Categories: Adjustments and DeductionsFiling

Schedule A – Itemized Deductions

Everyone wants to reduce their tax bill. To do so, you must either lower your taxable income or increase your allowable deductions to reduce your tax bill. To lower your taxable income:

  • Take a pay cut
  • Contribute to a retirement plan
  • Claim itemized deductions

You might be able to save 10 cents to 39.6 cents for every dollar you decrease your taxable income by claiming itemized deductions. The amount you save depends on your tax bracket.

For tax years beginning after December 31, 2017, many of the itemized deductions discussed below are eliminated. This article will first review the itemized deductions available for tax year 2017, then discuss the itemized deductions that were eliminated as part of the Tax Cuts and Jobs Act (TJCA).

What are the 2017 Itemized Deductions?

Medical and dental expenses

Medical expenses include some expenses you pay out-of-pocket for medical care. However, for medical expenses to be deductible for 2017, they must:

  • Total more than 7.5% of your adjusted gross income (AGI)
  • Not be reimbursed in any manner — including by an insurance company

To learn more, see the Medical and Dental Expenses tax tip.

Real estate and personal property taxes

Under certain conditions, you can deduct the state, local, and foreign real estate taxes you pay on your:

  • Home
  • Condominium
  • Other property

If you want to deduct the tax, it must be:

  • Levied for the general public welfare
  • Based on the assessed value of the property
  • A uniform tax against all property in the jurisdiction of the taxing authority

You can also deduct the tax you pay on personal property, like your car. To deduct the tax, it must be:

  • Based upon the value of the item
  • Imposed annually
  • Imposed on personal property located in the United States

To learn more, see the Real Estate and Personal Property Taxes tax tip.

Mortgage interest paid

If you itemize deductions, you can deduct qualified mortgage interest on your main home and a second home. You must be legally liable for repayment of the loan to deduct the loan interest.

You can deduct interest:

  • On the mortgage you pay to the bank or mortgage company on your main home and a second home. Dollar limitations on mortgage loans apply.
  • You pay to an individual, like the home’s seller, if they financed the sale. As long as the loan is secured by your main home or a second home, you can deduct the interest.

To learn more, see the Interest on Home Mortgage tax tip.

Deductible investment interest

When you borrow money to invest, you can deduct the interest you pay on the loan as an itemized deduction on Schedule A. However, the investment interest you can deduct can’t be more than the amount of investment income you report.

To learn more, see the Investment Interest Paid tax tip.

Deductions subject to the 2% limit

Some miscellaneous itemized deductions are subject to a 2% limit. They must add up to more than 2% of your adjusted gross income (AGI) before you can deduct them.

To learn more, see the Deductions Subject to the 2% Limit tax tip.

Charitable donations

You can deduct money and non-cash donations you make to qualified organizations, up to 50% of your AGI. Money donations include:

  • Cash
  • Check
  • Credit card
  • Payroll deduction
  • Automatic withdrawals from your bank account

Non-cash donations are some types of goods, like:

  • Clothing
  • Toys
  • Household items
  • Cars

You can also deduct mileage you drive if it’s directly related to charitable work.

To learn more, see the Charitable Donations tax tip.

State and local sales taxes and income taxes

You can deduct one, but not both, of these:

  • State and local income taxes
  • State and local general taxes

You must claim the itemized deduction in the year you paid the taxes.

To learn more, see the State and Local Taxes tax tip.

Other miscellaneous expenses

Some amounts you enter on Schedule A don’t fall under any categories listed above. These are listed as miscellaneous expenses not subject to the 2% limit. An example of this type of expense would be gambling losses. Your losses are limited to your gambling winnings.

Ex: If your winnings totaled $100, you can deduct up to $100 in losses.


TCJA Updates to Itemized Deductions for 2018

State and Local Taxes

TCJA limits the itemized deduction for all state and local taxes to $10,000. This will include your state and local income, sales, real estate, and personal property taxes. You can combine all of these taxes up to claim a single deduction of up to $10,000.

Charitable Deductions

Beginning in 2018, you can claim a deduction for qualified charitable contributions, up to 60% of your AGI; up from 50% in 2017.

Mortgage and Home Equity Loan Interest

For mortgages taken out after December 14, 2017, only interest on the first $750,000 of mortgage debt is deductible. The deductible amount will be subject to the $10,000 state and local tax deduction discussed above. Additionally, interest on home equity loans, used for purposes other than improvements on your current home, will not be deductible.

Other Eliminated Itemized Deductions

  • Unreimbursed employee expenses
  • Tax preparation fees
  • Other miscellaneous itemized deductions
  • Deduction for theft and personal casualty losses
    • Exception for those casualty losses in federally declared disaster areas

For additional questions and comments, chat with your local H&R Block Tax Pro today.

Monica Welsh :Monica is a tax research analyst in the Tax Institute. She specializes in the areas of business and investment. Monica is a graduate of the University of Missouri-Kansas City School of Law with a JD and an LLM in tax.