Itemized Deduction

AAA

DEFINITION of 'Itemized Deduction'

A deduction from a taxpayer's taxable adjusted gross income that is made up of deductions for money spent on certain goods and services throughout the year. The specific deductions that are allowed are outlined by the Internal Revenue Service and include such expenses as mortgage interest, state and local taxes, gifts, and medical expenses.

INVESTOPEDIA EXPLAINS 'Itemized Deduction'

Usually, an itemized deduction is limited to a certain percentage of adjusted gross income. As an alternative to standard deduction, an itemized deduction requires taxpayers to keep track of each possible tax-reducing expense throughout the year.

Individuals who frequently spend large amounts on medical care, state and local taxes, donations or other deductible expenses may be better off itemizing. However, tax law may set thresholds in spending that must be exceeded before the deductions can be made. For example, in the medical category, perhaps only expenses that exceed 7.5% of your adjusted gross income may be deducted. If you didn't spend at least that much, then none of your medical expenses will be deductible.

RELATED TERMS
  1. Tax Loss Carryforward

    A tax loss carryforward takes place where a business or individual ...
  2. Casualty And Theft Losses

    Deductible losses stemming from the loss or destruction of the ...
  3. Qualified Mortgage Insurance Premium

    Premium paid by homeowners on mortgage insurance for FHA loans ...
  4. Seller-Paid Points

    Any points paid by the seller of a home for the buyer. Seller-paid ...
  5. Adjusted Gross Income - AGI

    A measure of income used to determine how much of your income ...
  6. Income Tax

    A tax that governments impose on financial income generated by ...
Related Articles
  1. How can I make sure I get all my eligible ...
    Retirement

    How can I make sure I get all my eligible ...

  2. Tax-Saving Advice For IRA Holders
    Taxes

    Tax-Saving Advice For IRA Holders

  3. Tax Tips For The Individual Investor
    Retirement

    Tax Tips For The Individual Investor

  4. Cut Your Tax Bill With Donor-Advised ...
    Taxes

    Cut Your Tax Bill With Donor-Advised ...

comments powered by Disqus
Hot Definitions
  1. 80-10-10 Mortgage

    A mortgage transaction in which a first and second mortgage are simultaneously originated. The first position lien has an ...
  2. Passive ETF

    One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific ...
  3. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  4. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  5. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center