Itemized Deductions Explained: What You Can Deduct & When It Makes Sense

Group meeting with notebooks, laptops, and drinks on the table, discussing financial planning with a focus on itemized deductions explained.

One of the biggest decisions you’ll make as a taxpayer comes when it’s time to file your taxes. Do you take the itemized deduction or the standard deduction? How you answer that question could change the amount of your tax bill. The standard deduction is a simpler approach to filing. However, you could benefit from greater savings if you have large deductible expenses and choose to itemize your deduction.

This piece discusses the qualifications and calculations of itemized deductions. More importantly, it addresses the question of whether itemizing is beneficial or not.

What Are Itemized Deductions?

An itemized deduction is a type of deductible that the IRS permits you to withdraw from your taxable income, as an expense. Instead of taking the standard deduction, the taxpayer uses Schedule A of Form 1040 to arrive at this amount and reduces their taxable income by that amount.

Which People Are Most Likely To Gain Value From Itemizing Deductions?

You might find benefit to itemizing tax deductions if you:

  • Own a house and a mortgage and pay a hefty amount of either mortgage interest or property taxes.

  • Reside within a state which has a high tax burden on its residents.

  • Had uncommonly high medical or dental expenses that you had to pay directly.

  • Make frequent and/or substantial donations to registered nonprofit organizations.

  • Suffered a loss from a disaster within a region that has been recognized as a federally designated disaster zone.

Common Itemized Deductions

Here are the bigger deductions defined by the IRS:

Medical expenses and dental expenses: In no case should the total out-of-the-pocket medical expenses exceed 7.5% of your adjusted gross income (AGI). This applies to doctor’s bills, medications, surgeries, and medical apparatus.

State and Local Taxes (SALT): You are able to deduct state tax and local taxation imposed on income, as well as sales tax and property taxes; however, the total deduction is hard capped at $10,000 total on a single tax return (5,000 total if married filing separately).

Interest on Mortgages: Interest paid on the mortgage of a home (a loan not exceeding $750,000 if the mortgage was signed post December 15th 2017) and interest on certain home equity loans, if such equity is used to increase the value of the property, is indeed deductible.

Donations: Donations made in cash or in property to the charities which are approved by the IRS are allowed to be deducted as long as the writer of the tax return has the appropriate documentation. In some cases, those who donate property of significant value will need to have the property appraised.

Casualty and theft losses: Losses as a result of federally declared disasters can be deductible. Other personal losses from a casualty of theft do not usually qualify.

Other Limited Deductions: Some older miscellaneous deductions remain folded, however, particular costs incurred, such as gambling losses not exceeding winnings, remain deductible.

Itemized vs. Standard Deduction

The Standard Deduction does not require supporting documents describing incurred expenses as it is a predetermined amount that can be subtracted from taxable income.

Standard Deduction Assessed Amounts for the Year 2025

  • Single or Married Filing Separately: $14,600

  • Head of Household: $21,900

  • Married Filing Jointly: $29,200

Making a Decision on Which to Take

When deductible expenses are more than the standard deduction amount, the standard case amount usually applies.

In the alternative, the standard deduction is easier, and sometimes more cost effective, to apply.

Example: This is the case for a single taxpayer who has $9,000 in state taxes and $6,000 in charitable donations. Since the taxpayer can itemize deductions as it exceeds the standard deduction, their total is $14,600.

How to Itemize on Your Tax Return

  • Collect Records: Retain receipts, tax documents, donation receipts, and other supporting documents.

  • Complete Schedule A: Assign applicable deductions and expenses to the respective categories.

  • Submit with Form 1040: Schedule A is incorporated with the tax return during the filing of your Form 1040.

Proactive Advice

  • Utilize a tax professional or tax software to evaluate both methods to prepare the return.

  • Throughout the year, encourage the taxpayer to keep receipts related to deductible expenses to simplify the filing process at year’s end.

Pitfalls and Limitations

Even if you’re itemizing, there are rules you have to follow:

  • SALT Cap: State and local taxes are capped at a maximum of $10,000.

  • Medical Floor: Expenses must total greater than 7.5% of your AGI.

  • High-Income Phaseouts: Some limits were lifted, but certain deductions might still not apply to all taxpayers.

When to Talk to a Tax Professional

You might find itemizing much more complex if you:

  • Have more than one property.

  • Believe you have to pay taxes in more than one state.

  • Have sizable charitable contributions or casualty losses.

  • Want to be certain your deductions are not subject to an audit.

You can find a lot of help in maximizing your deductions. Our dedicated professionals at Dimov Partners are ready to provide assistance with compliance concerning IRS rules and regulations. Contact us today.

FAQs

  • What expenses are deductible on Schedule A?

  • Should I itemize or take the standard deduction?

  • Can I deduct home improvements?

  • Do vision and dental expenses qualify?

  • How does itemizing work for married couples filing separately?

George Dimov