Examples of Itemized Deductions
On your federal taxes, you will be asked to either calculate your itemized deductions or to take a standard deduction.
Itemized deductions are various tax-deductible expenses you incur throughout the year. A standard deduction is a predetermined amount from the IRS that is based on your filing status.
If you don’t qualify for itemized deductions, you will choose the standard deduction. You should take itemized deductions instead of the standard deduction if the total amount of expenses is greater than the standard deduction.
Some common itemized deduction to qualify for include:
- Medical expenses
- Property, state, and local income taxes
- Home mortgage interest
- Charitable contributions
- Investment interest expense
- Miscellaneous deductions
In this article, you will also find:
NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.
How Do You Qualify for Itemized Deductions?
Home Mortgage Interest
When you take out a mortgage to purchase a home, the interest on that mortgage is considered an itemized deduction.
Most homebuyers qualify for this deduction because it’s allowed up to the first $750,000 borrowed on a mortgage. Prior to the Tax Cuts and Jobs Act (TCJA) the deduction was allowed on the first $1,000,000 of mortgage debt.
Homeowners can deduct the real estate taxes they were allocated within the year in which they are filing taxes. Prepaid taxes are non-deductible.
Also, you can deduct any state and local taxes that you paid on your income during the year, up to $10,000. Most taxpayers pay state and income tax but you can only take advantage of these deductions if you itemize your deductions.
Investment Interest Expense
If you borrow money to make an investment, the interest that you pay on that loan may be tax-deductible, using IRS form 4952.
You’re only able to deduct up to a certain amount that you earn through your investments. If you didn’t earn anything in the year, you cannot deduct these expenses. Instead, you can carry the interest expense forward to the next year.
Medical expenses are deductible as an itemized deduction. You can only deduct the amount of medical expenses that exceed 7.5 percent of your adjusted gross income.
Itemized deductible medical expenses include: Prescriptions, doctor’s fees/co-pays, insurance premiums, necessary surgery (non-cosmetic), physical handicap costs, and transportation to a medical facility. You can also deduct 24 cents for every mile you drove for medical care.
If you gave money or property to your favorite charity, you can deduct these gifts as an itemized deduction. You must donate to a qualified organization to claim the deduction. Donations to your church are included in this deduction but contributions to political campaigns or individuals are not.
Most deductions are allowed up to 50% of your adjusted gross income (AGI), though some type of contributions may be limited to 20 or 30% of your AGI.
How Do You Claim the Itemized Deduction?
Towards the top of page two on your 1040 tax form you will see a question asking you to itemize or take the standard deduction. To calculate your itemized deductions, you will need a separate form – Schedule A.
This form can also be found on the IRS website along with your 1040 form. The Schedule A will give you the steps to calculate each expense that is listed above. Take the final amount from Schedule A form and put it where it asks for itemized deductions on your 1040 Form.