Anaya Nolan
The Tax Cuts and Jobs Act (TCJA) of 2017 significantly changed the standard deduction and itemized deductions. The standard deduction was nearly doubled, and many itemized deductions were eliminated or restricted from 2018 through 2025. The TCJA also eliminated the Pease limitation on itemized deductions, which previously reduced itemized deductions by 3% of every dollar of taxable income above certain thresholds. Under the new tax laws, individuals must decide between claiming the standard deduction or itemizing deductions. Itemizing may be more administratively burdensome, requiring careful record-keeping and accurate calculations. The most common itemized deductions include state and local taxes, mortgage interest, charitable contributions, and medical and dental expenses. Other itemized deductions include gambling losses, Ponzi scheme losses, and unreimbursed employee expenses for certain job categories. The benefits of itemizing deductions vary depending on income level, with high-income taxpayers being more likely to benefit.
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What You'll Learn
Itemizing deductions vs standard deduction
When filing your income taxes, you can either take the standard deduction or itemized tax deductions. The standard deduction is a fixed amount based on your filing status, while itemizing lets you deduct certain eligible expenses, such as mortgage interest, medical bills, and charitable donations.
The standard deduction offers a simple way to reduce your taxable income by a fixed amount. It is a standard or fixed dollar amount that reduces the income you are taxed on and is the most common type of deduction taxpayers take. The standard deduction amount varies depending on factors such as your filing status, age, and whether you are blind or can be claimed as a dependent by another taxpayer. For example, for the tax year 2023, the standard deduction for single filers is $13,850, while it is $27,700 for married couples filing jointly.
On the other hand, itemized deductions are made up of a list of eligible expenses that are subtracted from your adjusted gross income (AGI) to lower your taxable income. Common itemized deduction items include unreimbursed medical and dental expenses, casualty and theft losses, and charitable contributions. Itemizing may be more administratively burdensome as it requires careful record-keeping and accurate calculations, and the IRS may request documentation to verify your deductions.
When deciding between the standard deduction and itemizing, individuals should choose the option that results in a lower taxable income. If your total itemized expenses are higher than the standard deduction, itemizing may lead to a lower tax bill. However, if your deductible expenses are less than the standard deduction, you would likely be better off taking the standard deduction.
It is important to stay informed about changes to the tax laws, as they can impact which type of deduction is most beneficial for your specific situation. For example, the Tax Cuts and Jobs Act (TCJA) nearly doubled the standard deduction for tax years 2018 through 2025, reducing the need for many taxpayers to itemize deductions. Additionally, President Trump's new tax plan, which passed the House in May 2025, includes changes that may affect your tax liability depending on your income, filing status, and the type of deductions you qualify for.
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State and local taxes
If your state and local sales tax is greater than your state and local income taxes, you may want to deduct sales tax instead. You can either deduct the actual sales tax paid on all your purchases throughout the year or estimate it based on your income level and local sales tax rate. You can add sales tax paid on big-ticket items, such as a new vehicle, boat, RV, or major home renovation.
The TCJA also eliminated the "Pease" limitation on itemized deductions. Before the TCJA, taxpayers reduced their itemized deductions by 3% of every dollar of taxable income above certain thresholds, up to a total reduction of 80%. The TCJA significantly decreased the number of taxpayers claiming itemized deductions and reduced their average tax savings.
The number of taxpayers itemizing state and local taxes may be impacted by changes in other deductions, such as home mortgage interest or charitable contributions. For example, a decline in home mortgage interest might discourage a taxpayer from itemizing at all, resulting in a decrease in the number of taxpayers itemizing state and local taxes.
The decision to itemize deductions or claim the standard deduction depends on an individual's specific circumstances. Itemizing may be more beneficial if your total itemized deductions exceed the standard deduction and your income stays under the phase-out threshold. The standard deduction for tax year 2024 is $14,600 for single or married filing separately, $21,900 for head of household, and $29,200 for married filing jointly.
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Mortgage interest
The mortgage interest deduction is a tax benefit that allows homeowners to reduce their taxable income by the amount of mortgage interest they have paid during the year. This deduction can be claimed on primary residences and second homes.
