Denice R. Preston
Itemized Tax Deductions allow many American wage earners to keep more of their income rather than giving it to the government. Many deductions are available to you that you may need to learn about. Keep good records to maximize your deductions and reduce the money you pay to the Internal Revenue Service.
Changes to the Tax Cuts and Jobs Act Rule Book
Due to the Tax Cuts and Jobs Act of 2017, the decision to itemize is accompanied by a significant caveat. The standard deduction has increased every year. Before filling out Schedule B, consider whether you will be better off taking the standard deduction or itemizing.
The standard deductibility is that portion of your income that is not taxed. If you do not itemize deductions, then the standard deduction is available.
The TCJA also changed or eliminated the rules of the number of tax deductions you could claim in 2017. The TCJA does not limit itemized deductions based on your adjusted Gross Income. This is a positive for itemizers.
You should take the standard deduction if the total of your itemized deductibles is less than the amounts above. You can still save more by learning about the most overlooked itemized deductibles.
You’ll be better off with the standard deduction unless you have a lot of deductible costs.
Tax deductions for homeowners
You can get tax deductions by owning a house. Here’s the summary:
Mortgage interest. If you purchased your home before December 16, 2017, you may deduct the mortgage interest on loans up to $1,000,000 used to buy, build or improve your second or first home. You can remove the mortgage interest for the first $750,000 if you bought the house after December 15, 2017. The $1 million cap is set to return in 2025.
Points. The lender may charge points to get a lower interest rate. One point equals 1% of your total mortgage. Issues associated with a mortgage for a new home can be deducted. You can only generally deduct some of the points you pay in the same year. You usually remove the issues throughout the loan.
Property taxes. The TCJA limited deductions for state and local taxes, including property taxes. You can deduct $10,000 for state and local taxes, including sales and income taxes, for tax years 2018-2025 ($5,000 for married couples filing separate returns).
Home Office Tax Deduction. You may be eligible to claim a portion of the costs of running your business if you use a part of your house exclusively for work. 7
Selling costs. You can reduce your capital gain if you sell your house by the amount you spend on marketing costs. This includes real estate agent commissions, title insurance, legal fees, advertising, administrative, escrow, and inspection costs. If you sell your house for a profit, you can exclude capital gains up to $250,000 or $500,000 if married filing jointly.
Mortgage credit certificates (MCCs) allow low-income first-time buyers to receive a tax credit for up to 20% of their mortgage interest payments, or $2,000 annually. You must apply for the certificate first through your local or state government.
Vehicle Sales Tax Deduction
Some states continue to tax you each year for, as Kentucky puts it, “the privilege of using a motor vehicle upon the public highways.” As Kentucky says, some states tax you every year for the privilege of driving a car on public roads. 10 Many states send out notices to re-register your car. 11 You can add the payment to the deductions you make for personal property tax in April. 12
The vehicle registration percentage based on your car’s weight cannot be deducted from your taxes. The portion of vehicle registration based on the car’s weight is not tax deductible.
It’s the same for RVs and boats. You can check the registration paperwork for an RV or boat to see if they are also paying property tax. Also, remember that the total SALT tax cap is $10,000.
Charity donations can be deducted from your tax.
If you claim a deduction of more than $5,000 per item (or a group of similar items), the IRS requires that you provide “a qualified appraisal” for each item or group. If you want to claim a charitable deduction for more than $5,000, the IRS will require you to provide a “qualified appraisal” of the item.
Even if you choose the standard deduction, you can no longer deduct cash donations to qualified charities up to $300 (or $600 if married and filing jointly). This is referred to as an above-the-line deduction. This benefit was only available in 2021 and no longer exists. 19
If you itemize, you can deduct up to 60% of your AGI for charitable contributions. The amount depends on the type and type of donation. The deduction of 100% of your AGI on cash contributions to qualified charitable organizations is no longer applicable. This was a 2021-only special deduction.
Medical Expenses – Tax Deductions
The IRS allows for a deduction of medical costs, but only for those expenses that exceed 7.5% of your AGI. If your AGI is $50,000, you can only claim the medical expenses that exceed $3,750.
You cannot deduct any amount that your insurance company reimburses you for. You must include the reimbursement in your income for the following year if the insurance company compensates you in a subsequent tax year.
You can reduce your tax burden by paying a portion of what you would have paid for Long-Term Care Insurance. The IRS allows you to deduct an amount of the premiums you pay for long-term care insurance as you age, but only when the insurance isn’t subsidized by either your employer or spouse’s employer.
The maximum accommodation you can deduct per person is $50 per night. This includes lodging for anyone traveling with you.
You can also deduct additional co-payments, prescription drug costs, and lab fees if your total medical expenses exceed the 7.5% threshold. You can include standard services and fees not covered by insurance, like therapy and nursing. The IRS’s definition of medical costs is broad and includes things like acupuncture or smoking cessation.
Contributions to Health Savings Accounts are tax deductible. You can contribute up to $3,850 if you have a High-deductible Health Plan for the tax year 2023. This is also $7,750 if you are a member of an HDHP for a whole family.
Bottom Line
If you decide to itemize, you can benefit from valuable tax deductions. Keep receipts and a file for all expenses for your business, charity, and health. These expenses can lower your tax bill as they accumulate.
