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Tax deductions: changes in the law are likely in new Congress

Many changes await Americans next month when a new presidential administration and a new Congress take office.

It's no secret that those changes are likely to include a tax cut. But it's also important to be aware that an overhaul of how deductions are handled is also under serious discussion.

In this post, we will use a Q & A format to update you on some of the possible changes.

What is being proposed so far?

There are at least three possible plans in play. One of them is a holdover proposal from 2014 by Rep. Dave Camp, who chaired the House Ways & Means Committee at that time. President-elect Donald Trump of course has his own plan, as do House Republicans, led by Speaker Paul Ryan.

All of these plans call for reduced tax rates, which would have the effect of making deductions and exemptions less valuable. The plans also target for reduction (or even elimination) of itemized deductions that many taxpayers use and for increasing the standard deduction.

How many taxpayers itemize deductions?

Overall, the percentage of tax return filers who itemize deductions is only about 30 percent. But the percentage tends to go up with income (except at very high levels).

For taxpayers who make less than $100,000, only about 1 in 5 itemizes. That percentage rises to nearly 77 percent, however, for those who make between $100,000 and $200,000. It goes up even further, to more than 93 percent, for taxpayers who make between $200,000 and $500,000.

Which specific deductions may be targeted for reduction or elimination?

The Ryan plan proposes to end itemized deductions other than for mortgage interest or charitable gifts. The Camp plan calls for this as well and would also put new limitations on deductions for both mortgage interest and charitable gifts.

The Trump plan proposes to cap itemized deductions. The cap amounts would be $100,000 for singles and double that amount for couples.

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