What Does It Mean to Itemize Deductions?

Itemizing deductions is a method for reducing your taxable income by listing specific, eligible expenses on your tax return. This process allows you to subtract these costs from your adjusted gross income (AGI), potentially lowering your tax bill. When you itemize, you forgo the fixed standard deduction in favor of totaling your own deductible expenses. This approach requires careful record-keeping but can result in significant tax savings if your eligible expenses are substantial.

The Standard Deduction Alternative

The alternative to itemizing is the standard deduction, a specific dollar amount you can subtract from your AGI. This simplifies the tax filing process for many individuals. The amount is determined by your filing status, age, and whether you are blind, and it is adjusted annually for inflation. Claiming the standard deduction does not require tracking specific expenses.

For the 2024 tax year, the standard deduction amounts are:

• Single: $14,600
• Married Filing Jointly: $29,200
• Married Filing Separately: $14,600
• Head of Household: $21,900
• Qualifying Surviving Spouse: $29,200

Taxpayers who are age 65 or older or blind can claim an additional deduction. For 2024, an unmarried individual receives an extra $1,950, while a married individual receives an extra $1,550 for each applicable condition. These amounts are added to the base standard deduction.

Common Itemized Deductions

Several categories of expenses are commonly claimed by taxpayers who itemize. These deductions are reported on Schedule A of Form 1040. The most frequent deductions fall into a few main categories.

Medical and Dental Expenses

You can deduct medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI). For example, if your AGI is $60,000, you can only deduct medical expenses over $4,500. Qualifying expenses include payments for the diagnosis, treatment, or prevention of disease, such as fees paid to doctors, dentists, surgeons, and other medical practitioners, and costs for medical equipment and supplies.

Premiums for health, dental, and qualified long-term care insurance are also deductible, though limits apply to long-term care. You can only deduct unreimbursed expenses. Any costs paid by your insurance or otherwise reimbursed cannot be included.

State and Local Taxes (SALT)

Taxpayers who itemize can deduct certain state and local taxes, known as the SALT deduction. The total deduction for all state and local taxes is capped at $10,000 per household per year, or $5,000 if married filing separately. This cap is set to expire after 2025 unless extended by Congress.

The SALT deduction can include either state and local income taxes or general sales taxes, but not both. You can also deduct state and local real estate and personal property taxes. If you choose to deduct sales tax, you can use your actual receipts or the optional sales tax tables provided by the IRS.

Home Mortgage Interest

You can deduct interest on mortgage debt used to buy, build, or substantially improve your main or second home. For mortgages taken out after December 15, 2017, interest is deductible on up to $750,000 of debt ($375,000 if married filing separately). For mortgages originating before that date, the limit is $1 million of debt ($500,000 if married filing separately).

Interest on a home equity loan or line of credit is deductible only if the funds were used to buy, build, or substantially improve the home securing the loan. Your lender reports the total mortgage interest you paid during the year on Form 1098, which shows the total amount you paid.

Charitable Contributions

Donations to qualified charitable organizations, which are typically 501(c)(3) entities, are deductible. This includes cash and the fair market value of donated property, like clothing or a vehicle. For any single contribution of $250 or more, you must have a written acknowledgment from the charity.

Deduction limits for charitable giving are based on a percentage of your AGI. For cash contributions to most public charities, you can deduct up to 60% of your AGI. For donations of non-cash assets, the limit is often 30% of your AGI. If your donations exceed these limits, you can carry over the excess deduction for up to five years.

Deciding Whether to Itemize

The decision to itemize hinges on a simple comparison. Calculate the total of your potential itemized deductions and compare that sum to the standard deduction for your filing status. If your total itemized deductions are greater than your standard deduction, you will likely lower your tax bill by itemizing. This requires adding up all your eligible medical expenses (above the 7.5% AGI floor), state and local taxes (up to the $10,000 limit), home mortgage interest, and charitable contributions.

For example, a married couple filing jointly with $32,000 in itemized deductions would benefit from itemizing, as this is greater than their $29,200 standard deduction for 2024. If their total was only $25,000, taking the standard deduction would provide a larger tax benefit.

In certain situations, you are required to itemize. If you are married filing separately and your spouse itemizes their deductions, you cannot claim the standard deduction and must also itemize. This is true even if your own itemized deductions are minimal.

How to Report Itemized Deductions

To report your itemized deductions, you must file Schedule A, Itemized Deductions, with your Form 1040. This form organizes your deductible expenses into categories like medical expenses, taxes, interest, and charitable gifts.

You will transfer your calculated totals for each category onto the corresponding lines of Schedule A. After filling out all applicable sections, you total the deductions at the bottom of the form. This final number is then transferred to your Form 1040, where it directly reduces your adjusted gross income to arrive at your taxable income.

You must maintain records to support all figures claimed on Schedule A. This includes receipts, bank statements, Form 1098 from your lender, and acknowledgment letters from charities. If the IRS questions or audits your return, you will need these records to prove your deductions. Failure to provide proof can result in the disallowance of deductions, leading to additional taxes, penalties, and interest.