Federal Income Tax Itemized Deductions

Should you take advantage of the itemized deductions?

If you have a home mortgage, a lot of medical expenses, give a lot of charity, or have unreimbursed employee expenses, you should look into itemizing your deductions.



Here is a list of expenses that can be deducted as federal tax itemized deductions on your Schedule A of your tax return.

Medical Expenses

Your medical expense tax deduction includes money spent to diagnose, cure, or prevent diseases or ailments that affect the functions or structure of the body. It can be for both physical and mental illness. Equipment and supplies for treatment can also be included.

Medical insurance premiums are also considered medical expenses.

Long-term care insurance can usually be deducted but it is limited.

Only medical and dental expenses that exceed 7.5% (or 10% starting in 2013) of your income can be deducted.

Here are some examples of medical expenses that you can deduct.

Taxes

Income taxes that are not paid to the IRS are federal tax itemized deductions. This includes state, local taxes and foreign taxes but NOT federal tax or Social Security tax.

State and local incomes tax payments include amounts paid during the tax year like tax deducted from your paycheck, estimated tax payments, or taxes paid for old tax liabilities like last years tax return.

Sales tax can be deducted but you have to give up the state and local income tax deduction. So you choose the one that's larger.

Other taxes include:

  • Personal property tax
  • Real estate tax
  • Qualified motor vehicle taxes

Interest

Your home mortgage interest is deductible. It can be for your first home or your second home. The full amount that you pay for your mortgage will not necessarily be deductible because not everything is interest. The part that is for the actual cost of the home cannot be deducted.

A second mortgage or home equity loan interest is only deductible up to $100,000 or the difference between the fair market value of your home minus your first mortgage.

Points or prepaid interest can generally be deducted the year the home was purchased. Sometimes you will have to divide it over the life of the mortgage.

Another interest expense that can be federal tax itemized deduction is investment interest expense. However you cannot deduct personal interest paid to finance your car or credit card companies.

Charitable Donations

Charitable donations made to qualified organizations can be deducted but those made to individuals cannot.

Donations do not have to be money. It can be property or goods like clothing, too.

Read on for more information on the charitable donation tax deduction.

Car used at work

You can deduct the cost of your car used for work. You can either choose to deduct a standard mileage rate which is a set amount for each mile used for business.

Or you can deduct the actual cost of the car expenses. You will need to calculate how many miles were used for business and how many for commuting and personal and divide the actual expenses accordingly.

Actual expenses include:

  • gas and oil
  • repairs
  • tires
  • auto insurance
  • registration fees
  • licenses
  • depreciation
  • lease payments

Parking fees and tolls can be deducted regardless which method you use.

Other Federal Tax Itemized Deductions

  • Casualty and theft loss
  • Unreimbursed employee expenses
  • Tax preparation fees

Is itemizing your deductions the best way to deduct your expenses?

See this discussion about the federal tax itemized deductions disadvantage.

Updated January 12, 2012

Go to Federal Tax Deductions

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