Most, if not all, taxpayers will see some significant changes on their returns if President Trump's tax reform plan were to become law in anything approaching its current form. Indeed, Trump's plan affects some of the most fundamental aspects of how federal income taxes are structured and calculated.
And while quite a few of the familiar old tax breaks are absent from his plan, others will be sticking around in one form or another.
Mortgage interest deductions
Nearly all itemized deductions would get the axe if Trump's plan became law, but the mortgage interest deduction would remain unchanged. However, because so few itemized deductions would exist post-tax-reform, and because the standard deduction would be considerably larger, relatively few taxpayers would bother itemizing under the revised system. As a result, even though you might continue to qualify for a mortgage interest deduction, it probably wouldn't make sense to take it, because the standard deduction would be a better deal.
Charitable contributions deduction
The charitable contribution deduction is the other big itemized deduction that's sticking around in the tax reform package. Because it would continue to be an itemized deduction, like the mortgage interest deduction, it would have to be pretty huge to outweigh the super-sized standard deduction that Trump has proposed. However, unlike the mortgage interest deduction, you have more control over your charitable contributions and may be able to make the deduction worth taking. For example, if you normally give $1,000 per year to charities, you might instead group several years' worth of charitable deductions into one year, making a $4,000 donation in a single year. If you also clear out your closets and attic and donate the unwanted items to an organization such as Goodwill, you could end up with a charitable deduction that's higher than you'd get with the standard deduction, especially if you combine it with the mortgage interest deduction.
IRA contribution deduction
Unlike the mortgage interest deduction and the charitable contributions deduction, the IRA contribution deduction is not an itemized deduction and therefore won't suffer the logistical problems that affect the first two tax breaks. At present, President Trump's tax reform plan doesn't make any alterations to this deduction; however, things could change, as the package has a long way to go before becoming law.
Premium tax credit
Low- and moderate-income taxpayers who buy private health insurance can claim a tax credit to help make up for the cost of the premiums. The premium tax credit would still exist under Trump's plan, but in a substantially revised form. This particular credit is detailed in the healthcare reform bill currently making the rounds in the Senate. In brief, the new version of the premium tax credit would be available to a wider range of income levels, and would increase with age rather than need. Also, the new premium tax credit wouldn't require taxpayers to buy their health insurance policies on the Marketplace (the state-based website that uninsured folks can use to compare subsidy-qualified plans), as the current tax credit does.
HSA contribution deduction
Not only would the health savings account contribution deduction still exist under Trump's plan, but it would be substantially expanded by the healthcare reform package. First, annual contribution limits would go up to nearly double what they are right now. And when contributions go up, so does your potential tax deduction. Second, HSAs would become a payment option for every health insurance policy, instead of just for special HSA-enabled plans. And third, the healthcare reform package would expand what qualifies as medical expenses for the purposes of HSA spending. For example, over-the-counter drugs would be considered qualified medical expenditures (currently, only prescription drugs are permitted as HSA medical expenditures). With more options for spending that HSA money, it would make sense to increase your contributions.
Implementing tax reform
President Trump's tax reform plan has yet to be taken up by federal legislators, but President Trump has indicated that he plans to get it passed in 2017. If the proposal does pass in anything approaching its current form, the IRS will have a heap of work to do to get its systems updated and design and distribute new tax forms that reflect the changes. It's possible that this new tax system could go into effect as early as the current tax year (meaning that it would be effective in 2018 for taxpayers doing their 2017 taxes), but it seems unlikely that the federal government could move that quickly. More likely, tax reform will take effect in the following tax year or possibly even later.