If You Itemize, What Can You Deduct on Your Tax Return?
Explore how itemizing deductions can reduce your taxable income through qualified personal, financial, and investment-related expenses.
Filing taxes often involves deciding whether to take the standard deduction or itemize. For taxpayers with significant deductible expenses, itemizing may result in a lower tax bill. Understanding what qualifies as an itemized deduction is necessary for making this choice.
This article outlines common and less common deductions available to those who itemize.
Medical Costs
Deducting medical costs requires understanding specific rules. You can potentially deduct healthcare expenses for yourself, your spouse, and dependents, but only the amount that exceeds 7.5% of your Adjusted Gross Income (AGI).1Internal Revenue Service. Topic No. 502, Medical and Dental Expenses AGI is your gross income minus certain deductions. For instance, with an AGI of $60,000, the threshold is $4,500 (7.5% of $60,000). If you had $10,000 in eligible medical expenses, you could potentially deduct $5,500 ($10,000 – $4,500) on Schedule A (Form 1040).
Qualifying expenses cover payments for preventing, diagnosing, treating, or mitigating physical or mental illness. IRS Publication 502 details eligible costs, including fees for doctors, dentists, surgeons, hospital care, and nursing home services primarily for medical care. Prescription medications and insulin qualify, but over-the-counter drugs (except insulin) and general health items like vitamins usually do not. Specific examples include payments for:
- Eyeglasses and contact lenses
- Hearing aids
- Crutches and wheelchairs
- Guide dogs or other service animals
- Artificial limbs
- Dental treatments
Transportation costs essential for medical care are also deductible. This includes out-of-pocket expenses for gas and oil, or you can use the standard medical mileage rate (21 cents per mile for 2024 travel). Parking fees, tolls, and fares for taxis, buses, trains, and ambulances can be included. Lodging costs while away from home for medical care may be deductible under certain limitations.
Health insurance premiums paid with after-tax dollars can often be included. This covers premiums for medical care policies, qualified long-term care insurance, Medicare Part B and D, and Medigap policies. Premiums paid with pre-tax dollars, such as through employer plans or covered by the Premium Tax Credit, cannot be deducted again. Only out-of-pocket premiums paid with after-tax money, like COBRA premiums, count towards the potential deduction. Remember, these expenses only provide a tax benefit if your total itemized deductions exceed your standard deduction.
Taxes Paid
Taxpayers who itemize can deduct certain state and local taxes (SALT), but this deduction is limited. The total amount claimed for state and local income (or sales) taxes, real estate taxes, and personal property taxes cannot exceed $10,000 per household per year ($5,000 if married filing separately). This cap is currently effective through 2025.
You must choose between deducting either state and local income taxes or general sales taxes—not both. Typically, you deduct whichever is higher. Income taxes include withholdings, estimated payments, and prior-year taxes paid during the current year. If opting for sales taxes (common in states without income tax or after large purchases), you can deduct the actual amount paid (requiring receipts) or use the IRS’s optional sales tax tables found in Publication 600.2Internal Revenue Service. Publication 600, State and Local General Sales Taxes These tables estimate amounts based on income, family size, and location. You can add actual sales tax paid on major items like vehicles or boats to the table amount.
State and local real estate taxes paid on property you own are included in the SALT deduction, up to the overall $10,000 limit. These must be based on the assessed value of the property and levied for general public welfare, as outlined in IRS Topic No. 503.3Internal Revenue Service. Topic No. 503, Deductible Taxes Taxes for specific local benefits like new sidewalks are generally not deductible but may increase the property’s cost basis. If taxes are paid via an escrow account, only the amount the lender paid to the taxing authority during the year is deductible.
State and local personal property taxes also count towards the cap if they meet certain criteria. The tax must be based on the value of the personal property (like a car or boat), imposed annually, and charged on personal property. Flat registration fees not based on value do not qualify. Non-deductible items include federal taxes, Social Security taxes, HOA fees, and charges for services like water or trash collection.
Mortgage Interest
Homeowners who itemize can often deduct interest paid on home mortgages. This applies to loans secured by a primary residence or a second home.
The amount of mortgage debt eligible for the interest deduction has limits. For mortgages taken out after December 15, 2017, interest on up to $750,000 of qualified residence loan debt ($375,000 if married filing separately) is generally deductible. For older loans (on or before December 15, 2017), interest on up to $1 million of debt ($500,000 if married filing separately) may be deductible. Refinancing this “grandfathered” debt generally retains the higher limit if the new loan doesn’t exceed the old balance. Details are in IRS Publication 936.
