Itemized Deductions

MEDICAL EXPENSES

An itemized deduction is allowed for expenses paid during the tax year for the medical care of the taxpayer, the taxpayer’s spouse, or a taxpayer’s dependent to the extent that such expenses exceed 7.5% of adjusted gross income.

TAXES

An itemized deduction is allowed for (1) state income taxes paid during the year, (2) real estate taxes paid during the year on the taxpayer’s real property, and (3) personal property taxes paid during the year on the taxpayer’s personal property (i.e. auto).

The American Jobs Creation Act of 2004 gives taxpayers the option to claim state and local sales taxes instead of state and local income taxes when they itemize deductions. This option is available for the 2004 and 2005 returns only.

HOME MORTGAGE INTEREST, POINTS AND INVESTMENT INTEREST

An itemized deduction is allowed for mortgage interest paid during the year on the taxpayer’s “qualified residence”. A qualified residence includes the principle residence of the taxpayer and one other residence (i.e., vacation home) that is used by the taxpayer for a number of days exceeding the greater of 14 days or 10 percent of the number of days during the tax year that it is rented out at a fair rental value. However, a dwelling unit that is not rented at any time during the tax year is a qualified residence regardless of personal use.

Points paid on a home mortgage loan for the purchase or improvement of, and secured by, a principal residence are deductible in the year paid. Points paid to refinance a home mortgage are not deductible in full in the year paid but must be deducted ratably over the period of the loan.

Investment interest (i.e. margin interest) is deductible to the extent of investment income. Any disallowed investment interest can be carried forward to future tax years.

CHARITABLE CONTRIBUTIONS

Charitable contributions are only deductible if made to a qualified organization. They are also subject to certain income limitations.

CASH CONTRIBUTIONS

All cash contributions made in tax years beginning after August 17, 2006, to any qualified charity must be supported by a dated bank record or a dated receipt. The tax year for most individual taxpayers begins on January1.

CLOTHING AND HOUSEHOLD ITEMS

Beginning with contributions made after August 17, 2006, no deduction is allowed for most contributions of clothing and household items unless the donated property is in good used condition or better.

MISCELLANEOUS ITEMIZED DEDUCTIONS

The following itemized deductions are deductible to the extent they exceed, in the aggregate, 2% of the taxpayer’s adjusted gross income:

  • Un-reimbursed business expenses
  • Union and professional dues
  • Tax preparation fees
  • Professional subscriptions
  • Hobby expenses
  • Safe deposit box
  • Uniforms
  • Work tools
  • Gambling losses
  • Estate taxes
  • Investment expenses