Itemized Deductions

Itemized Deductions

There are two types of tax deductions that an individual taxpayer can claim on their tax return. The taxpayer can claim one type of deduction on their tax return, but not both.

For example, if you claim the itemized deduction, you cannot claim the standard deduction – and vice versa. As a taxpayer, you select whichever is a higher deduction.

For Standard deduction amounts, refer to our notes on Standard deductions.

To claim itemized deductions, you must file 1040.  

Type of itemized deductionsDetails
Medical and Dental Expenses

You may be able to deduct expenses you paid that year for medical and dental care for yourself, your spouse, and your dependents. You may deduct only the amount of your total medical expenses that exceed 7.5% (previously 10%) of your adjusted gross income. They are reported on Form 1040, Schedule A.

You can only include the medical expenses you paid during the year and you can only use the expenses once on the return. 

Home Mortgage PointsThe term points is used to describe certain charges paid to obtain a home mortgage. Points are prepaid interest and may be deductible as home mortgage interest. If you can deduct all of the interest on your mortgage, you may be able to deduct all of the points paid on the mortgage. If your acquisition debt exceeds $750,000 (used to be $1 million before Trump reforms) or your home equity debt exceeds $0 (used to be 100,000), you can’t deduct all the interest on your mortgage and you can’t deduct all your points.
Interest expense

Types of interest deductible as itemized deductions:

  • Investment interest (limited to your net investment income) and
  • Qualified mortgage interest including points (if you’re the buyer);

Types of interest deductible elsewhere on the return include:

  • Student loan interest as an adjustment to income.

Mortgage Interest Deduction

Qualified mortgage interest includes interest and points you pay on a loan secured by your main home or a second home. The house must have sleeping, cooking, and toilet facilities.

A second home can include any other residence you own and choose to treat as a second home. You don’t have to use the home during the year. However, if you rent it to others, you must also use it as a home during the year for more than the greater of 14 days or 10 percent of the number of days you rent it, for the interest to qualify as qualified residence interest.

Charitable Contributions

To be deductible, you must make charitable contributions to qualified organizations. Contributions to individuals are never deductible.

For any contribution of $250 or more (including contributions of cash or property), you must obtain and keep in your records a contemporaneous written acknowledgment from the qualified organization indicating the amount of the cash and a description of any property contributed.

You must fill out Form 8283 for Non-cash Charitable Contributions, and attach it to your return, if your deduction for a non-cash contribution is more than $500.

If non-cash contribution is more than $5,000, you need a qualified appraisal and must fill out Form 8283, section B. 

If you claim a deduction for a contribution of non-cash property worth more than $500,000, you’ll also need to attach the qualified appraisal to your return.

The 2017 tax changes allowed deduction up to 60% of the adjusted gross income, up from 50%. 

Casualty, Disaster, and Theft Losses (Including Federally Declared Disaster Areas)

Generally, you may deduct casualty and theft losses relating to your home, household items, and vehicles on your federal income tax return. You may not deduct casualty and theft losses covered by insurance, unless you file a timely claim for reimbursement and you reduce the loss by the amount of any reimbursement or expected reimbursement.

For property held by you for personal use, you must subtract $100 from each casualty or theft event that occurred during the year after you’ve subtracted any salvage value and any insurance or other reimbursement. Then add up all those amounts and subtract 10% of your adjusted gross income from that total to calculate your allowable casualty and theft losses for the year.

Deductible Taxes (Subject to 2018 Changes discussed below)

There are four types of deductible non business taxes:

  • State, local, and foreign income taxes
  • State and local general sales taxes
  • State, local, and foreign real estate taxes, and
  • State and local personal property taxes
  • Any estimated taxes you paid to state or local governments during the year, and
  • Any prior year’s state or local income tax you paid during the year.

To be deductible, the tax must be imposed on you, and you must have paid it during your tax year. 

You can elect to deduct state and local general sales taxes instead of state and local income taxes, but you can’t deduct both.

Tax Preparation FeesYou can usually deduct tax preparation fees on the return for the year in which you pay them. These fees include the cost of tax preparation software programs, tax publications, and any fee you paid for filing your return electronically.
Other Expenses (Subject to 2018 Changes discussed below)

You can deduct other expenses subject to the 2% limit that you pay to:

  1. Produce or collect taxable income that must be included in your gross income,
  2. Manage, conserve, or maintain property held for producing such income, or
  3. Determine, contest, pay, or claim a refund of any tax.
Other deductions  (Subject to 2018 Changes discussed below)Employee Business Expenses, Work-related Education expenses

Phase-out income

Your itemized deductions may be limited and your total itemized deductions may be phased out (reduced) if your adjusted gross income for 2017 exceeds the following threshold amounts for your filing status:

  • Single – $261,500
  • Married filing jointly or qualifying widow(er) – $313,800
  • Married filing separately – $156,900
  • Head of household – $287,650

2018 Changes

For 2018, there have been changes to the itemized deductions that can be claimed on Schedule A.

  • Your overall itemized deductions are no longer limited because your adjusted gross income is over a certain limit.
  • Your deduction of state and local income, sales, and property taxes is limited to a combined, total deduction of $10,000 ($5,000 if married filing separately).
  • You can no longer deduct job-related expenses or other miscellaneous itemized deductions that were subject to the 2%-of-adjusted-gross-income floor.

citing – IRS publications, IRS.gov

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