What Can You Itemize on Taxes? A Breakdown of Deductible Expenses

Tax season brings questions about itemized deductions and how to maximize them. Understanding deductible expenses is crucial for reducing taxable income and increasing potential refunds. This guide breaks down key categories, clarifying what qualifies and how each impacts your financial strategy.

Medical and Dental Expenses

Taxpayers can deduct qualified medical and dental expenses exceeding 7.5% of their adjusted gross income (AGI) in 2024. Eligible costs include payments for diagnosis, treatment, or prevention of disease, covering fees for medical professionals, prescription medications, insulin, and necessary medical equipment like wheelchairs. Non-prescription drugs (except insulin) and general health items like vitamins are not deductible.

Transportation costs for medical care, including mileage for appointments, are deductible at 23 cents per mile in 2024. Lodging expenses for medical care away from home may also qualify, subject to specific limits.

Mortgage Interest

Homeowners can deduct interest on mortgage debt up to $750,000 for loans taken out after December 15, 2017. Loans from before this date retain a $1 million limit. This deduction applies to primary and secondary homes but excludes investment properties. Taxpayers must itemize deductions on Schedule A and provide Form 1098 from lenders to qualify.

Interest on home equity loans and lines of credit is deductible only if the funds are used for substantial home improvements. Clear documentation of fund allocation is required under the Tax Cuts and Jobs Act.

State and Local Taxes

The state and local tax (SALT) deduction is capped at $10,000, covering property taxes and either state income or sales taxes. Taxpayers in states without income tax often benefit from deducting sales taxes, which requires detailed records or reliance on IRS sales tax tables. Property taxes remain a common deduction.

Some states have introduced workarounds, like pass-through entity taxes, to offset the SALT cap. Taxpayers should be aware of state-specific legislation that may affect their liabilities.

Charitable Contributions

Taxpayers can deduct donations to qualified organizations, limited to a percentage of their AGI, typically 60% for cash contributions. Documentation, such as bank records or written acknowledgments, is required for monetary gifts of $250 or more. Non-cash donations must be in good condition, with fair market value properly assessed.

Casualty and Theft Losses

Casualty and theft losses are deductible if caused by sudden, unexpected events like natural disasters or theft. The Tax Cuts and Jobs Act limits this deduction to federally declared disasters. Deductible amounts must be reduced by insurance reimbursements, with only the portion exceeding 10% of AGI qualifying.

Theft losses require proof of ownership, fair market value, and evidence, such as police reports. Losses for business or income-generating properties follow different rules and are not subject to the same AGI threshold.

Miscellaneous Deductions

The Tax Cuts and Jobs Act eliminated many miscellaneous deductions, leaving only a few eligible expenses. Gambling losses are deductible up to the amount of winnings, with detailed record-keeping required. Unreimbursed expenses for performing artists, government officials, and certain disabled individuals remain deductible under specific criteria.

Investment-related expenses, like financial advisor fees, are no longer deductible, prompting taxpayers to explore other cost-management strategies. Knowing the remaining options can help maximize itemized deductions where applicable.