What Deductions Can I Itemize on My Tax Return?

Taxpayers can take the standard deduction or itemize deductions, depending on which lowers their tax bill. Itemizing is beneficial when deductible expenses exceed the standard deduction. However, not all expenses qualify, so understanding what can be deducted is essential for maximizing savings.

Medical and Dental Expenses

Out-of-pocket healthcare costs exceeding 7.5% of adjusted gross income (AGI) are deductible. For example, a taxpayer with a $50,000 AGI can deduct medical expenses over $3,750.

Eligible expenses include doctor visits, hospital stays, prescription medications, and necessary medical equipment like wheelchairs and hearing aids. Dental treatments such as fillings, extractions, and dentures also qualify. Mental health care, including therapy and psychiatric treatment, is deductible, as are long-term care services and premiums for qualified long-term care insurance, subject to IRS limits.

Transportation costs for medical care are also deductible, including mileage for medical appointments, public transportation fares, and lodging for overnight medical travel. The standard mileage rate for medical purposes in 2024 is 22 cents per mile.

Mortgage Interest

Homeowners who itemize can deduct interest on mortgage debt up to $750,000 for homes purchased after December 15, 2017. For loans taken before that date, the limit is $1 million. Married individuals filing separately can deduct interest on up to $375,000 or $500,000, depending on when the mortgage originated.

The deduction applies to loans used to buy, build, or improve a home. Interest on refinanced loans is deductible only for the portion used for home improvements. Home equity loan interest is deductible only if the borrowed money is used for renovations that increase the property’s value.

Points paid to secure a mortgage can also be deducted. If paid upfront on a purchase mortgage, they are generally deductible in the year of payment. For refinanced loans, points must be deducted over the loan’s life. If a homeowner refinances again, any remaining undeducted points from the previous loan can typically be deducted in full that year.

State and Local Taxes

The state and local tax (SALT) deduction allows taxpayers to deduct state and local income taxes or, alternatively, sales taxes, as well as property taxes on real estate. The total deduction is capped at $10,000 for single filers, heads of household, and married couples filing jointly. Married individuals filing separately are limited to $5,000. This cap, introduced under the Tax Cuts and Jobs Act of 2017, remains in effect through 2025 unless Congress extends or modifies it.

Taxpayers in states with no income tax, such as Florida, Texas, and Washington, may benefit more from deducting sales taxes. The IRS provides optional sales tax tables based on income and location for those who do not track receipts. Large purchases like vehicles, boats, or home renovations can be added to the standard amount, potentially increasing the deductible total.

Property taxes on personal residences, vacation homes, and land are deductible under the SALT provision. However, taxes on rental or business properties must be deducted separately as business expenses. Fees such as water or sewer assessments are not deductible since they are considered service charges rather than property taxes.

Charitable Contributions

Donating to qualified charitable organizations can provide tax benefits. The IRS allows deductions for contributions to eligible nonprofits, including religious institutions, educational organizations, and public charities. Donations must be made to organizations recognized under Section 501(c)(3) of the Internal Revenue Code. Contributions to individuals, political groups, or foreign charities do not qualify.

Cash donations, whether by check, credit card, or electronic transfer, are deductible up to 60% of AGI for public charities. Donations to private foundations and certain other organizations are subject to a 30% cap. Contributions exceeding these limits can be carried forward for up to five years.

Non-cash donations, such as clothing, furniture, or vehicles, are generally deductible at fair market value. Donations exceeding $500 must be reported on Form 8283. If a single donated item or group of similar items exceeds $5,000 in value, a qualified appraisal is typically required.

Certain Theft or Loss Deductions

Losses from theft or disasters may be deductible, but eligibility depends on the circumstances. Casualty losses must result from sudden, unexpected events such as natural disasters, fires, or vandalism. Gradual damage, like deterioration or termite infestations, does not qualify. Theft losses must involve criminal intent, meaning lost or misplaced property does not count.

For personal property losses, deductions are generally available only if the damage occurred in a federally declared disaster area. The deductible amount is calculated by subtracting $100 per event and then reducing the remaining amount by 10% of AGI. For example, a taxpayer with a $60,000 AGI who incurs a $15,000 loss from a hurricane can deduct only the portion exceeding $6,100 ($15,000 – $100 – $6,000). Business or investment property losses are not subject to the same restrictions and can be deducted in full.

Proper documentation is necessary. Taxpayers must provide evidence of ownership, the original cost of the property, and proof of the loss, such as police reports, insurance claims, or repair estimates. If insurance reimburses part of the loss, only the unreimbursed portion is deductible. Filing Form 4684 is required to report casualty and theft losses.

Investment Interest Expenses

Investors who borrow money to purchase taxable investments may be able to deduct the interest paid on those loans. This applies to interest on margin loans used to buy stocks, bonds, or other securities that generate taxable income. Interest on loans used to purchase tax-exempt investments, such as municipal bonds, is not deductible.

The deduction is limited to net investment income, which includes interest, dividends, and short-term capital gains but excludes long-term capital gains and qualified dividends unless the taxpayer elects to treat them as ordinary income. Any unused portion of the deduction can be carried forward. For example, if an investor incurs $8,000 in margin interest but has only $5,000 in net investment income, they can deduct $5,000 in the current year and carry forward the remaining $3,000.

To claim this deduction, taxpayers must file Form 4952. Proper record-keeping is essential, as the IRS requires documentation of loan agreements, interest payments, and investment income. Investors should also consider whether electing to treat long-term capital gains as ordinary income is beneficial, as this can increase the deductible amount but may also result in higher overall tax liability.