- Itemizing may allow you to reduce your tax bill more than taking the standard deduction.
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Updated March 9, 2024
Itemized deductions are expenses you have incurred throughout the year that can be used to reduce your taxable income. It can be taken in lieu of the standard deduction—a set deduction amount based on your tax filing status. As tax laws change, the expenses that qualify as itemized deductions—or the amount that is allowed—may change. Here is a guide to help you understand itemized deductions and their impact on your tax liability.
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How do itemized deductions work?
Itemized deductions work in the same way the standard deduction does. They reduce your adjusted gross income (AGI) to your taxable income. For example, assume your AGI is $100,000, and you are able to itemize expenses totaling $18,000. Your taxable income would be $82,000. If you had an effective tax rate of 13%, your total tax liability before credits would be $10,660.
What is the purpose of itemizing?
In certain circumstances, itemizing gives you a higher deduction than the standard deduction. Having the lowest possible taxable income reduces your tax bill as much as possible.
For example, itemizing can be beneficial if you live in a state with higher taxes, pay a substantial amount in mortgage interest, or donate large sums to charities. However, if the sum of your allowable expenses is less than the standard deduction, it is better to take the standard deduction.
Types of itemized deductions
The major categories of itemized deductions include:
- Medical and dental expenses that exceed 7.5% of your AGI.
- State and local taxes.
- Home mortgage interest and points.
- Charitable contributions.
- Casualty, disaster, and theft losses from a federally declared disaster zone.
Pros and cons of itemizing
Pros:
Cons:
- Sufficient documentation is required to substantiate your expenses.
- Adding up all of your deductible expenses is more time-intensive than taking the standard deduction.
Advantages of itemized deductions
There are certain situations that make itemizing your deductions more attractive. If you own your home and pay substantial amounts in interest expense and property taxes, itemizing could benefit you. Similarly, if you have large, unreimbursed medical expenses—or contribute a significant amount to charity in a certain year—it may be a good move to itemize.
Lower tax bill is possible
If you have substantial expenses in the allowable categories, your tax bill may be lower if you itemize. If your potential itemized expenses add up to more than the standard deduction for your filing status, it would be beneficial to itemize.
Disadvantages of itemized deductions
Itemizing requires more effort than taking the standard deduction. You will need to find and save documents related to your expenses, and it will take you longer to fill out your tax return.
Sufficient documentation is required
If you are ever audited by the Internal Revenue Service (IRS), you will need to produce sufficient documentation to substantiate the expenses you claimed. You should keep this documentation in a safe location for up to seven years.
More time-intensive
Itemizing your deductions is more time-intensive than taking the standard deduction. You will need to find records for expenses you are claiming, figure out which deductions apply to you, and add up the total of all expenses.
Examples of itemized deductions
Medical and dental expenses
Medical and dental expenses are limited to the amount that exceeds 7.5% of your AGI. You can not itemize expenses that were reimbursed or paid on your behalf—so be sure you haven’t been reimbursed by a health share or health insurance company.
State and local taxes
State and local taxes (SALT) are deductible when you itemize—but only up to $10,000 (or $5,000 if you are married filing separately). The categories of deductible SALT include:
- State, local, and foreign income taxes.
- State and local general sales tax (in lieu of state and local income tax).
- State and local real estate taxes.
- State and local personal property taxes.
(The $10,000 SALT limit was part of the Tax Cuts and Jobs Act (TCJA) of 2017 and lasts through the 2025 tax year. Then, it will expire and, depending on Congress, could revert to the previous no-limit deduction, continue as is, or change in some other way.)
Home mortgage interest and points
You can deduct home mortgage interest on the first $750,000 of your mortgage loan ($375,000 if married filing separately). However, if your mortgage was obtained prior to Dec. 16, 2017, the limit is $1 million (or $500,000 if married filing separately). Home mortgage points are a form of prepaid interest used to obtain a new mortgage or refinance an existing mortgage. Points are deductible ratably over the term of your loan. (The mortgage limitation is also part of the TCJA and could change.)
Charitable contributions
In a typical year, charitable contributions are limited to no more than 60% of your AGI—but lower limits apply to certain types of charitable gifts. You can also carry over your contributions to future years. Your gift must be made to a qualified charitable organization. You can use the IRS’s search tool to determine if an organization is tax exempt.
Casualty, disaster, and theft losses
If the loss is incurred in a federally declared disaster zone, you can deduct casualty and theft losses relating to your home, personal items, or vehicles. Similar to the medical and dental expenses, you cannot claim a deduction for any amount reimbursed by insurance.
When does it make sense to itemize deductions?
Your tax situation will determine whether it is better to itemize. The best way to assess this is to add up your total allowable expenses, then compare the sum with this year’s standard deduction for your filing status. A tax professional can help if you are not comfortable doing this yourself or with the assistance of a tax software.
How to claim itemized deductions
To claim your itemized deductions, fill out Schedule A of the Form 1040. Each line on the schedule describes a specific type of allowable expense that can be itemized.
How to calculate itemized deductions
On Schedule A, you will total your allowable medical and dental expenses, taxes paid, interest paid, gifts to charity, casualty and theft losses, and other itemized deductions. If you use a tax software, the calculations will be done for you.
TIME Stamp: Itemizing saves some taxpayers money, but not all.
The Tax Cuts and Jobs Act (TCJA) of 2017 doubled the standard deduction, and there have been annual inflation adjustments since then. That means that most taxpayers do not benefit from itemizing. As noted above, many tax law changes from the TCJA are in effect until the end of 2025.
However, if you have significant state and local taxes, live in a home where you pay a significant amount of mortgage interest, or have certain other expenses, it may benefit you to itemize your deductions. It is always a good idea to work with a tax professional who can walk you through every deduction that may be available to you.
If you don’t want to pay for an in-person tax professional, you can use a quality tax software like TurboTax. TurboTax asks you questions to identify which tax deductions you qualify for. If you want even more assistance, there are multiple options. TurboTax Live Assisted is a do-it-yourself option where you can access expert help. TurboTax Live Full Service matches you with a local tax expert who will file your taxes for you.
TurboTax®
TurboTax®
Federal filing fee
$0 to $219 for DIY
State filing fee
$0 to $64 for DIY
Tax assistance available?
Yes—Live Assisted
Frequently asked questions (FAQs)
How do I know if I itemized deductions last year?
If you filed with tax software like TurboTax, you should have a PDF download or online copy of your previous year’s filed return. The IRS recommends saving your tax returns for three to seven years. If you do not have your previous year’s tax return, you can get a free tax transcript—a partially redacted and limited summary of your tax return—from the IRS here. The IRS also offers a full copy of your tax return for a $43 fee, up to seven years prior. If you itemized your deductions last year, they will appear on Schedule A of Form 1040.
What are itemized deductions vs. standard deduction?
Itemized deductions are actual expenses you incurred in specific categories during the tax year. The standard deduction is a dollar amount determined by the IRS for everyone in your tax filing status.
Is there a limit on itemized deductions?
No, but certain categories of itemized deductions have limits. For example, the deduction for state and local income, sales, and property taxes has a limit of $10,000 (or $5,000 if married filing jointly).
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