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Itemizing Deductions: Essential Things to Know

Itemizing Deductions: Essential Things to Know


The itemizing deduction route is the easiest way to enjoy tax benefits from your income tax on a federal tax return. This approach allows you to enjoy deductions on medical expenses, taxes, charitable contributions, and the interest on your home mortgage. An itemizing deduction is the addition of all deductibles subtracted from the adjusted gross income to get the taxable income. 

You can use the itemizing formula or standard deduction method to forward your income tax on Form 1040, US Individual Tax Return. However, there is no use in being cunning as Uncle Sam already predetermines the reduction amount. In essence, itemizing is better when your itemized deduction is higher than the standard deduction. 

However, taxpayers are in a fixed situation on whether to use the itemizing or standard method. The itemizing method is suitable for non-resident aliens and married couples who file separately, as both have to use the same method.


Comparing Itemized Deductions and Standard Deductions

Each method is valuable and beneficial when the digits are higher than the other. For example, if your standard method proves more income than the itemization method, then the standard method is the best approach. To determine whether itemization is better than standard, ensure you check your filing status to have an idea of your income and the claimable deduction for the particular year. You can start with your previous tax returns. 

For instance, Murphy and Angel are married and trying to figure out if itemization is better. Since their deduction and income for 2022 are similar to 2021, they take their 2021 Form 1040 and check Line 7 to confirm their AGI before concluding on the way forward.

What are the Deductions You Can Itemize?

The itemizable deduction is split into different sections on Schedule A. they are divided as follows:

Unreimbursed Dental and Medical Expenses

This deduction is complicated and complex for a taxpayer to qualify for. However, taxpayers that pay their medical or dental bills from their pocket without the help of insurance can deduct expenses that surpass 7.5% of their AGI.

Home Equity and Mortgage loan Interest (or line of credit) 

Taxpayers with a home mortgage can deduct their expenses from the first $750,000 in loans. Each year, a borrower receives a Form 1098 from a mortgage lender describing the deductible amount of interest and the amount they have covered over the years. In addition, taxpayers can also deduct points but according to strict guidelines. However, a taxpayer with a mortgage from 16 December 2017 can take a deduction on $1,000,000, and those with an old mortgage can do the same if the loan amount is the same. As of 2021, the limitation will be pegged at $1,000,000 regardless of the loan amount.

Taxes paid

The itemizing approach allows taxpayers to enjoy two types of taxes – personal property, such as real estate taxes, and state and local taxes of that year. However, you cannot make deductions if you prepaid your state or local income taxes for the next tax season.

Charitable donations

There are qualified charities that you can donate to tax-free. You can deduct up to 60% of your AGI from taxes between 2018 and 2025, while you can deduct the excess amount in the following year. However, other contributions can attract 50%, 30%, or 20% of your AGI, determined by the property or organization accepting your donation.

Other Miscellaneous Deductions

Lastly, a deduction is possible on items such as gambling losses/winnings, losses from partnership or subchapter S corporation, estate taxes on all income in respect of a decedent (IRD), and others are deductible. However, some deductions have been removed or changed between 2018 and 2025.



Dennis Jao
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