New York State Itemized Deductions: What You Need to Know

Taxpayers in New York State can itemize deductions on their state tax return, potentially lowering taxable income. Unlike the federal standard deduction, itemizing allows individuals to deduct specific expenses, though not all federal deductions apply at the state level. Understanding these differences is essential.

Eligibility for Itemized Deductions

New York allows itemized deductions only if taxpayers also itemized on their federal return. Those who took the federal standard deduction must do the same for New York.

Income level affects eligibility. High-income earners face limitations under New York’s Pease limitation, which reduces deductions for those with an adjusted gross income (AGI) above $1,000,000 for single filers and $2,000,000 for married couples filing jointly. Once income exceeds these amounts, deductions phase out gradually.

Residency status matters as well. Full-year residents can claim all applicable deductions, while part-year residents and nonresidents must prorate deductions based on the portion of income earned in New York. Those who lived in the state for only part of the year can deduct only expenses incurred during that period, requiring careful record-keeping.

Types of Itemized Deductions in New York State

New York offers several itemized deductions, though they often differ from federal deductions.

Medical and dental expenses are deductible only if they exceed 7.5% of AGI. For instance, a taxpayer with a $100,000 AGI can deduct medical expenses above $7,500. Qualifying expenses include out-of-pocket costs for doctor visits, prescriptions, and long-term care insurance premiums. Cosmetic procedures and non-prescription medications do not qualify.

Mortgage interest remains a significant deduction. While federal law caps deductions at $750,000 of loan principal, New York follows the prior federal limit of $1,000,000 for loans taken before December 16, 2017. Property taxes are also deductible, though high-income earners may face limitations.

Charitable contributions are deductible, but only cash donations to IRS-recognized charities qualify. New York does not allow deductions for property or stock donations unless the taxpayer itemized federally. Proper documentation, such as receipts or bank statements, is required. Contributions exceeding 60% of AGI can be carried forward for up to five years.

Unreimbursed employee expenses, eliminated from federal deductions under the Tax Cuts and Jobs Act, remain deductible in New York. These include job-related costs such as union dues, professional licensing fees, and work-related travel expenses not covered by an employer. However, they must exceed 2% of AGI.

Changes in Tax Laws for 2024

New York has modified several tax laws for 2024, particularly affecting higher earners and homeowners.

One change affects the state’s treatment of the SALT (State and Local Tax) deduction. While the federal cap remains at $10,000, New York has adjusted its own limitation rules, allowing certain taxpayers to claim a higher deduction depending on filing status and income level. This primarily benefits middle-income filers.

Another update expands eligibility for casualty and theft loss deductions. Previously restricted to federally declared disaster areas, New York now allows deductions for losses from severe weather events that may not receive federal designation. Homeowners who experienced flood or storm damage in 2023 should review these new provisions.

Education-related deductions have also changed. New York now permits a higher deduction for student loan interest, benefiting recent graduates and those with significant education debt. Contributions to the state’s 529 college savings plan remain deductible, but rollovers to Roth IRAs, recently allowed under federal law, do not qualify for a state deduction.

How to Calculate Itemized Deductions

To determine itemized deductions in New York, taxpayers must gather documentation for all qualifying expenses. Receipts, bank statements, and tax forms such as Form 1098 for mortgage interest or Form IT-196 for New York itemized deductions are necessary.

Unlike the federal return, where deductions are reported on Schedule A, New York requires taxpayers to transfer only the allowable state deductions to their IT-201 or IT-203, depending on residency status.

Some deductions have limitations. Investment interest is limited to the amount of taxable investment income earned during the year. If a taxpayer’s investment interest expense exceeds their investment income, the excess can be carried forward indefinitely. Gambling losses are deductible only to the extent of reported gambling winnings, requiring precise tracking.

New York also modifies certain deductions. State and local income taxes paid cannot be deducted in addition to sales tax, requiring filers to choose the more advantageous option. Medical expenses exceeding the federal threshold must be recalculated, as New York’s rules differ in what qualifies.

Common Mistakes to Avoid

Many taxpayers make errors when itemizing deductions in New York, often leading to lost savings or audits.

One common mistake is failing to differentiate between federal and state rules. Some deductions allowed on a federal return, such as unreimbursed moving expenses for job relocations, are not permitted in New York unless the taxpayer is active-duty military. Similarly, certain federal limits on deductions, like the cap on SALT deductions, do not always apply in the same way at the state level.

Inadequate record-keeping is another issue. Taxpayers often claim deductions without proper documentation, which can lead to disallowed expenses if audited. Charitable contributions require a receipt or bank statement, and mortgage interest deductions must be supported by Form 1098. Miscalculating deductions, such as failing to apply income-based phaseouts, can result in overstating allowable amounts. Errors in prorating deductions for part-year residents are also frequent, as taxpayers sometimes fail to adjust expenses based on the portion of income earned in New York.

Impact on State Taxes

Itemizing deductions reduces taxable income, lowering the amount owed. For those in higher tax brackets, even small deductions can lead to noticeable savings. New York’s progressive tax system, with rates ranging from 4% to 10.9% depending on income, means deductions have a larger impact for those in upper brackets. A taxpayer earning $500,000 who itemizes $20,000 in deductions could save over $2,000 in state taxes, whereas someone earning $50,000 might see a savings of only a few hundred dollars.

Beyond immediate tax savings, itemizing can influence financial planning decisions. Homeowners considering refinancing should evaluate how mortgage interest deductions will change, while retirees may benefit from structuring charitable giving to maximize deductions. Taxpayers who frequently incur unreimbursed work expenses should assess whether adjusting their employment agreements to receive reimbursements instead of deductions would be more beneficial.