What Are Itemized Deductions and How Do They Work?
How much tax you owe depends on your income, but the federal government, through the Internal Revenue Service, allows you to claim deductions that reduce your taxable income and the amount of tax you ultimately owe.
Those deductions either are standard deductions — a flat rate — or itemized. With itemized deductions, you must be eligible to deduct at least one of the dozens of line items the IRS deems as qualifying. Keep reading to learn about the two main types of deductions and how they can help you reduce your tax bill.
Itemized Deductions vs. Standard Deductions
Taxpayers can use the standard deduction or take itemized deductions on their tax returns, but they can’t do both. The standard deduction is a set dollar amount that reduces a taxpayer’s taxable income. With the standard deduction, the taxpayer need not prove or calculate tax write-offs. The amount of the standard deduction is predetermined by the IRS and available to most taxpayers regardless of whether they qualify for any specific tax deductions.
Itemized deductions require the taxpayer to selectively choose and calculate each deduction they qualify for — and keep records to back them up.
The 2017 Tax Cuts and Jobs Act changed the rules when it comes to standard vs. itemized deductions by nearly doubling the standard deduction and eliminating or cutting back many itemized deductions from tax years 2015 through 2025. The changes in the law caused more taxpayers to file using the standard deductions. In 2019, 13.7% of taxpayers itemized their deductions, compared to 31.1% before the law changes, according to the Tax Foundation.
What Is the Standard Deduction Amount?
For the 2021 tax year, the standard deduction is:
- $25,100 for married couples filing jointly, up $300 from 2020
- $12,550 for single taxpayers and married individuals filing separately, up $150 from 2020
- $18,800 for heads of households, up $150 from 2020
Taxpayers who are blind or at least 65 are eligible to claim an additional $1,350 standard deduction for 2021 if they are married, or $1,700 if filing as single or head of household. The deduction is doubled for taxpayers who qualify as both blind and at least 65.
For the 2022 tax year, the standard deduction will be:
- $25,900 for married couples filing jointly, up $800 from 2021
- $12,950 for single taxpayers and married individuals filing separately, up $400 from 2021
- $19,400 for heads of households, up $600 from 2021
Taxpayers who are blind or at least 65 are eligible to claim an additional $1,400 standard deduction for 2022 if they are married, or $1,750 if filing as single or head of household. The deduction is doubled for taxpayers who qualify as both blind and at least 65.
What Deductions Can Be Itemized?
Taxpayers should itemize their deductions if the sum of the deductions exceeds the standard deduction. The greater the deduction, the lesser your taxes will be.
Those who benefit by itemizing typically take at least some of the types of itemized deductions on the following list:
- Medical and Dental Expenses: You can deduct the amount that exceeds 7.5% of your adjusted gross income.
- State and Local Taxes: You can deduct up to $5,000 if married filing separately and up to $10,000 for all others.
- Mortgage Interest and Points: The deduction for mortgage loan interest is capped at the interest paid on loans of $1 million (for loans originated before Dec. 16, 2017) or $750,000 (for loans originated after that date). These amounts are halved for married taxpayers filing separately. So you can deduct the interest you paid on $1 million or $750,000 of principal, but no more. Home equity loan interest can be deducted as long as it meets the criteria for mortgage loan interest, and the proceeds of the loan were used to build, buy or renovate a primary or second home. If you used the money from your home equity loan to go on vacation or pay for college, you can’t deduct the interest.
- Charitable Gifts: You can generally deduct up to 60% of your AGI.
- Casualty and Theft Losses: Only losses from a federally declared disaster can be deducted.
You will enter your itemized deductions on Schedule A with Form 1040 on your federal tax returns.
But some taxpayers aren’t allowed to use the standard deduction. Taxpayers who must itemize deductions include:
- Nonresident aliens or dual-status aliens, unless married to a U.S. citizen or resident alien at the end of the tax year
- Married taxpayers filing separately whose spouses itemize their deductions
- An estate or trust, common trust fund or partnership
What To Consider When Choosing Between Standard and Itemized Deductions
When weighing whether to take the standard deduction or itemize your deductions, know that both have pros and cons.
Pros of Standard Deductions
- It saves time in preparing your taxes. You don’t need to have any records or receipts.
- For many taxpayers, the standard deduction will be larger.
- The standard deduction generally rises every tax year.
Cons of Standard Deductions
- While using the standard deduction takes less time, you might wind up paying more taxes if you don’t itemize.
- You can’t claim a standard deduction if someone else can claim you on a tax return.
Pros of Itemized Deductions
- You can claim a variety of deductions, such as mortgage interest and property taxes. This is valuable for homeowners who have large outstanding mortgage loans and pay several thousand dollars in interest per year.
- Large itemized deductions will reduce your tax burden.
Cons of Itemized Deductions
- Itemizing deductions takes a year-long effort of record-keeping.
- Compiling documents for tax preparation is time consuming.
The Bottom Line
Remember, you aren’t entitled to both the standard and itemized deductions, so when filing your taxes, you’ll have to choose. Taxpayers generally use whichever method is largest; that will give you the biggest tax break. A professional tax preparer can offer advice if you have any questions.
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- IRS. 2022. "Topic No. 501 Should I Itemize?"
- IRS. 2022. "Topic No. 503 Deductible Taxes."
- IRS. 2022. "Publication 936 (2021), Home Mortgage Interest Deduction."
- IRS. 2022. "Topic No. 551 Standard Deduction."
- IRS. 2021. "IRS provides tax inflation adjustments for tax year 2022."
- IRS. 2020. "IRS provides tax inflation adjustments for tax year 2021."