Making Itemized Deductions on 1040 Schedule A
Is It to Your Advantage to Itemize?
Itemizing involves claiming a whole group of tax deductions on Schedule A of Form 1040, and it requires 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.
What Does Itemizing Mean?
Itemizing is just what it sounds like—reporting your actual expenses for various types of allowable deductions, then totaling them 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 Internal Revenue Service ever asks for proof.
Documentation can include bank statements, check stubs, property tax statements, insurance bills, medical bills, and acknowledgement letters for charities to which you might have donated.
Itemized Deductions vs. the Standard Deduction
Itemizing your deductions versus claiming the standard deduction is an either/or choice, although you can change your decision from year to year. The standard deduction is a set amount based on a person's filing status.
As of the 2018 tax year, the standard deduction is $12,000 for single taxpayers and those who are married but filing separate returns, $24,000 if you're married and filing jointly or if you're a qualifying widow or widower with a dependent child, or $18,000 for those who qualify as head of household.
This is up significantly from the 2017 tax year when these deductions were set at $6,350, $12,700, and $9,350 respectively.
Most taxpayers have historically claimed the standard deduction, and this trend is expected to continue—and the number will most likely even increase—now that the amounts have nearly doubled under the terms of the Tax Cuts and Jobs Act (TCJA). It would require a lot of itemized deductions to surpass these new thresholds.
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, if you're a single filer and you had total itemized deductions of $13,000 in 2018, you'd be better off itemizing because this would take $1,000 more off your taxable income than the $12,000 standard deduction. But if you qualify as head of household, you'd end up paying taxes on an additional $5,000 if you itemized—the difference between $13,000 in itemized deductions and the $18,000 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 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 comprehensive. There are a few less utilized itemized deductions available as well.
- Medical and dental expenses
- State and local income taxes
- Real estate taxes
- Home mortgage interest
- Gifts to charity
- Casualty or theft losses
The IRS offers a list of available itemized deductions on its website each year.
The Effect of the Tax Cuts and Jobs Act...and Other Details
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 percent of your adjusted gross income (AGI) in 2018, but this is set to increase to 10 percent 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 percent of your AGI.
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 is capped at mortgage 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.
The casualty and theft loss deduction is now limited to losses sustained due to events that occurred in locations that the U.S. president has declared to be disaster areas.
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 sometimes called Pease limitations after Representative Donald Pease, who first authored the legislation that provides for them back in 1990.
The total amount of the itemized deductions you could claim was reduced by either 3 percent of the amount by which your AGI exceeded the threshold or 80 percent of your total itemized deductions, whichever was less. 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.
Tax laws change periodically and the above information may 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 is not a substitute for tax advice.
Updated by Beverly Bird