Once you've given up your standard deduction, you're free to claim as many itemized deductions as you want on your taxes. However, some deductions have restrictions on how much you can write off -- expressed either as a floor that you have to exceed before you can claim expenses or a ceiling for the maximum amount you can claim.
No, you can't deduct your federal income taxes, but there are a plethora of other taxes you can write off. First, you get your pick of either state and local income taxes or state and local sales taxes. Then, you get to tack on your foreign income taxes, but only if you don't take them as a credit, which is usually your better option. You're also allowed to write off state, local and foreign real estate taxes, as well as state and local personal property taxes, such as car or boat taxes.
The best known itemized interest deduction is the home mortgage deduction, which lets you write off the interest on up to $1.1 million of mortgage and home equity debt. However, that's not the only interest you can write off. If you borrow money to invest in taxable investments, like stocks or mutual funds, you can deduct the interest you pay up to the amount of your investment income. For example, say you borrow $6,000 to invest. If you make $500 of income from the investments, but pay $600 in interest, you can deduct $500 and carry forward the remaining $100.
When you itemize, you're also rewarded for giving to charitable organizations, like religious groups, nonprofit schools and hospitals, or public charities like the United Way. However, no matter how generous you are, you can't count money you gave to individuals or non-qualified organizations. There's no minimum you have to give to claim a deduction, but your total deductions aren't allowed to exceed 50 percent of your adjusted gross income. On the bright side, the excess can be carried over for up to five years.
Medical costs that you pay for yourself, your spouse and your dependents can be written off when you itemize, but only to the extent they exceed 10 percent of your adjusted gross income. Medical expenses include a range of costs, from preventive care to diagnosis to actual treatments. You can also include your insurance premiums, but you can't count any reimbursed costs in your medical expenses.
Casualty and Miscellaneous Deductions
When you lose property or suffer damage from a casualty, disaster or theft that isn't reimbursed through insurance, you're allowed to deduct the losses as a casualty loss. Each occurrence is reduced by $100 and then your total for the year is reduced by 10 percent of your adjusted gross income. Miscellaneous deductions include tax prep fees, unreimbursed employee expenses and business bad debts. Once you've added all those miscellaneous deductions, you subtract 2 percent of your AGI, and then you can deduct the rest.
Video of the Day
- Internal Revenue Service: Tpoic 501 -- Should I Itemize?
- Internal Revenue Service: Topic 503 -- Deductible Taxes
- Internal Revenue Service: Foreign Tax Credit
- Internal Revenue Service: Topic 505 - Interest Expense
- Internal Revenue Service: Publication 526 -- Charitable Contributions
- Internal Revenue Service: Topic 502 -- Medical and Dental Expenses
- Internal Revenue Service: Topic 515 - Casualty, Disaster, and Theft Losses (Including Federally Declared Disaster Areas)
- Internal Revenue Service: Publication 529 -- Miscellaneous Deductions
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