Bunching of Itemized Deductions Under the New Tax Legislation

Under the new Tax Cuts & Jobs Act (TCJA), the standard deduction available to taxpayers has increased to $24,000 for those who file as Married filing Jointly, $18,000 for Head of Household, and $12,000 for Single or Married Filing Separately. Due to this increase, it is estimated that the number of taxpayers who itemize their deductions will fall from around 30% to less than 10%.  In addition to the standard deduction increase, the TCJA cut, or eliminated, miscellaneous other itemized deductions subject to the 2% income limitation..

Using a bunching strategy can help some taxpayers maximize the effectiveness of items that can be deducted.  Bunching, in this case, is accelerating or delaying certain payments into a year where they can take advantage of making an extra payment.  With bunching, deductions would be high one year and low the next. For example, someone who normally gives $5,000 to a charity annually, would instead give $10,000 before the end of 2019, while not making any to the charity in 2020.  If you were to use the bunching strategy, you would itemize one year and take the standard deduction the next (or vice versa).

Some examples of deductions you may want to bunch are:

  • Medical and Dental Expenses

  • State and local taxes (this deduction is now limited to an annual maximum of $10,000)

  • Mortgage and HELOC interest (there are certain restrictions on this deduction as well)

  • Charitable Gifts

Before you start bunching payments, talk to your tax preparer to go over your unique situation.