The interest must be “qualified residence interest,” meaning the loan is secured by your main home (where you live most of the time) or a second home. The home must serve as collateral, and the loan agreement must be properly recorded.
The use of loan proceeds matters. Deductible interest typically comes from loans used to buy, build, or substantially improve your qualified home. Interest on home equity debt is deductible only if the funds were used for these specific purposes. If home equity loan proceeds pay for personal expenses like credit card debt, the interest is not deductible, even if secured by the home.
“Points,” or prepaid mortgage interest, may be deductible. Points paid when obtaining a mortgage to buy or build your main home might be fully deductible in the year paid if certain conditions are met. Otherwise, points usually must be deducted over the life of the loan. Points paid on refinancing generally follow this rule. Lenders report mortgage interest and deductible points paid on Form 1098, which taxpayers use to calculate the deduction on Schedule A.
Charitable Contributions
Itemizers can deduct contributions made to qualified charitable organizations. A deductible contribution, as defined in Internal Revenue Code Section 170, is a voluntary gift of money or property to an eligible entity without receiving substantial benefit in return.4Internal Revenue Service. Topic No. 506, Charitable Contributions
The donation must go to a “qualified organization.” These typically include entities operated for religious, charitable, scientific, literary, or educational purposes, nonprofit hospitals, publicly supported charities (like the Red Cross), and government bodies (if for public purposes). The IRS offers an online tool (Tax Exempt Organization Search) to verify status. Contributions to individuals, political groups, or most foreign organizations are not deductible.
The type of contribution affects the deduction. Cash donations (check, credit card, etc.) are generally deductible at the amount given. For non-cash items (clothing, stocks, vehicles), the deduction is usually the property’s fair market value (FMV) at donation time. Used clothing and household items must generally be in at least “good used condition,” and their FMV is typically much lower than the original cost.
Proper records are necessary. For any cash gift, maintain a bank record or written communication from the charity. For single contributions of $250 or more (cash or non-cash), obtain a contemporaneous written acknowledgment from the charity before filing.5Internal Revenue Service. Publication 1771, Charitable Contributions Substantiation and Disclosure Requirements This document must state the contribution amount/description and whether any goods or services were provided in return. If you received a benefit (like dinner tickets) for a contribution over $75, you can only deduct the amount exceeding the benefit’s value.
Annual deduction limits are based on your AGI. Cash contributions to most public charities are generally limited to 60% of AGI.6Internal Revenue Service. Publication 526, Charitable Contributions Contributions of capital gain property (like appreciated stock held over a year) are often limited to 30% of AGI. Donations to certain other organizations face lower limits (typically 30% or 20% of AGI). If donations exceed these limits, the excess can usually be carried forward for up to five years. IRS Publication 526 provides details.
Other Eligible Expenses
Beyond common deductions, other specific expenses might qualify under certain conditions.
Casualty and Theft Losses
Losses on personal property from events like fires, storms, or theft are deductible only under narrow circumstances currently. For tax years 2018 through 2025, personal casualty and theft losses are deductible only if caused by a federally declared disaster, per Internal Revenue Code Section 165. To calculate the potential deduction, determine the loss amount (lesser of adjusted basis or decrease in FMV), reduce it by any insurance reimbursements, subtract $100 per event, and then the total net loss is deductible only if it exceeds 10% of your AGI. Use Form 4684 to claim these losses; IRS Publication 547 offers guidance.
Gambling Losses
Gambling winnings are taxable income. If you also have gambling losses in the same year, you can deduct them as an itemized deduction, but only up to the amount of your reported winnings, according to IRS Topic No. 419. Losses cannot exceed winnings or reduce other taxable income. For example, $3,000 in winnings and $5,000 in losses means you report $3,000 income and can deduct $3,000 in losses. Accurate records are needed to substantiate claims.
Investment-Related Costs
Most miscellaneous itemized deductions subject to the 2% AGI floor, including many investment expenses like advisory fees, were suspended from 2018 through 2025. However, investment interest expense remains potentially deductible. This is interest paid on money borrowed to purchase taxable investments (e.g., buying stocks on margin). Calculate the deduction using Form 4952. The deductible amount is limited to your net investment income for the year, as defined in 26 U.S. Code Section 163(d). Net investment income includes taxable interest, non-qualified dividends, and royalties, but generally excludes qualified dividends or long-term capital gains unless you elect otherwise (forfeiting lower tax rates). Excess investment interest expense can typically be carried forward. See IRS Publication 550 for details.