Itemized tax deductions give many American wage earners a chance to pocket more income, rather than hand over their hard-earned cash to the government. If you keep good records, deductions can mean more money for you and less for the Internal Revenue Service (IRS).
- Itemizing your tax deductions may allow you to keep more of your income.
- Missing an itemized deduction can cost you refund dollars.
- Changes to tax deductions based on the 2017 Tax Cuts and Jobs Act have eliminated some expense deductions while allowing others to be itemized.
- Homeownership, medical expenses, and charitable giving are common deductions.
- The new law eliminated certain deductions, such as unreimbursed job expenses and tax preparation fees, but you can still deduct gambling losses and student loan interest.
Tax Cuts and Jobs Act Rule Changes
Ever since the Tax Cuts and Jobs Act of 2017 (TCJA), the decision to itemize has come with a big caveat. Before you go to the trouble of filling out that Schedule A form, keep in mind that the standard deductions, which increased significantly in 2018, have all been bumped up a bit more each year.
The standard deduction is the portion of your income that's not subject to income tax. You can take the standard deduction if you don't itemize your deductions on Schedule A. Here's a breakdown of the standard deduction amounts by filing status for 2022 and 2023:
|Standard Deductions for 2022 and 2023|
|Filing Status||2022 Standard Deduction||2023 Standard Deduction|
|Married Filing Separately||$12,950||$13,850|
|Heads of Household||$19,400||$20,800|
|Married Filing Jointly||$25,900||$27,700|
Note that the TCJA did away with the personal exemption, so you should factor that into your calculations. The law also eliminated or changed the rules for a number of tax deductions that you were able to take in 2017. On the other hand, the TCJA no longer limits overall itemized deductions according to your adjusted gross income (AGI), which is at least one positive change for itemizers.
If your total itemized deductions fall below the amounts listed above, you’re better off taking the standard deduction. If not, read on to learn about the most overlooked itemized deductions and how they can help you save even more.
Unless you have lots of deductible expenses, you'll likely be better off taking the standard deduction.
Tax Deductions for Homeowners
Owning a home can give you hefty tax write-offs each year. Here's a summary:
- Mortgage Interest. If you bought your home before Dec. 15, 2017, you can deduct mortgage interest payments on up to $1 million in loans used to buy, build, or improve your first or second home. If you purchased the home after Dec. 15, 2017, you can deduct mortgage interest on the first $750,000 of the loan. The $1 million limit is scheduled to return in 2025.
- Private Mortgage Insurance. If you borrow more than 80% of the home's purchase price, your lender may require private mortgage insurance, or PMI. You can deduct PMI premiums for mortgages taken out after 2006. However, the amount of the deduction depends on your income: The deduction starts to phase out if your income is over $100,000 per year (or $50,000 for married couples filing separately). There's no deduction if you earn more than $109,000 per year (or $54,500 if married filing separately).
- Points. Lenders may charge points in exchange for a better interest rate. One point is equal to 1% of the total amount you mortgage. You can deduct points associated with a home purchase mortgage. In general, you can't deduct the full amount of points the year you pay them. Instead, you typically deduct them over the life of the loan.
- Property Taxes. One of the most significant changes the TCJA brought was to limit deductions for property taxes and other state and local taxes ("SALT"). For tax years 2018 through 2025, you can take a combined total deduction of $10,000 ($5,000 for married couples filing separately) for state and local income, sales, and property taxes.
- Home Office Deduction. If you use part of your home exclusively for business purposes—and your home is the principal place of your business—you may be able to deduct a percentage of home costs related to your work.
- Selling Costs. If you sell your home, you can lower your taxable capital gain by the amount of your selling costs—including real estate agent commissions, title insurance, legal fees, advertising costs, administrative costs, escrow fees, and inspection fees. Keep in mind that if you sell your home for a profit, you can exclude up to $250,000 of capital gains from your income, or up to $500,000 if you're married filing jointly.
The mortgage credit certificate (MCC) allows low-income, first-time homebuyers to benefit from a mortgage interest tax credit of up to 20% of the mortgage interest payments—up to $2,000 per year. To take the credit, you must first apply for a certificate through your state or local government.
Vehicle Sales Tax Deduction
You pay a sales tax on your car when you buy it. Some states continue to tax you each year for, as Kentucky puts it, “the privilege of using a motor vehicle upon the public highways.” Most states also send out a notice to demand their tax payment to register your car each year. After you slap your new decal on your car, you may be able to file the receipt and add that payment to your deductions for personal property taxes in April.
If your state calculates a percentage of the vehicle registration based on the value of your car, you can deduct that percentage as part of your personal property taxes. The percentage of the vehicle registration based on the weight of your car is not tax-deductible. For example, in New Hampshire, a portion of car registration is deductible (the municipal portion which is calculated based on value) and a portion is not deductible (the state portion which is based on weight).
The same goes for an RV or boat—check the registration paperwork to see if you are paying property taxes on those, too, and keep in mind the $10,000 cap on total SALT taxes.
Tax Deductions for Charitable Donations
You donated your skinny jeans and wagon-wheel coffee table to Goodwill, which, in turn, reduces your taxes by increasing your charitable deductions. The IRS requires that you provide “a qualified appraisal of the item or group of items” if you claim a deduction of more than $5,000 per item (or a group of similar items. For items such as electronics, appliances, and furniture, you may need to pay a professional to assess the value of your donation.
