Learn About Itemized Deductions for Tax Returns

What Are Itemized Deductions and How Do They Work

Itemized deductions are specific expenses that the IRS allows you to subtract from your income when calculating how much federal income tax you owe. Instead of taking a standard deduction (a fixed dollar amount that reduces your taxable income), you can choose to list out individual expenses throughout the year and add them together. The total of your itemized deductions then reduces your taxable income.

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According to the IRS, for the 2023 tax year, the standard deduction was $13,850 for single filers and $27,700 for married couples filing jointly. However, if your itemized deductions add up to more than the standard deduction, itemizing may save you more money on your taxes. For example, if you are a single filer with $16,000 in qualifying deductions, you would save more by itemizing than by taking the $13,850 standard deduction.

The IRS maintains a list of deductions that are permitted. These fall into several main categories: medical and dental expenses, state and local taxes (with limits), mortgage interest, charitable contributions, and casualty and theft losses. Not all expenses qualify, and there are specific rules about how much of each category you can deduct.

One important detail: you must keep records and receipts for every deduction you claim. If the IRS audits your return, you will need to show proof that these expenses actually occurred. Many people keep folders, spreadsheets, or use tax software that helps organize deductions throughout the year rather than trying to reconstruct everything in April.

Practical takeaway: Before deciding whether to itemize or take the standard deduction, add up your potential deductions. If the total is higher than the standard deduction for your filing status, itemizing may reduce your tax bill. Keep organized records of all expenses as you incur them throughout the year.

Medical and Dental Expenses You Can Deduct

Medical and dental expenses can be itemized if they exceed a certain threshold. For the 2023 tax year, you can only deduct medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI). This means if your AGI is $50,000, you can only deduct medical expenses that total more than $3,750. Only the amount above that threshold counts as a deduction.

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Qualifying medical and dental expenses include a wide range of items. These include payments to doctors, dentists, optometrists, and other medical professionals. You can deduct the cost of prescription medications, insulin, and other prescribed treatments. Hospital and surgical fees count, as do visits to mental health professionals and therapy sessions. Dental work including cleanings, fillings, root canals, and orthodontics are deductible. The cost of eyeglasses and contact lenses also qualifies.

Some less obvious medical expenses are deductible as well. These include the cost of medical equipment such as hearing aids, wheelchairs, crutches, and blood pressure monitors. If you have a serious condition, you may be able to deduct costs for transportation to medical appointments. Certain home improvements made for medical reasons—such as installing grab bars or widening doorways for wheelchair access—can count, though you can only deduct the amount that exceeds the value added to your home. Long-term care insurance premiums are partially deductible depending on your age.

However, cosmetic procedures are generally not deductible unless they are medically necessary to treat an injury or disease. Vitamins and supplements that are not prescribed by a doctor typically don't count. Weight loss programs and gym memberships are usually not deductible either, though a weight loss program prescribed by a doctor for a specific medical condition may be.

Practical takeaway: Keep receipts and documentation for all medical and dental expenses throughout the year, even if you're not sure they'll exceed the 7.5% threshold. Once you calculate your AGI, you can determine whether you have enough qualifying expenses to benefit from itemizing this category of deductions.

State and Local Taxes (SALT) You Can Deduct

State and local taxes, often referred to as SALT deductions, allow you to deduct certain taxes you pay to state and local governments. These primarily include state income taxes, local income taxes, state and local property taxes on real estate, and state and local sales taxes. However, there is an important limit: starting in 2018, federal law caps your total SALT deduction at $10,000 per year. This limit applies whether you are filing single or married filing jointly.

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State income tax is one of the main components of SALT deductions. If you live in a state with income tax and you paid $8,000 in state income taxes during 2023, you can deduct that amount (as long as your total SALT deductions don't exceed the $10,000 cap). Property taxes on your home are also deductible. If you own a house or other real property and paid $5,000 in property taxes to your county or municipality, that counts toward your deduction.

Local sales taxes can be deducted as an alternative to state income tax deductions, but not both. You would choose whichever is higher. The IRS provides tables to help calculate estimated sales tax, or you can keep receipts and add up what you actually paid. Some states allow residents to deduct local income taxes in addition to state income tax, which can add up. For example, a resident of New York City might deduct state income tax plus city income tax, though the combined total must not exceed the $10,000 cap.

Property taxes on vehicles, boats, and other personal property are generally not deductible under the SALT deduction. However, some states allow you to count personal property taxes if they are assessed on the value of the item. The $10,000 limit is per person, not per household, so married couples filing jointly still only receive one $10,000 cap combined.

Practical takeaway: Gather documentation of all state and local taxes paid during the year, including income tax withholding statements, property tax bills, and sales tax receipts. Add these up to see if you reach the $10,000 limit. If your SALT taxes are high, itemizing may be worthwhile even without other significant deductions.

Mortgage Interest and Charitable Contributions

Mortgage interest on your primary residence or a second home is one of the largest deductions for many homeowners. You can deduct the interest portion of your mortgage payments, though not the principal. If you borrowed $200,000 to buy your home at 6% interest, a significant portion of your early mortgage payments will be interest that counts as a deduction. The IRS allows you to deduct mortgage interest on up to $750,000 of mortgage debt (or $375,000 if you are married filing separately).

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To determine how much mortgage interest you paid, you will receive a Form 1098 from your lender each January showing the interest paid during the previous year. This document makes it easy to know the exact amount to deduct. Points paid on a mortgage when you first borrow money may also be deductible, though the rules are complex and depend on whether the points were paid by you or the seller.

Charitable contributions are another major category of itemized deductions. You can deduct donations of money or property made to qualified charitable organizations. The IRS maintains a list of organizations that qualify, including most nonprofits, religious organizations, schools, and hospitals. If you donate $500 to your local food bank or $200 to a disaster relief charity, these amounts count toward your deduction. You can also deduct donations to political organizations in some cases, though not donations to candidates themselves.

The value of donated items—such as clothing, furniture, or household goods—is also deductible. However, you must estimate the fair market value of these items, meaning what someone would reasonably pay for them used. If you donate a winter coat to a thrift store, you would deduct what that coat would sell for in used condition, not what you originally paid for it. The IRS provides a guide with valuation tables to help estimate these amounts. For donations over $500, you must file a specific form with your tax return.

There are limits on charitable deductions depending on the type of organization and the type of property donated, but most individual donors can deduct up to 50% of their adjusted gross income in charitable contributions per year. Excess contributions can sometimes be carried forward to the next several years.