2017 and 2018 Itemized Deductions and Personal Exemption Phase-out Income Limit Changes with Trump GOP Tax Plan

[Trump Tax Reforms and impact to Itemized Deductions] As part of the GOP tax reform bill to support President Trump’s tax reform agenda there are going to several changes to which deductions can be taken in 2018 and beyond. The biggest change is that the Personal exemption is being fully eliminated in 2018 (until 2025, unless extended by Congress then). This $4,050 exemption in 2018 which can be taken for yourself, your spouse, and your eligible dependents will be scrapped meaning that single parents or families with lots of dependents could see a higher tax bill as a result.

Several itemized deductions like SALT and alimony payments are also being cut back or eliminated entirely. This is supposed to be offset by the doubling of the standard deduction and increased Child Tax Credit (CTC). The idea is that by increasing the standard deduction and removing several deductions, tax payers will not need to itemize their deduction in their 2018-19 tax returns thereby making the tax filing process simpler and smoother.

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[Updated for latest levels] Legislation a few years ago raised the threshold for those required to pay higher tax rates and also included provisions to restart limits on certain itemized deductions (Pease) and personal exemptions (PEP) that were phased out and eventually removed as part of the turn of the century Bush-era tax cuts. PEP and Pease were the two provisions in the tax code that increased taxable income for high-income earners. PEP is the phaseout of the personal exemption based on income level and Pease (named after former Senator Donald Pease) reduces the value of most itemized deductions once a taxpayer’s adjusted gross income (AGI) reaches a certain point.

But the income thresholds (limits) for these provisions is much lower than the higher end federal tax bracket income thresholds and so will apply to a lot more people. These income limits are tied to official CPI measures and hence are adjusted for inflation every year.

Itemized Deductions

The re-instituted Pease phase-out limitation on itemized deductions cuts the amount of deductions you can take by 3% of adjusted gross income (AGI) above the specified income thresholds shown in the table below, but you cannot lose more than 80% of the affected itemized deductions. This means that tax payers whose AGI is greater than the specified income thresholds won’t be able to take all of the deductions associated with items like home mortgage interest, charitable donations and state/local income tax payments. While a lot of itemized deductions are affected by the itemized deduction limitation, some such as medical expenses, investment interest and gambling losses are not subject to the limit. 

Filing StatusAdjusted gross income (AGI) Pease Limitation for Claiming Itemized Deductions
Year -
20182017
Single Filer$266,700$261,500
Married Filing/Joint Return$320,000$313,800
Heads of Households$293,350$287,650
Married Individuals Filing Separate Returns$160,000$156,900

For an example of the above consider a married couple with income of $400,000 who file their tax return with $50,000 in itemized deductions. This couple is $100,000+ above the itemized deduction AGI threshold meaning that their allowed deductions would be reduced —potentially adding to their tax liability by about $1,000.

Personal Exemptions

You are generally allowed to deduct the personal exemption for yourself, your spouse, and your eligible dependents. The personal exemption for 2017 and 2018 is $4,050. But with the new Personal Exemption Phase-out (PEP) the value of each personal exemption is reduced from its full value by 2 percent for each $2,500 above the specified income thresholds in the following table. It phases out the ability to claim the personal exemption completely at $389,200 for single filers and at $442,500 for married couples filing jointly.

Filing StatusAnnual Income (AGI) Limit Range for Personal Exemption Phase-out
Year -
201620172018
Single Filer$259,400 to $381,900$261,500 to $384,000$266,700 to $389,200
Married Filing/Joint Return$311,300 to $433,800$313,800 to $436,300$320,000 to $442,500
Heads of Households$285,350 to $407,850$287,650 to $410,150$293,350 to $415,850
Married Individuals Filing Separate Returns$155,650 to $216,900$156,900 to $218,150$160,000 to $221,250

What This Means For You

If your AGI is below the above thresholds then you should see no impact from the above changes and can claim your personal exemptions and itemized deductions as you normally would. Higher income taxpayers though will face reductions and likely see higher tax bills as the value of their personal exemptions and itemized deductions are reduced.

20 thoughts on “2017 and 2018 Itemized Deductions and Personal Exemption Phase-out Income Limit Changes with Trump GOP Tax Plan

  1. Juanita

    What if a married filing joint makes under their tax bracket, and the deduction is more than they pulled in all year what happens then? Did they still have to file their taxes?

    Reply
  2. Kathie

    If you take the standard deduction in 2018 instead of itemizing, can you still take the personal exemption?

    Reply
    1. ss

      No personal exemption is taken in 2018 Tax
      You are taking K12 if you are single or K 24 if you are married filing jointly or ……..

      Reply
  3. Andy (Author)

    Here is an example of how the above works:

    Personal Exemption:

    Ralph and Louise have an AGI of $412,500 for 2013 and two children for a total of four exemptions totaling $15,600 (4 × $3,900). The threshold for a married couple is $300,000; thus, their income exceeds the threshold by $112,500. Dividing $112,500 by $2,500 equals 45. So 90% (45 × 2%) of their $15,600 exemption allowance is phased out, leaving them with a reduced exemption deduction of $1,560 ((100–90) × $15,600). Assuming Ralph and Louise are in the 33% federal tax bracket, the phase-out costs them an additional $4,633 ($15,600 × 90% × 33%).

    Reply
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  6. Dennis

    I heard that the 2013 itemized medical deduction limit was changed from 7.5% to 10% of AGI. Is this true?

    Reply
      1. Andy (Author)

        Correct. Before 2013, you could claim an itemized deduction for medical expenses paid for you, your spouse and your dependents, to the extent those expenses exceeded 7.5 percent of your adjust gross income (AGI). But thanks to the health care law (and not the fiscal cliff act) an even higher threshold of 10 percent of AGI applies to most taxpayers. The exception is if either you or your spouse will be 65 or older as of December 31, 2013, the unfavorable new 10 percent-of-AGI threshold will not affect you until 2017

        Reply
  7. D

    Interesting. This example applies to families earning over $200,000. I am not certain that it is relevant to the vast majority of Americans and I wish the politicians would stop moaning about the current shift in American economic policy….

    Reply
    1. me

      this applies to ALL politicians, as all are making over 200k. they don’t care about the rest of us.

      Reply
      1. Leilani

        politicians are also exempt from obummercare. That means that their RICH “CADILLAC” plan has hardly any out of pocket expense. Therefore, they could care less about deducting that “over 10% of AGI threshold amount”? Of course, if we didn’t have so many ignorant voters maybe this circumstance would not be reality. And by the way, guess who pays for their cadillac plan? WORKING AMERICANS

        Reply
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  10. Karla

    I see one correction needed. The computation for the reduction of the personal exemptions is wrong. The deduction would be reduced by 2% x ($100,000/$2,500) or 80%. Assuming no children in this example the reduction would be 80% x ($3,800*2) or $6,080. The reduction would increase by $3,040 for each child.

    Reply
    1. Wanda

      I agree, Karla, except that the 2013 personal exemption amount was raised to $3,900. So in the example of a married couple (assuming no children or other dependents) the personal exemption amount would only be $1,560 instead of the full $7,800.

      Married filing joint with an AGI of $425,000 or more would get no benefit at all from personal exemptions, for themselves or any children/dependents they might have.

      Reply
    1. Andy

      Yes. The itemized deduction limit was introduced by Donald Pease (D. Ohio) – a congressman who who sponsored the bill that created the itemized deduction limit. As described above it reduces most itemized deductions by 3% of excess AGI up to a maximum reduction of 80 percent of itemized deductions. The limit does not apply under the AMT.

      Reply
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