Making Itemized Deductions on 1040 Schedule A
Is It to Your Advantage to Itemize Your Deductions?
Itemizing your tax deductions involves claiming a whole group of them on Schedule A of Form 1040, and it requires quite a bit of work at tax time. You can claim either the standard deduction for your filing status, or you can itemize your qualifying individual deductions—line by line by line—but you can't do both.
The standard deduction and the total of your itemized deductions each reduce the amount of income on which you must pay federal income tax. It only makes sense to choose the one that takes the most off your taxable income.
Itemizing your deductions versus claiming the standard deduction is an either/or choice. You can't do both on the same tax return, although you can change your decision from year to year.
What Does Itemizing Mean?
Itemizing is just what it sounds like—reporting your actual expenses for various types of allowable deductions, then totaling them all up. You must keep accurate track of what you spend during the year, and you should keep supporting receipts and documentation to show that these expenses are legitimate in case the IRS ever asks for proof.
Documentation can include bank statements, check stubs, property tax statements, insurance bills, medical bills, and acknowledgment letters for charities to which you might have donated.
Itemized Deductions vs. the Standard Deduction
The standard deduction is a set amount based on your filing status.
As of the 2019 tax year—the return you'll file in 2020—the standard deduction is $12,200 for single taxpayers and those who are married but filing separate returns. This goes up to $24,400 if you're married and filing jointly or if you're a qualifying widow or widower with a dependent child, or to $18,350 if you qualify for the head of household filing status.
This is up significantly from the 2017 tax year when these deductions were set at $6,350, $12,700, and $9,350 respectively. The Tax Cuts and Jobs Act (TCJA) more or less doubled standard deductions when it went into effect in January 2018.
Most Taxpayers Go With the Standard Deduction
Most taxpayers have historically claimed the standard deduction, and this trend is expected to continue because the amounts have increased so significantly under the terms of the TCJA. And the number will most likely increase even more because the TCJA also made tweaks to some itemized deductions, capping them at a certain amount where they were unlimited before. Other itemized deductions were eliminated entirely.
The Tax Foundation has indicated that almost 29 million households will be better off claiming the standard deduction after implementation of the terms of the TCJA.
It would take a lot of itemized deductions to surpass these new thresholds under the TCJA rules.
When You Might Want to Itemize Deductions
It's to a taxpayer's advantage to itemize when the total of all his individual deductions exceeds the standard deduction for his filing status. Otherwise, it would make no sense—you'd be paying taxes on more income than you'd have to.
For example, you'd be better off itemizing if you're a single filer and you had total itemized deductions of $13,000 in 2019. This would take an additional $800 off your taxable income because the standard deduction is only $12,200.
But you'd end up paying taxes on an additional $5,350 if you itemize and you qualify as head of household—the difference between $13,000 in itemized deductions and the $18,350 standard deduction you'd be entitled to claim for this filing status.
When a Taxpayer Must Itemize Deductions
Sometimes the decision to itemize or to claim the standard deduction can be taken out of your hands. Married couples who file separate tax returns must each use the same method. They must both take the standard deduction or they must both itemize, so you're stuck with doing so as well if your spouse is determined to itemize.
Non-resident aliens must also itemize. They're not eligible to claim the standard deduction.
What Expenses Can Be Itemized?
The list of qualifying deductions is fairly extensive, and limitations apply to some of them. Generally, you can claim itemized deductions in the following categories:
This list is by no means all-inclusive. There are a few less used itemized deductions available as well. The IRS offers a list of all available and updated itemized deductions on its website each year.
How to Calculate the Medical Expense Deduction
Medical and dental expenses include the cost of insurance premiums as long as your employer doesn't reimburse you for them, as well as certain qualifying medical and dental care costs. You can deduct the portion that exceeds 10% of your adjusted gross income (AGI) in 2019. This threshold is up from 7.5% in 2018.
This means that if your AGI is $55,000 and you had $7,500 in qualifying medical expenses, your deduction would be limited to $2,000: the amount that exceeds $5,500 or 10% of your AGI.
The State and Local Tax Deduction Is Limited, Too
The TCJA restricts the deduction for state, local, and property taxes to $10,000 beginning in 2018, or $5,000 if you're married and filing a separate return. This is $10,000 collectively, not $10,000 for each type of tax.
The Mortgage Interest Deduction
The mortgage interest deduction is capped at debts of $750,000 by the TCJA, down from $1 million in 2017.
The new tax law additionally restricts this deduction to acquisition debt only, not equity debt as has historically been the case, unless the funds from the equity loan are used to "buy, build, or substantially improve" a home, according to the IRS.
Gifts to Charities
The IRS supports generosity, and the TCJA also changed this itemized deduction effective 2018. It used to be limited to overall gifts totaling no more than 50% of a taxpayer's AGI. That's gone up to 60% in many cases, but some types of gifts are still subject to 20%, 30%, and 50% limits.
Casualty and Theft Losses
The TCJA limits the casualty and theft loss deduction to losses sustained due to events that occurred in locations that have been declared to be disaster areas by the U.S. president.
But There Are No More Overall Limits
On the bright side, itemized deductions were limited through tax year 2017 when a taxpayer's AGI exceeded certain limits based on his filing status. These limits were called Pease limitations after Representative Donald Pease, who first authored the legislation that provided for them back in 1990.
The total amount of the itemized deductions you could claim was reduced by 3% of the amount by which your AGI exceeded that year's threshold up to 80% of your total itemized deductions. This is no longer the case. The TCJA has repealed Pease limitations through at least 2025 when the law sunsets or expires unless Congress acts to renew it.
NOTE: Tax laws change periodically and the above information might not reflect the most recent changes. Please consult with a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice and it's not a substitute for tax advice.
Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for 2019." Accessed Oct. 30, 2019.
The Tax Foundation. "Nearly 90% of Taxpayers Are Projected to Take the TCJA’s Expanded Standard Deduction." Accessed Oct. 30, 2019.
Internal Revenue Service. "Topic No. 503 Deductible Taxes." Accessed Oct. 30, 2019.
Internal Revenue Service. "Publication 936 (2018), Home Mortgage Interest Deduction." Accessed Oct. 30, 2019.
Internal Revenue Service. "Publication 526 (2018), Charitable Contributions." Accessed Oct. 30, 2019.