The Tax Cuts and Jobs Act (TCJA) of 2017 made significant changes to the standard deduction and itemized deductions, including mortgage interest. The TCJA nearly doubled the standard deduction and limited or eliminated many itemized deductions. Specifically related to mortgage interest, the TCJA reduced the maximum amount of eligible debt for the deduction from $1 million to $750,000 for mortgages taken out after December 15, 2017. Homeowners can no longer deduct interest paid on home equity loans, unless the debt is used to buy, build, or substantially improve the home.
It is important to note that itemizing deductions may not always be the best option for everyone. The increased standard deduction under the TCJA means that fewer taxpayers may benefit from itemizing. Taxpayers should calculate their itemized deductions and compare them to the standard deduction to determine the most advantageous approach.
To claim the mortgage interest deduction, homeowners should keep careful records of their mortgage interest payments, which can be found on Form 1098 provided by lenders. The IRS may request documentation to verify deductions, and taxpayers should be prepared for a higher likelihood of an audit when itemizing. Additionally, the mortgage must be a secured debt, meaning it is collateral for the loan and the home could be used to satisfy the debt in case of default.
Overall, the mortgage interest deduction can provide significant tax savings for eligible homeowners, but it is important to stay informed about the latest tax laws and consult a tax professional for personalized advice.
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Charitable contributions
The Tax Cuts and Jobs Act (TCJA) has changed the standard deduction and itemized deductions. The standard deduction has been increased, and many itemized deductions have been eliminated or restricted. The “Pease” limitation on itemized deductions has been eliminated. The number of taxpayers claiming itemized deductions has decreased, and the average tax savings from claiming them has also decreased.
Under the TCJA, the limit on deductions for charitable contributions has been increased from 50% to 60% of adjusted gross income (AGI). Qualified contributions are not subject to this limitation. Individuals may deduct qualified contributions of up to 100% of their adjusted gross income, while corporations may deduct up to 25% of their taxable income. Contributions exceeding this amount can be carried over to the next tax year. To qualify, the contribution must be made to a qualified organization, such as a community chest, corporation, trust, fund, or foundation organized under U.S. law.
When donating non-cash items to charity, such as clothing, household goods, or vehicles, it is essential to obtain a written acknowledgment from the charity, including the donation's name, date, and value. If non-cash contributions exceed $500, Form 8283 must be filed, providing a detailed breakdown of the donated items. Taxpayers may claim non-cash contributions as a deduction, subject to normal limits.
For tax years 2024 and 2025, donors must itemize their deductions to claim any charitable contribution deductions. It is important to note that not all expenses qualify for itemized deductions, and certain categories are specified by the IRS. Itemizing deductions can offer significant tax savings but requires careful documentation and understanding of the rules.
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Medical expenses
Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, as well as treatments affecting the structure or function of the body. Deductible medical expenses may include fees paid to doctors, dentists, surgeons, chiropractors, psychiatrists, and psychologists, among others. Inpatient hospital care or residential nursing home care can also be deducted, provided that the availability of medical care is the principal reason for residence.
Transportation expenses primarily for and essential to medical care may also qualify for the medical expense deduction. This includes out-of-pocket expenses for a personal car, such as gas and oil, as well as the standard mileage rate for medical expenses, tolls, parking, and public transportation fares. Ambulance costs are also included in this category.
Insurance premiums for medical or qualified long-term care can be deducted, but there are specific rules for self-employed individuals. If you are self-employed and have a net profit for the year, you may be eligible for the self-employed health insurance deduction, which is an adjustment to income rather than an itemized deduction.
It's important to carefully review the guidelines provided by the IRS to determine which medical expenses are eligible for itemization. Additionally, maintaining accurate records and documentation is crucial when itemizing deductions.
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Frequently asked questions
Itemized deductions are expenses that can be listed and then subtracted from your adjusted gross income to reduce your taxable income.
Some common itemized deductions include state and local taxes, mortgage interest, charitable contributions, and medical and dental expenses.
If your deductible expenses are less than the standard deduction, you will need to take the standard deduction. If your itemized expenses are higher than the standard deduction, itemizing may result in a lower tax bill.
For the 2024 tax year, the standard deduction is $14,600 for single filers, $29,200 for married couples filing jointly, and $21,900 for heads of household.
Itemizing deductions can offer significant tax savings, but it requires careful documentation and an understanding of the rules. It may also increase your chances of being audited by the IRS.
