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 upon 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.
You can calculate your taxable income using your standard or itemized deduction by subtracting their amount by your Adjusted Gross Income (AGI).
The most 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:
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 $1,000,000 borrowed on a mortgage. This deduction is available for two residences per taxpayer.
If you have a loan that is less than $100,00, you can also deduct the interest on a home equity loan.
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. Most taxpayers pay state and income tax but you can only take advantage of these deductions if you itemize your deductions.
Investment Interest Expense
You can incur expenses like broker or advisor fees and safe deposit box fees when you first start investing.
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. You can be eligible for Capital Loss Treatment.
On a very limited basis, medical expenses are deductible as an itemized deduction. You can only deduct the amount of medical expenses that exceed 10 percent of your AGI and 7.5 percent if you’re over 65.
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 to needy families are not.
Deductions are limited to 50 percent of your AGI for cash donations and 30 percent of your AGI for property donations.
There are a few miscellaneous deductions that you can claim, but you can only deduct these expenses if they exceed two percent of your AGI.
Miscellaneous deductions include: Unreimbursed business expenses, qualified educational expenses, expenses for uniforms, tax preparation fees, business use of your home, subscriptions to professional journals, and job-hunting expenses.
These are just a few of these deductions but the IRS website can answer more of your questions about miscellaneous itemized deductions.
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.