Glossary: Itemized Deductions

Image courtesy of user "777546" on Pixabay.com
Image courtesy of user “777546” on Pixabay.com

Itemized deductions are an optional deduction taxpayers can take on tax returns for things such as medical expenses, property taxes, mortgage interest, and charitable contributions.

Taxpayers have two options on tax returns: they can take a standard deduction, which is an amount that all taxpayers are allowed to deduct in calculating taxable income, or they can take their itemized deductions. In almost all cases (except for a few cases where Alternative Minimum Tax applies), taxpayers will take whichever deduction is larger.

What are Itemized Deductions?

Itemized deductions are claimed by filing Schedule A as part of your tax return. If we start at the top of Schedule A, examples of itemized deductions are:

  • Medical expenses, but only if the total of those expenses exceeds 10% of your adjusted gross income (or 7.5% if you’re over age 65)
  • State and local taxes paid. This includes: state or city income tax paid or a deduction for sales tax paid (whichever is larger; generally if you live in a state that assesses an income tax, you’ll take the deduction for income tax paid); and property taxes; personal property taxes (generally this means car registration)
  • Interest you paid. Typically this will be mortgage interest and mortgage insurance premiums, but it could also include investment interest
  • Charitable contributions
  • Casualty and theft losses
  • Miscellaneous deductions for things such as: unreimbursed work expenses, tax preparation fees, fees paid to investment advisors, union dues, etc. You can only take this deduction if the total of these expenses exceeds 2% of your adjusted gross income.
  • Gambling losses