You can save taxes by itemizing your deductions if their total value exceeds the value of your standard deduction. Some taxpayers take the standard deduction instead of itemizing simply because they are unaware of deductions that they qualify for. Although no deduction except the standard deduction applies to literally every taxpayer, many deductions do apply to most taxpayers.
State and Local Taxes
You can choose to deduct either state income tax or state sales tax, but not both, as long as you actually paid the tax during the tax year. The Internal Revenue Service allows this choice because some states impose no state income tax. You can also deduct already-paid state and local property taxes as long as they are based on the value of your home. You may not deduct property tax that is not based on your home's value — a flat tax used to build sewage lines, for example. Such a tax can be used to increase your home's cost basis, however, which might save you capital gains tax when you sell your home.
Charitable Noncash Contributions
If you donate goods you no longer use to a qualified nonprofit organization, you can deduct their value from your taxable income. Donated goods are generally required to be valued at their fair market value at the time you made the donation. Certain items, however, such as automobiles, are subject to special IRS valuation rules. The organization you donate to must be nonprofit and it must qualify under Section 501(c)(3) of the Internal Revenue Code. Except for churches, this means the organization must have received a favorable determination letter from the IRS.
Mortgage Interest Deduction
You may deduct the interest portion of your home mortgage payments if the mortgage is secured by your primary or secondary residence. You may also deduct loan origination fees and mortgage insurance premiums. As of 2012, this deduction doesn't apply if the value of your mortgage exceeds $1 million, or $500,000 if married filing separately, at any time during the tax year. If you pay a single lender more than $600 in home mortgage interest during the tax year, it must send you Form 1098 to help you calculate your deduction.
Casualty and Theft Losses
You may deduct the unreimbursed value of loss or damage to your real or personal property -- to the extent that the losses exceed 10 percent of your adjusted gross income -- if the loss or damage is caused by a natural disaster such as a fire or a storm. You may also deduct unreimbursed losses due to theft. If any of the lost or damaged items were insured, you must file a timely insurance claim and reduce the value of your loss by any amounts reimbursed by your insurance company.
Capital Investment Losses
You can deduct your long term capital losses on investments you sold from your taxable long-term capital gains, up to a cap of $3,000 per year. If your losses exceed that in any given year, you can apply the remainder of your losses to future years in $3,000 annual chunks.
- MSN Money: 10 Big Deductions Too Many of Us Miss
- Yahoo! Finance: 18 Tax Credits and Deductions to Take This Year
- TurboTax: Home Ownership Tax Deductions
- Kiplinger: The Most-Overlooked Tax Deductions
- Internal Revenue Service: Deductible Taxes
- Internal Revenue Service: Casualty, Disaster, and Theft Losses (Including Federally Declared Disaster Areas)
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