Can You Itemize State Income Tax on Federal Taxes?

Federal tax deductions lower taxable income, reducing the amount subject to federal taxation. Understanding these deductions helps individuals manage tax obligations. Various expenses qualify as deductions, allowing taxpayers to subtract these amounts from gross income before calculating their final tax liability. This process is a fundamental aspect of the federal income tax system.

Understanding Itemized Deductions

Taxpayers have two methods to reduce their adjusted gross income (AGI) for federal tax purposes: the standard deduction or itemizing deductions. The standard deduction is a fixed dollar amount set by the IRS, varying by filing status and age. Most taxpayers choose the standard deduction due to its simplicity and increased amounts in recent years.

Itemized deductions allow taxpayers to subtract specific eligible expenses from their AGI. These are individual expenses that, when totaled, reduce taxable income. Common categories include state and local taxes, medical expenses, home mortgage interest, and charitable contributions. Taxpayers must choose the method—standard or itemized—that results in the lowest taxable income for their financial situation.

Deducting State and Local Taxes

State and local taxes (SALT) are deductible as an itemized deduction on federal income tax returns. This deduction includes several types of taxes paid to state and local governments: state and local income taxes, real estate taxes, and personal property taxes. Taxpayers can deduct state and local general sales taxes instead of state and local income taxes, but not both.

A limitation exists for the total amount of state and local taxes that can be deducted. Under the “One Big Beautiful Bill Act,” effective July 2025, the combined deduction for state and local taxes is capped at $40,000 for tax year 2025 for most filers. This cap applies to all deductible state and local taxes paid. For married individuals filing separately, the limit is $20,000.

For example, a taxpayer who paid $30,000 in state income taxes and $15,000 in real estate taxes, totaling $45,000, could only deduct $40,000 on their federal return for tax year 2025. This $40,000 cap is scheduled to increase by 1% annually through 2029 before reverting to the previous $10,000 limit in 2030. This change temporarily expands the deduction for many taxpayers, particularly those in areas with higher state and local tax burdens.

Other Common Itemized Deductions

Beyond state and local taxes, other common expenses qualify as itemized deductions, further reducing taxable income. These deductions cover various personal expenditures that meet specific IRS criteria.

Medical and dental expenses are deductible if they exceed a certain percentage of adjusted gross income (AGI). Only qualified unreimbursed medical expenses greater than 7.5% of AGI are deductible. Eligible expenses include payments for doctor visits, prescription medications, and health insurance premiums not paid by an employer.

Interest paid on a home mortgage can be an itemized deduction. For mortgage debt incurred after December 15, 2017, taxpayers can deduct interest on the first $750,000 of indebtedness. A higher limit of $1 million applies to mortgage debt incurred before this date. This deduction applies to interest on a mortgage for a primary home and a second home.

Cash and non-cash contributions to qualified charitable organizations are deductible. The deductible amount is subject to limitations based on AGI and contribution type. For cash contributions to most public charities, the deduction is limited to 60% of AGI, while non-cash donations have different limits, such as 30% of AGI for appreciated assets. Contributions exceeding these limits can be carried over and deducted in future tax years.

Casualty and theft losses are deductible only if they occur in a federally declared disaster area. These losses must result from a sudden, unexpected, or unusual event. For personal-use property, the deductible amount is subject to a $100 reduction per event and a further 10% reduction of AGI.

Gambling losses are deductible only up to the amount of gambling winnings reported as income. Taxpayers must report all gambling winnings as income and can then deduct losses as an itemized deduction. Accurate records, including a log of winnings and losses, are required to substantiate these deductions.

Deciding Whether to Itemize

Choosing between the standard deduction and itemizing deductions requires evaluating an individual’s financial situation. The decision hinges on which method provides the largest reduction in taxable income. Taxpayers should calculate their total eligible itemized deductions, including state and local taxes subject to the applicable cap, medical expenses, and home mortgage interest.

This total is then compared to the standard deduction amount for their filing status. If itemized deductions exceed the standard deduction, it is more advantageous to itemize. Conversely, if the standard deduction is greater, taking it leads to a lower tax liability with less paperwork. Tax software or a tax professional can assist in performing this calculation and determining the most beneficial approach. Maintaining detailed records of all potential itemized expenses throughout the year is important for tax preparation.