The US Congressional Research Services (CRS) published a new report on Selected Issues in Tax Reform: Itemized Deductions on 4 March 2025.

The report analyses changes to itemised deductions under the Tax Cuts and Jobs Act (TCJA) through 2025 and the impact of reinstating expiring individual income tax provisions, which would increase the deficit by USD 3.3 trillion over 10 years.

P.L. 115-97, commonly known as the Tax Cuts and Jobs Act (TCJA), modified the treatment of various itemised deductions through the end of 2025. This Insight provides information on itemised deductions specifically and tax deductions more generally, upcoming changes in tax law, and the potential effects of making the TCJA reforms permanent.

What are tax deductions?

Deductions allow individuals to reduce their taxable incomes, thus lowering the amounts they owe in taxes. For example, an individual earning USD 100,000 per year and qualifying for a USD 20,000 deduction would pay the same taxes as an individual earning USD 80,000 and not receiving a deduction. Policymakers may create deductions as a way of subsidizing certain activities (e.g., saving for retirement) or accounting for income that may not benefit the taxpayer (e.g., charitable contributions), or for other reasons.

There are four types of deductions. Above-the-line deductions allow all taxpayers to deduct certain expenses, including student loan interest payments and alimony payments. The standard deduction allows taxpayers to reduce their taxable incomes by a flat amount; for tax year 2025, the standard deduction is USD 15,000 for single taxpayers and USD 30,000 for married couples. Itemised deductions allow taxpayers not claiming the standard deduction to deduct certain expenses.

The three largest itemised deductions (in terms of foregone federal revenues) are the deductions for charitable contributions, mortgage interest payments, and state and local tax (SALT) payments. Finally, the Qualified Business Income (QBI) deduction allows certain business owners to exempt 20% of their QBI income from the personal income tax, subject to certain restrictions. Under current law, the QBI deduction will expire after 2025.

Distributional impacts

Tax deductions generally benefit high-income households more than low-income households for two reasons.

First, tax deductions are generally based on taxpayers’ expenses, and high-income people usually spend more than low-income people.

Second, reducing taxable income is most valuable to people whose income would have been taxed at a high rate. Because marginal tax rates rise with income, deductions reduce tax payments the most for high-income taxpayers.

Changes to itemised deductions in the TCJA

The TJCA made four structural changes to the rules governing tax deductions.

First, the TCJA nearly doubled the standard deduction, making that a more attractive option than itemising for many taxpayers.

Second, the TCJA repealed the Pease limitation, which reduced a taxpayer’s total itemised deductions by 3% of the amount by which a taxpayer’s adjusted gross income (AGI) exceeded certain thresholds (USD 261,500 for single filers and USD 313,800 for married couples in 2017).

Third, the TCJA pared back the alternative minimum tax (AMT), which required taxpayers to pay certain minimum tax rates after exempting a portion of their incomes. Fourth, the TCJA enacted the aforementioned QBI deduction. These changes are scheduled to expire at the end of 2025.

The TCJA also temporarily changed the rules for specific itemised deductions, introducing the following changes to the three largest itemised deductions:

• Charitable contributions deduction: The TCJA allowed taxpayers to deduct no more than 60% of their AGIs for cash donations to public charities, up from 50% under the previous law.
• Mortgage interest deduction: Prior to the TCJA, taxpayers were allowed to deduct interest payments on the first USD 1 million of their mortgage balances; the TCJA decreased this amount to USD 750,000 for mortgages originated after December 15, 2017. The TCJA also removed a provision allowing homeowners to claim an additional deduction for interest payments on up to USD 100,000 of home equity loans.
• SALT deduction: Taxpayers were previously allowed to deduct unlimited amounts of qualifying state and local taxes, except that they could not deduct both income tax payments and sales tax payments. The TCJA capped taxpayers’ SALT deductions at USD 10,000 for nonbusiness taxes and removed the deductibility of foreign real property taxes.

The TCJA also modified three smaller itemised deductions, temporarily expanding the wagering losses deduction, restricting the personal casualty and theft loss deduction, and eliminating the deduction for miscellaneous expenses.

As a result of these reforms, the share of taxpayers itemising their deductions fell from 31% in 2017 to 11% in 2018 and 9% in 2022.

Extending the TCJA reforms

The TCJA’s tax deduction provisions are scheduled to expire at the end of 2025. The Congressional Budget Office (CBO) estimates that permanent reinstatement of the TCJA’s expiring individual income provisions would increase primary deficits by USD 3.3 trillion over FY2025-FY2034. As part of these estimates, the CBO projects that permanently extending the reforms to itemised deductions would reduce deficits by USD 1.2 trillion, while making the TCJA’s other individual income provisions permanent would increase deficits by USD 4.5 trillion.

According to estimates from the Tax Policy Center shown in Figure 1, reinstating the TCJA’s itemised deduction provisions would raise taxes by an average of USD 0 for tax units in the bottom fifth of the income distribution, USD 120 for tax units in the middle fifth, and USD 2,430 for the top fifth. (However, the latter number obscures distributional effects within that group. For example, average taxes would rise by USD 93,450 for the top 0.1%.)