What Are Itemized Deductions?
Itemized deductions reduce an individual's tax burden and are subtracted from a taxpayer's Adjusted Gross Income (AGI). Taxpayers have the choice of taking the standard deduction or itemizing deductions.
The standard deduction is a preset amount that varies according to the taxpayer's filing status. Itemized deductions are expenses the taxpayer incurred, such as mortgage interest, state or local income taxes, property taxes, medical or dental expenses, or charitable donations.
Key Takeaways
- Itemized deductions help taxpayers lower their annual income tax bill.
- A taxpayer must choose either the itemized or standard deduction.
- Itemized deductions include medical expenses, mortgage interest, and charitable donations.
Standard vs. Itemized Deductions
TheTax Cuts and Jobs Act (TCJA)changed business and personal taxes. Before the passage of TCJA, taxpayers claimed a larger deduction on their tax returns by itemizing. Between the 2018 and 2025 tax years, which the TCJA affects, the number of itemizing taxpayers will drop due to the larger standard deduction.
With the tax changes, individuals must decide whether to itemize or claim the standard deduction, as some rules affect what can be itemized. The new law also eliminated deductions taxpayers could take previously and changed some others. The personal exemption disappeared with the TCJA, but the childtax credit doubled and applied to more families.
For the tax year 2023, the standard deduction for married couples filing jointly is $27,700, for single taxpayers and married individuals filing separately, the standard deduction is $13,850.
Types of Itemized Deductions
Itemized deductions are below-the-line deductions from adjusted gross income (AGI). They are computed on the Internal Revenue Service’s Schedule A, and the total is carried over to the 1040 form. When itemized deductions have been subtracted, the remainder is the actual taxable income.
- Unreimbursed Medical and Dental Expenses: Taxpayers who incur qualified out-of-pocket medical or dental expenses not covered by insurance can deduct expenses that exceed 7.5% of their adjusted gross income (AGI). These expenses can be included for the taxpayer, the taxpayer’s spouse, and dependents claimed when the medical services were provided or paid.
- Long-term Care Premiums: These are calculated slightly differently than medical expenses are. Long-term care insurance premiums are tax-deductible to the extent that the premiums exceed 10% of an individual's AGI. There is a deduction limit based on age, and the insurance must be "qualified."
- Home Mortgage Interest: Deductible on the first $750,000 in loans.Each year, mortgage lenders mail Form 1098 to borrowers, which details the amount of deductible interest and points they’ve paid over the past year. Taxpayers who bought or refinanced homes during the year can also deduct the points they’ve paid, within certain guidelines. If the mortgage originated before Dec. 16, 2017, then a higher limitation of $1 million applies.
- Taxes Paid: Taxpayers who itemize can deduct two types of taxes paid on their Schedule A. Personal property taxes, which include real estate taxes, are deductible along with state and local taxes assessed for the previous year. Any refundreceived by the taxpayer from the state in the previous year must be counted as income if the taxpayer itemized deductions in the previous year. Until 2025, taxpayers can deduct only $10,000 of these combined taxes. In addition, foreign real estate taxes are not tax deductible.
- Charitable Donations: Any donation made to a qualified charity is deductible within certain limitations. Until 2025, the amount that can be deducted is 60% of the taxpayer’s AGI. Excess amounts must be carried over to the next year. Other contributions can be limited to 50%, 30%, or 20% of AGI, depending on the type of property and organization receiving the donation.
- Casualty and Theft Loss: Any loss incurred from a federally declared disaster can be reported on Schedule A. Unfortunately, only losses over 10% of the taxpayer’s AGI are deductible after subtracting $100 from the loss amount. If a taxpayer incurs a casualty loss in one year and deducts it from their taxes, any reimbursem*nt received in later years must be counted as income. Taxpayers must complete Form 4864 and report the loss on Schedule A.
- Miscellaneous Deductions: This category of itemized deductions includes items such as gambling losses to the extent of gambling winnings, losses from partnerships or subchapter S corporations, estate taxes on income in respect of a decedent (IRD), and certain other expenses.
Workers who incur job-related expenses can deduct expenses only if they are an armed forces reservist, a qualified performing artist, a state or local government official working on a fee basis, or an employee with impairment-related work expenses. Workers who fall into these categories and claim expenses must complete Form 2106.
How to Claim Itemized Deductions
Taxpayers should gather relevant information on their expenses and compare the amount they may itemize against their potential standard deduction. The standard deduction amounts by filing status for 2023 and 2024 are below.
| 2023 and 2024 Standard Deduction | ||
|---|---|---|
| Filing Status | 2023 Standard Deduction | 2024 Standard Deduction |
| Single | $13,850 | $14,600 |
| Married Filing Joint | $27,700 | $29,200 |
| Head of Household | $20,800 | $21,900 |
Suppose the total amount of eligible deductions exceeds the relevant information above. In that case, the taxpayer can itemize their deduction by entering the appropriate information on Schedule A of their tax return. The total amount of itemized deductions is then summed on the form, and carried onto the second page of Form 1040. A taxpayer's itemized deduction is then deducted from a taxpayer's adjusted gross income to arrive at the taxpayer's taxable income.
Is It Better to Itemize or Take the Standard Deduction?
The answer differs for each taxpayer as extenuating circ*mstances may result in a higher itemized deduction for some but a higher standard deduction for others. Taxpayers should compare potential itemized deductions by completing a draft of Schedule A to the current standard deduction.
What Are the Biggest Drawbacks of Itemizing?
Itemizing a tax return may be more administratively burdensome. The IRS may audit a return and ask for receipts or substantiation so calculations must be correct. Taxpayers should maintain and keep records for the entire tax year.
How Do Taxpayers Itemize Non-Cash Charitable Contributions?
Taxpayers must verify cash and noncash contributions. Taxpayers should obtain written communication from the charity, which must include the name of the charity, the date, and the contribution amount.
The Bottom Line
Working with an experienced and competent tax preparer can help taxpayers decide whether to itemize. The IRS also provides online resources on its website.
Article Sources
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