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 allowable paid expenses on a separate tax form—Schedule A that's submitted with your Form 1040. Needless to say, this adds up to quite a bit of work when you're filing your return, not to mention the time you'll invest all year keeping track of the expenses you paid. Available itemized deductions range from medical expenses to charitable gifts to mortgage interest and even state and local taxes.
Both the standard deduction and the total of your itemized deductions reduce the amount of income on which you must pay federal income tax. You can claim either the standard deduction or you can itemize your qualifying individual deductions—line by line by line—but you can't do both. It only makes sense to choose the one that takes the most off your taxable income.
Although you can't claim both the standard deduction and itemize other deductions in the same tax year, you can change your decision from year to year, itemizing on one annual return then claiming the standard deduction on the next.
What Does Itemizing Mean?
Itemizing is just what it sounds like—reporting your actual expenses for various types of allowable deductions, then adding them all together and entering that total on your tax return. 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 an easy way out. It's a set amount based on your filing status, which is determined by your personal circumstances, such as whether you're single or married and whether you have any dependents.
As of the 2019 tax year—the return you'll file in 2020—the standard deduction is $12,200 for single taxpayers and for those who are married but filing separate returns. This goes up to $24,400 if you're married and filing jointly with your spouse, or if you're a qualifying widow or widower with a dependent child. It's $18,350 if you qualify for the head of household filing status.
These figures are up significantly from the 2017 tax year when they were set at $6,350 for single filers and married taxpayers filing separate returns, $12,700 for married couples filing jointly and qualifying widow(ers), and $9,350 for head of household filers. The Tax Cuts and Jobs Act (TCJA) more or less doubled standard deductions when it went into effect in January 2018.
It can take a lot of itemized deductions to exceed these generous 2019 amounts.
Most Taxpayers Go With the Standard Deduction
Most taxpayers have historically claimed the standard deduction, even before the TCJA. And the number will most likely increase even more because the TCJA also made tweaks to some itemized deductions, capping them at certain amounts 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.
When You Might Want to Itemize
It's to a taxpayer's advantage to itemize when the total of all their individual deductions exceeds the standard deduction for their filing status. Otherwise, it would make no sense—they'd be paying taxes on more income than they'd have to.
For example, a single filer would be better off itemizing if they had total itemized deductions of $13,000 in 2019. This would take an additional $800 off their taxable income because the standard deduction is $12,200.
But that same filer would end up paying taxes on an additional $5,350 if they itemized and they instead qualified as head of household—the difference between $13,000 in itemized deductions and the $18,350 standard deduction they'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?
Generally, you can claim itemized deductions in the following categories:
- Medical and dental expenses
- State and local income taxes
- Real estate taxes
- Home mortgage interest
- Mortgage insurance premiums
- Gifts to charity
- Casualty or theft losses
The IRS offers a list of all available and updated itemized deductions on its website each year.
Rules for Some Itemized Deductions
The list of qualifying deductions is fairly extensive, but limitations apply to some of them, many imposed by the TCJA.
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 7.5% of your adjusted gross income (AGI) in 2019. This means that if your AGI is $55,000 and you had $7,500 in qualifying medical expenses, your deduction would be limited to $3,375—the amount that exceeds $4,125 or 7.5% of your AGI.
The threshold was supposed to increase to 10% in 2019, but the Tax Extender and Disaster Relief Act of 2019 extended the 7.5% threshold for another year.
The State and Local Tax Deduction
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 limit is $375,000 for taxpayers who are married and file separate returns.
The TCJA 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.
No More Overall Limits
On the bright side, itemized deductions were limited through tax year 2017 when a taxpayer's AGI exceeded certain limits. These thresholds 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 used to be 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.
IRS. "Topic No. 501 Should I Itemize?" Accessed April 20, 2020.
IRS. "Publication 529: Miscellaneous Deductions," Page 2. Accessed April 20, 2020.
IRS. "Topic No. 551 Standard Deduction." Accessed April 20, 2020.
IRS. "IRS Provides Tax Inflation Adjustments for 2019." Accessed April 20, 2020.
Tax Foundation. "2017 Tax Brackets." Accessed April 20, 2020.
Tax Policy Center. "How Did the TCJA Change the Standard Deduction and Itemized Deductions?" Accessed April 20, 2020.
Tax Foundation. "Nearly 90% of Taxpayers Are Projected to Take the TCJA’s Expanded Standard Deduction." Accessed April 20, 2020.
IRS. "Schedule A (Form 1040 or 1040-SR): Itemized Deductions." Accessed April 20, 2020.
IRS. "Topic No. 502 Medical and Dental Expenses." Accessed April 20, 2020.
Congress.gov. "S.617 - Tax Extender and Disaster Relief Act of 2019." Accessed April 20, 2020.
IRS. "Topic No. 503 Deductible Taxes." Accessed April 20, 2020.
IRS. "Publication 936 (2018), Home Mortgage Interest Deduction." Accessed April 20, 2020.
IRS. "Publication 526 (2018), Charitable Contributions." Accessed April 20, 2020.
IRS. "Topic No. 515 Casualty, Disaster, and Theft Losses." Accessed April 5, 2020.
Center on Budget and Policy Priorities. "Pease Provision in Fiscal Cliff Deal Doesn’t Discourage Charitable Giving and Leaves Room for More Tax Expenditure Reform." Accessed April 20, 2020.
Tax Foundation. "The Pease Limitation on Itemized Deductions Is Really a Surtax." Accessed April 20, 2020.