How did the TCJA change deductions and tax planning strategies?

The Tax Cuts and Jobs Act (TCJA) reshaped the U.S. tax code for individuals and businesses, shifting the balance between itemized deductions and the standard deduction, introducing a new pass‑through deduction, and imposing new caps and limits that changed common planning tactics.

In my 15 years as a Certified Financial Planner (CFP®), I’ve seen the TCJA push many taxpayers away from itemizing and toward different planning decisions — from bunching charitable gifts into alternating years to reassessing the timing of taxable income for small‑business owners. Below I summarize the key changes, why they matter, and practical strategies to adapt. I also include links to related FinHelp guides where you can dive deeper.

Key TCJA changes that affect deductions

  • Increased standard deduction. The TCJA roughly doubled the standard deduction for most filing statuses starting in tax year 2018. That change materially reduced the number of taxpayers who itemize (IRS summary). The higher standard deduction simplified filing for many taxpayers and made itemizing less attractive unless qualifying deductible items are large.

  • Related reading: When to Itemize vs Take the Standard Deduction: A Practical Calculator (FinHelp) — https://finhelp.io/glossary/when-to-itemize-vs-take-the-standard-deduction-a-practical-calculator/

  • Related reading: Standard Deduction vs. Itemized Deductions — https://finhelp.io/glossary/standard-deduction-vs-itemized-deductions/

  • Elimination of personal exemptions. The TCJA suspended personal exemptions (previously claimed for each taxpayer and dependent) for tax years 2018 through 2025. This change, combined with the larger standard deduction and expanded child tax credit, reorganized how families calculate their taxable income.

  • SALT deduction cap. State and local tax (SALT) deductions for property taxes and either income or sales taxes were capped at $10,000 per return ($5,000 for married filing separately). That cap immediately affected taxpayers in high‑tax states and prompted state and local responses as well as taxpayer planning to reduce SALT exposure (IRS summary).

  • Mortgage interest and home‑equity interest rules. The TCJA lowered the acquisition mortgage balance eligible for the mortgage interest deduction for new loans from $1,000,000 to $750,000 (loans taken after Dec. 15, 2017). Interest on home equity loans/lines is no longer deductible unless the loan proceeds are used to buy, build, or materially improve the home that secures the loan.

  • Suspension of miscellaneous itemized deductions. Deductions subject to the 2% of adjusted gross income (AGI) floor — including many unreimbursed employee expenses — were suspended for tax years 2018–2025. That removed tax relief for many employees who formerly claimed work‑related expenses.

  • Qualified Business Income (QBI) deduction (Section 199A). For owners of pass‑through entities (sole proprietors, partnerships, S corporations, some trusts and estates), the TCJA created a new deduction allowing up to 20% of qualified business income to be deducted. The QBI deduction is complex — subject to taxable income thresholds, wage and capital‑basis limitations, and exclusions for certain service businesses — but it provides meaningful tax relief for many small‑business owners and professionals (IRS QBI guidance).

  • Changes to AMT and estate tax. The TCJA raised the alternative minimum tax (AMT) exemption and the threshold at which AMT begins to phase out, reducing the number of taxpayers subject to AMT. It also roughly doubled the estate and gift tax exemption (indexed for inflation). Many individual provisions are scheduled to expire at the end of 2025 absent further legislative action.

Sources: IRS summary of the Tax Cuts and Jobs Act (IRS), IRS QBI guidance (irs.gov/newsroom/questions-and-answers-about-the-qualified-business-income-deduction-section-199a). For legislative sunset details, see congressional summaries and IRS guidance.

Why these changes matter for tax planning

  1. Fewer itemizers means different levers. When most taxpayers claim the higher standard deduction, planning shifts from maximizing small itemizable deductions to bundling larger ones into years where itemizing is worthwhile. For charitable givers, that often means bunching gifts or using donor‑advised funds to create larger deductible years.

  1. SALT cap reshapes state tax planning. The $10,000 cap forces homeowners and high‑income earners in certain states to reconsider withholding, estimated tax timing, property tax prepayments, and whether to restructure income. Some taxpayers explore business entity choices or shifting income to lower‑tax states — but those moves have legal and practical limits.