For the 2021 tax year, you were able to deduct up to $300 ($600 if you're married and filing jointly) in cash donations made to qualifying charities, even if you took the standard deduction. This is called an above-the-line deduction. But that was a 2021-only benefit that no longer applies in 2022 and 2023.
If you itemize, you can usually write off up to 20% to 60% of your adjusted gross income (AGI) for charitable contributions—the amount varies depending on the type of contribution and the type of charity. For 2021, however, you were able to temporarily deduct up to 100% of your AGI for cash contributions to qualifying charitable organizations. That was a special 2021-only figure that no longer applies.
Tax Deductions for Volunteers
If you’re the type of person who likes to donate your free time to volunteering, and you dip into your own wallet to travel to your favorite charity, you can add those expenses to your charitable deductions (but not the value of your time or service). The primary purpose of the trip must be for charity, with no substantial element of a vacation. According to the IRS, to qualify, you must be "on duty in a genuine and substantial sense throughout the trip."
Whether you ride the bus or drive your own car, you'll need good records of your charitable activities: Keep receipts for public transportation or mileage logs for your car (for which you can charge the standard $0.14 per mile rate for charitable organizations), as well as receipts for parking and tolls.
Tax Deductions for Medical Expenses
The IRS allows a deduction for medical expenses—but only for the portion of expenses that exceed 7.5% of your AGI. So if your AGI is $50,000, you can only deduct the portion of your medical expenses that total over $3,750. If your insurance company reimburses you for any part of your expenses, that amount cannot be deducted. If insurance reimburses you in a future tax year for any portion of expenses claimed in the current year, you will need to add the reimbursement (up to the amount you took as a deduction) as income in the future year.
A portion of the money you pay for long-term care insurance can also minimize your tax burden. Long-term care insurance is a deductible medical expense, and the IRS lets you deduct an increasing portion of your premium as you get older, but only if the insurance is not subsidized by your employer or your spouse’s employer.
Another benefit is that you can deduct transportation and travel costs related to medical care, which means you can write off any bus, car expenses (at the standard mileage rate for medical purposes of $0.18 per mile for the first half of 2022 and $0.22 per mile for the second half of 2022), tolls, parking, and lodging (but not meals)—as long as the total exceeds the 7.5% limit. Keep in mind that you can only deduct up to $50 per person per night of lodging (you can include lodging for a person traveling with you).
You can also deduct any additional co-payments, prescription drug costs, and lab fees as part of your medical expenses—if the total exceeds the 7.5% limit. The IRS allows you to factor in common fees and services if they are not fully covered by your insurance plans, such as therapy and nursing services. In fact, the IRS’s definition of medical expenses is fairly broad and can include things like acupuncture and smoking cessation programs.
Contributions to health savings accounts (HSA) are tax-deductible. If you have a high-deductible health plan (HDHP), you can contribute up to $3,650 to an HSA in 2022 (or $7,300 for a family HDHP). For the tax year 2023, the contribution limit rises to $3,850 for an individual or $7,750 for an individual with a family plan.
Other Tax Deductions
The TCJA rules eliminate most deductions that previously fell under the category of “miscellaneous itemized deductions.” Many of these deductions were subject to a 2%-of-AGI threshold, meaning you could only deduct the amount that exceeded 2% of your AGI. Under the TCJA, the 2%-of-AGI threshold no longer applies, but you can no longer deduct the following:
- Unreimbursed job expenses, such as work-related travel and union dues
- Unreimbursed moving expenses, if you had to move in order to take a new job (exception: active-duty military moving because of military orders)
- Most investment expenses, including advisory and management fees
- Tax preparation fees (except for fees to prepare Schedules C, E, or F, which are deductible business expenses)
- Fees to contest an IRS ruling
- Hobby expenses
- Personal casualty or theft losses, except in federally designated disaster areas
Here's what you can still deduct:
- Gambling losses up to your winnings
- Interest on the money you borrow to buy an investment
- Casualty and theft losses on income-producing property
- Federal estate tax on income from certain inherited items, such as IRAs and retirement benefits
- Impairment-related work expenses for people with disabilities
- Student loan interest (limited to the lesser of $2,500 or total interest you paid in the year)
What Can Homeowners Deduct?
Homeowners benefit from a number of tax deductions, including those for mortgage interest, points, property taxes, private mortgage insurance (PMI), and home office expenses.
What Is the Standard Deduction for 2022 and 2023?
For the tax year 2022, the standard deduction is $12,950 for single and married filing separate taxpayers (rising to $13,850 in 2023). The standard deduction for heads of household in 2022 is $19,400 (rising to $20,800 in $2023). The standard deduction is $25,900 for married filing jointly or qualifying widow(er) taxpayers (rising to $27,700 in 2023).
What Can I Claim As a Tax Deduction Without a Receipt?
The IRS requires taxpayers to keep documentary evidence to support reported expenses. If you are eventually audited and cannot provide receipts, alternatives such as canceled checks and credit or debit card statements might be acceptable.
The Bottom Line
The slips of paper you cram into your wallet can mean more money in your bank account come tax season. Hold onto receipts for services and keep a file throughout the year, so you have a record of even the smallest expenses you incur for business, charity, and your health. As those expenses add up, they may ultimately lower your tax bill.
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