5 Popular Itemized Deductions
Commonly Used Tax Deductions for Individuals
When you prepare your tax return, you have the option of claiming the standard deduction or itemized deductions.
While the standard deduction is easier to claim, about one-third of taxpayers choose to itemize deductions instead. Usually, you will only itemize your deductions if their total is greater than the standard deduction.
Itemized deductions are claimed on Schedule A of Form 1040, which must be attached to your annual tax return.
Here are 5 of the most popular itemized deductions available. (Note that the percentages mentioned are based on IRS data from 2013 tax returns.)
State and Local Taxes
If you were subject to state/local income or general sales tax and you paid it during your tax year, you may claim this as an itemized deduction. These are referred to as “deductible non-business taxes.”
You can deduct state and local income taxes that were withheld from your wages during the year – these appear on your Form W-2 (Wage and Tax Statement). Or, you can choose to deduct state and local sales taxes (instead of state and local income taxes), but you cannot deduct both.
For the state and local sales tax deduction, you can either use your actual expenses (via saved receipts) or the “optional sales tax tables” provided by the IRS. See the Instructions for Schedule A (Form 1040) for more information.
The deduction for state and local income taxes or sales taxes is claimed on Line 5 of Schedule A (Form 1040), in the section titled “Taxes You Paid.”
Over 95% of people who itemize claim one of the two, making it the most popular itemized deduction by far.
Gifts to Charity
If you make a charitable contribution to a qualified organization, you may be able to claim this as an itemized deduction. To find out if an organization is qualified, use the “EO Select Check” tool on the IRS website.
If you made a charitable donation via cash or check, you must keep a record of the contribution (including the date and amount). If you donated property, you can generally deduct the fair market value. For information about calculating the value of your noncash contribution, see IRS Publication 561 (Determining the Value of Donated Property).
Note that you can only deduct the amount that exceeds the fair market value of any benefit you received in exchange for your donation (such as merchandise or tickets to an event). Additionally, you must maintain records for any donation of $250 or more. The charitable organization should provide you with written acknowledgment of your contribution, including the amount of cash and/or a description of any donated property.
To claim a deduction for your charitable contribution, complete Lines 16-19 of Schedule A (Form 1040), the section titled “Gifts to Charity.” If your deduction for a noncash contribution is more than $500, you must complete Form 8283 (Noncash Charitable Contributions) and attach it to your tax return.
Over 81% of people who itemize claim a deduction for charitable contributions.
Home Mortgage Interest
You can deduct the interest that you pay on a mortgage loan secured by your home. To be eligible, your debt must be secured by a qualified home (i.e. your main home or your second home).
In most cases, you are allowed to deduct all of your mortgage interest. How much you can deduct is based on the date and amount of your mortgage, and how you use the mortgage proceeds. Note that your deduction is limited to the interest on the portion of your mortgage debt that does not exceed your qualified loan limit. For more information, see Publication 936 (Home Mortgage Interest Deduction).
If you paid $600 or more of mortgage interest (including certain mortgage points and mortgage insurance premiums) during the year on any one mortgage, you should receive Form 1098 (Mortgage Interest Statement) from the mortgage holder. This statement will show your total payments for the year – including the mortgage interest, deductible points, and mortgage insurance premiums you paid.
To claim a deduction for your mortgage interest, complete Lines 10-15 of Schedule A (Form 1040), the section titled “Interest You Paid.”
Over 75% of people who itemize claim a deduction for home mortgage interest.
Tax Preparation Fees
If you paid fees for the preparation of your tax return, you may be able claim this as an itemized deduction. This includes the cost of tax preparation software as well as any fee you paid to electronically file (“e-file”) your tax return.
Tax preparation fees are classified as a miscellaneous deduction and are subject to a 2% limit. That means you can deduct the portion of your fees that exceeds 2% of your adjusted gross income (AGI). For more information, see IRS Publication 529 (Miscellaneous Deductions).
To claim a deduction for your tax preparation fees, enter the amount you paid on Line 22 of Schedule A (Form 1040), in the section titled “Job Expenses and Certain Miscellaneous Deductions.” Note that you must deduct the fees on your return for the year in which you pay them – for example, on your 2014 return, you can deduct the fees you paid in 2014 for preparing your 2013 return.
Over 48% of people who itemize claim a deduction for tax preparation fees.
Medical and Dental Expenses
If you have unreimbursed medical and/or dental expenses, you may be able to claim these as a miscellaneous itemized deduction. The deduction applies to most medical and dental costs that you pay for yourself, your spouse, and your dependents. However, if any of your costs were reimbursed by insurance or other sources, you cannot claim a deduction for those expenses.
Qualified medical expenses include payments for the diagnosis, prevention, treatment, or cure of disease – as well as payments for treatments that affect any structure or function of the body. These expenses are generally subject to a 10% limit, which means you can deduct the portion of your expenses that exceeds 10% of your AGI. For more information, see IRS Publication 502 (Medical and Dental Expenses).
To claim a deduction for your medical/dental expenses, complete Lines 1-4 of Schedule A (Form 1040), the section titled “Medical and Dental Expenses.” Keep in mind, you can only include the expenses you paid during that year and you can only use the expenses once on your return.
Over 20% of people who itemize claim a deduction for medical and/or dental expenses.