitable contribution for 2018 in January of 2019, it makes that deductible on the 2019 return.

Since the total deductible amounts paid out in 2018 was $16,000, the taxpayers would have an $8,000 benefit that year from taking the Standard Deduction. 

Assuming they made the same $4,000 charitable contribution in 2019 during the year and paid the house payment and property taxes on time, their total deductions for 2019 would be $32,000 which is $8,000 more than the Standard Deduction.

In this example, the taxpayers in 2018 and 2019, would benefit a total of $16,000 in tax deductions by bunching and electing to take the standard deduction one year and itemizing the next. 

This is only an example but if your situation is similar, it might benefit you to consider an alternative when to take the standard deduction and when to itemize.  This is a conversation you need to have with your tax professional to see if it would work for you.

 

Posted by

Buy or Sell with Patty Clark              Denver/Aurora Co. and surrounding areas 

Chris and Patty

    Helping Families Move with Care

  If you would like to be sent properties on a daily or weekly  basis just call or email me and let me know your wants and  needs. A match will be made with a home you love and with  monthly payments you can afford. I specialize in first time                       home buyers and sellers who are ready to make a move.

                                                    

 

Morningside Homes, LLC
patty@morningsidehomes.com

www.morningsidehomes.com
Cell: 720-231-5200                       CRS,GRI,WCR,SFR,CNE, MRE

 

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Rainer
504,044
Dörte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton & rest of Maryland

Dear Patty,

Kindof a job to figure out the differences between this year and last. We'll see, what we have to collect going forward.

Jan 21, 2019 09:41 PM #1
Rainmaker
3,983,519
William Feela
WHISPERING PINES REALTY - North Branch, MN
Realtor, Whispering Pines Realty 651-674-5999 No.

For each person it is different but I itemize my stuff.

Jan 22, 2019 04:11 AM #2
Rainmaker
479,443
Patty Clark
Morningside Homes, LLC 720-231-5200 - Denver, CO
Helping Families Move with Care

I'm not sure what I will be ding.  I think itemized will be the best with our profession.

Jan 22, 2019 07:19 AM #3
Rainmaker
81,206
Allan Rolnick
TriState Tax Resolution LLC - Sunnyside, NY
Tax Debt Resolution serving the NYC Metro Area

Based on your example, the interest deducted will be a little bit less than $14,000 in 2019 and therefore the overall savings will be less. However, the point that you can shift the deductions from one year to the next remains the same to get an overall better outcome on your taxes. 

Jan 23, 2019 01:43 PM #4
Rainmaker
479,443
Patty Clark
Morningside Homes, LLC 720-231-5200 - Denver, CO
Helping Families Move with Care

Good advice especially coming from tax person.  It should be interesting doing taxes this year.

Jan 23, 2019 06:32 PM #5
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Rainmaker
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Patty Clark

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