  2. QBI opens different optimization paths. For eligible pass‑through owners, the 20% deduction can be more powerful than prior credits or entity choices. However, the deduction’s phaseouts tied to taxable income and the distinction between specified service trades (which face more restrictions) mean careful income timing and W‑2 wage management can matter.

  3. Mortgage and home‑equity changes affect home purchase timing and financing choices. Borrowers considering renovation loans or second mortgages should evaluate deductible status and shop rates and terms while assessing non‑tax reasons for borrowing.

Practical planning strategies (actionable)

  • Recalculate itemize vs. standard each year. Don’t assume you’ll always take the standard deduction. Life changes (large medical expenses, major charitable gifts, or high unreimbursed business expenses for the self‑employed) can flip the decision. Use the FinHelp calculator and guidance pages above to test scenarios.

  • Bunch deductions. If charitable giving is important, consider bunching two years of donations into one year or using a donor‑advised fund to concentrate deductions in a single tax year.

  • Review SALT exposure. Taxpayers in high‑tax states should review property tax payment timing, check whether prepaying deductible taxes is allowed by their state, and consult a CPA about legal planning opportunities.

  • For pass‑through owners, review entity structure and compensation. Because the QBI deduction interacts with W‑2 wages and business capital, owners of S corporations and partnerships should evaluate reasonable compensation policies and the timing of income and expenses. This analysis is highly fact‑specific — consult a tax pro.

  • Revisit retirement and income timing. For taxpayers near QBI or tax‑bracket thresholds, shifting retirement plan contributions, deferring income, or accelerating deductions can make a difference in whether phaseouts or limits apply.

  • Document and keep good records. With fewer but larger deductions, documentation still matters — in audits or when substantiating business and charitable deductions.

Common mistakes and misconceptions

  • Assuming the SALT cap can be avoided by shifting payments. The $10,000 cap applies to combined state and local income, sales, and property taxes on federal returns; creative attempts to circumvent it (without state‑approved programs) may be challenged or offer little relief.

  • Misunderstanding QBI. The 20% deduction is not an above‑the‑line deduction; it reduces taxable income but is subject to multiple limitations. Many taxpayers overestimate the ease of claiming QBI without analyzing service‑business restrictions.

  • Forgetting sunset provisions. Many TCJA individual provisions — including the larger standard deduction and some rate changes — are scheduled to expire after 2025 unless Congress acts. Don’t assume current rules are permanent; incorporate legislative risk into longer‑term plans.

Real‑world examples (anonymized)

  • A retired couple I advised stopped itemizing after 2018 because their combined mortgage interest and state tax bills were no longer enough to exceed the new standard deduction. We shifted their charitable plan to a donor‑advised fund and adjusted timing on medical expense payments to maximize tax benefit.

  • A small business owner increased their use of S‑corp wages and fringe benefits after modeling QBI and payroll interactions. The 20% QBI deduction provided tax savings, but the net benefit depended on the client’s reasonable wages, fringe benefit treatment, and overall taxable income.

When to consult a tax professional

The TCJA introduced complexity for high‑income households, business owners, and taxpayers in high‑tax states. If you have significant business income, large capital transactions, or live where SALT is a real issue, consult a CPA or enrolled agent. In my practice, I run scenario models to test outcomes across multiple years and under different legislative assumptions.

Bottom line and next steps

The TCJA moved the tax code toward larger, simpler standard deductions for many taxpayers while adding complexity for business owners with the QBI deduction and for those affected by SALT and mortgage limits. Review your tax situation annually, run itemize‑vs‑standard scenarios, and consider targeted strategies like bunching, entity review, and income timing. Keep an eye on Congress: many individual provisions sunset after 2025.

Disclaimer: This article is educational and not individualized tax advice. For personalized guidance, consult a qualified tax professional or CPA. References: IRS — “The Tax Cuts and Jobs Act: A Summary” (IRS.gov); IRS QBI guidance (Questions and Answers about the Qualified Business Income Deduction, Section 199A). Additional FinHelp resources: Standard Deduction vs. Itemized Deductions, Bunching Charitable Gifts to Exceed the Standard Deduction, and When to Itemize vs Take the Standard Deduction: A Practical Calculator (links above).