Itemized Deductions: What They Mean and How To Claim

Itemized deductions are an alternative to the standard tax deduction and can help you reduce your total federal income tax bill. Deductions are amounts that you subtract from your income to reduce your total taxable income. Itemized deductions are specific deductions like mortgage interest and unreimbursed medical expenses.

Learn more about different types of common itemized deductions, their advantages and disadvantages, and how to claim itemized deductions to determine whether itemizing or claiming the standard deduction will give you greater tax savings. 

Key Takeaways 

• Itemized deductions are a way to reduce your total taxable income.
• Eligible taxpayers can claim either itemized deductions or the standard deduction.
• Calculate your itemized deductions total to determine whether it exceeds the standard deduction.
• Expense tracking software makes it easier to calculate your itemized deductions.

Table of Contents 

• What Are Itemized Deductions?
• Types of Itemized Deductions
• Advantages of Itemized Deductions
• Disadvantages of Itemized Deductions
• How To Claim Itemized Deductions
• Standard vs. Itemized Deductions

What Are Itemized Deductions?  

Itemized deductions are amounts that you subtract from your income to reduce your total taxable income. These include deductible mortgage interest, medical and dental expenses, sales and state income taxes, charitable gifts, and more. 1 IRS, How Much Is My Standard Deduction?

Most taxpayers can choose between claiming the standard deduction or itemizing their deductions. If you have a large itemized deduction such as mortgage interest, or if you have many smaller deductions, it may be worth itemizing. The goal of itemized deductions is to reduce your taxable income to the lowest possible amount.

Itemized deductions are claimed on Schedule A (Form 1040).

Types of Itemized Deductions  

Learn more about the types of itemized deductions to see which deductions you can claim. Adding up multiple deductions helps you make the most of itemizing. 

Medical and Dental Expenses Deduction  

If you have unreimbursed expenses from medical and dental work, you may be able to claim these as an itemized deduction. Only amounts that exceed 7.5% of Adjusted Gross Income (AGI) can be claimed in the deduction.

You can claim medical expenses for yourself, your spouse, and any dependents. These must be unreimbursed expenses, not deductible expenses that have already been covered by health insurance. You can also claim parking fees, tolls, and the standard mileage rate if you have to drive for your medical appointment.

Mortgage Interest Deduction  

Some interest payments, like mortgage interest, qualify as itemized deductions. Mortgage interest deduction includes home equity loans, lines of credit, and other loans secured by your home.

You can only claim this interest as a deduction if you used the loan to buy or build your home or to substantially improve it. If you’ve used loan discount points to pay interest on your home, you may also include these as a form of mortgage interest.

Property Tax Deduction  

You can claim taxes paid on the assessed value of your home or land, so long as those taxes were imposed and paid within the tax year. Not all real estate taxes related to your home are deductible—for example, you can’t claim transfer taxes, rent increases that result from increases in real estate tax, or homeowner’s association fees.

If you’ve been charged any penalties or interest on property taxes, these cannot be included in the property tax deduction.

Income Tax and Sales Tax Deduction

Some state and local income taxes can be included in your itemized deductions. Estimated tax payments, withheld tax payments, state and local taxes, and refunds from previous years that you’ve chosen to keep as a credit can be taken as deductions in the current year.

You can also choose to claim sales tax instead of state and local income taxes. If you’ve made a major purchase such as a boat, vehicle, or major home renovation project, you may claim the state and local general sales taxes from your purchases that year. Add up your total sales tax and total income taxes and claim whichever results in the greater deduction.

You can’t claim both income and sales tax deductions—you have to choose one or the other.

Charitable Contribution Deduction  

If you’ve donated to a qualified charity organization, you can claim charitable contributions as an itemized deduction. Some examples of qualified organizations include:

• Educational, literary, scientific, and religious charities
• Charities for the protection of children or animals
• Amateur sports charity organizations
• Veterans charities
• Some non-profit companies
• The United States or Indian tribal governments

Charitable donations can include financial donations as well as fair market value on things like used clothing and gifts. If you provide services for the charity organization, you can also claim unreimbursed transport costs like transit fare and parking fees.

The maximum deductible amount per year is 20% of AGI—amounts in excess may be carried over to the next tax year.

Advantages of Itemized Deductions  

The primary advantage of itemized deductions is that if they add up to more than the standard deduction, you’ll be able to save more money on your taxes.

If you have one itemized deduction that’s especially large—for example, if you’ve paid a large sum in property taxes or sales taxes—this may be more advantageous than the standard deduction. If you’re eligible for multiple itemized deductions, this can also add up to more than the standard deduction amount. 

The best way to determine whether itemizing is advantageous is to add up all your eligible itemized deductions. If you’re not sure whether you’re eligible, a qualified tax preparer can help you calculate your itemized deductions.

Itemizing can also be an advantage if you’re not eligible to claim the standard deduction. This includes married people whose spouse is itemizing or non-resident and dual-status aliens who are not married to a US citizen.

Disadvantages of Itemized Deductions  

If you choose to itemize your deductions, you cannot claim the standard deduction. Therefore, only choose to itemize if your total itemized deductions exceed the amount of the standard deduction. 

The other disadvantage of itemizing is that it’s much more time-consuming and labor-intensive. The standard deduction is a flat rate that anyone eligible can claim, whereas the taxpayer must add up itemized deductions. If you keep clear records of your expenses then itemizing your deductions may be a relatively easy process, but if your records are disorganized and you haven’t had major expenses that would contribute to your itemized deductions, it may take more time than it’s worth.

How To Claim Itemized Deductions  

The following steps take you through the process of claiming itemized deductions.

1. Add Up Your Deductions

Begin by checking which itemized tax deductions you’re eligible to claim, then add up the total amount. If this exceeds the amount of the standard deduction, continue claiming your itemized deductions.

The standard deductions for 2024 are:

Married filing jointly	$29,200
Single taxpayers or married filing separately	$14,600
Heads of households	$21,900

2. Complete Schedule A (Form 1040)

Using Schedule A of your federal income tax return, fill in all the appropriate information for itemized deductions.

3. Complete Form 1040

Carry over the total amount of allowable deductions from Schedule A and fill in the second page of Form 1040. Subtract the total itemized deduction amount from your AGI to find your final taxable income. 

Standard vs. Itemized Deductions  

Most taxpayers have the option to either itemize deductions or take the standard deduction. The standard deduction is a flat rate based on your tax filing status—for example, single, married and filing jointly, married and filing separately, etc. The standard deduction amount changes each year and you can use the IRS calculator to determine your standard deduction.

Almost everyone is eligible for the standard deduction, with a few exceptions. These include married people whose spouse is claiming the itemized deduction, and people filing a tax return for a period shorter than 12 months. 

If you’re not eligible for the standard deduction, or if the total amount of your itemized deductions exceeds the amount of the standard deduction, then you should itemize. Add up all your itemized deductions and compare them against your standard deduction to see which is the best fit for you.

Conclusion 

Itemized deductions can help taxpayers reduce their annual taxable income. Itemized deductions include unreimbursed medical and dental expenses, mortgage interest, state sales or income taxes paid, and charitable gifts. You can claim either itemized deductions or the standard deduction, whichever is the greater amount. 

Keeping organized records makes it easy to itemize your deductions. FreshBooks expense tracking software helps you keep track of all your eligible expenses so you’re ready for tax season. Try FreshBooks free to discover how expense tracking can make itemizing quick and easy.

Article Sources

1. IRS, How Much Is My Standard Deduction?

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