Jan 01, 2019
By Ben Seyfer, Senior Accountant at Terry Lockridge & Dunn
The federal Tax Cuts and Jobs Act (TCJA) made numerous changes to the federal itemized deductions claimed by individuals. Iowa will not conform to most of these changes until 2019. This means when preparing your 2018 tax return for Iowa, your Iowa itemized deductions will still include the following deductions:
- Medical expense deduction. Iowa taxpayers can deduct qualified medical expenses exceeding 10% of Iowa adjusted gross income (AGI), federal taxpayers are limited to 7.5% of federal AGI.
- State and Local Tax Deduction. The federal cap does not apply and individuals who itemize deductions can elect an optional deduction for state sales and use taxes in lieu of the deduction for state and local income taxes, if the same election is made at the federal level.
- Qualified home mortgage interest deduction. Taxpayers can generally deduct interest secured by an individual’s main home or second home, paid during the year on the first $1 million of acquisition loans, and interest paid during the year on the first $100,000 of home equity loans.
- Charitable contribution deduction. Iowa has not increased the charitable deduction limitation, repealed the college sports ticket rights deduction, and increased the qualified conservation contributions; but the limitation on contributions in exchange for state and local tax credits will apply if federal regulation is adopted.
- Personal casualty/theft loss deduction. Iowa taxpayers can deduct casualty and theft losses from personal use property, even if such losses are not attributable to a federally declared disaster, if losses exceed a $100 per-event loss limitation and exceed 10% of a taxpayer’s AGI.
- Deduction for miscellaneous expenses subject to the 2% AGI floor. Iowa taxpayers can continue to deduct miscellaneous expense to the extent they exceed 2% of the taxpayer’s Iowa AGI and that were deductible before the federal suspension. This includes investment fees, unreimbursed business expenses and tax preparation fees.
- Overall itemized deduction limitation. Individuals with Iowa AGI over the threshold must reduce their Iowa itemized deductions (excluding medical expenses, investment interest, or personal casualty and theft losses) by the lesser of 3% of the amount their AGI exceeds the threshold amount, or 80% of their itemized deductions.
Therefore, even if you will take the standard deduction on your federal Form 1040, it may still make sense to itemize for the Iowa income tax return for 2018. If you have questions regarding your specific situation, please feel free to reach out to the accountants at Terry Lockridge & Dunn. They can be reached at 319-364-2945 in Cedar Rapids, or at 319-339-4884 in Iowa City.