Itemized Deduction - Examples of Allowable Itemized Deductions

Examples of Allowable Itemized Deductions

There are a number of allowable deductions:

• Medical expenses, to the extent that the expenses exceed 7.5% of the taxpayer's AGI. (e.g., a taxpayer with an AGI of $20,000 and medical expenses of $5,000 would be eligible to deduct $3500 of their medical expenses ( 20,000 X .075 = 1500; 5000 - 1500 = 3500 ).) The 7.5% floor means that most taxpayers are unable to take advantage of the medical expense deduction. Allowable medical expenses include:
  • Capital expenditures that are advised by a physician, where the facility is used primarily by the patient alone and the expense is reasonable (e.g. a swimming pool for someone with degenerative spinal disorder, an elevator for someone with heart disease)
  • Payments to doctors, dentists, surgeons, chiropractors, psychologists, counselors, physical therapists, osteopaths, podiatrists, home health care nurses, cost of care for chronic cognitive impairment
  • Premiums for medical insurance (but not if paid by another, or with pre-tax money)
  • Premiums for qualifying long-term-care insurance, depending on the taxpayer's age
  • Payments for prescription drugs and insulin
  • Payments for devices needed to treat or compensate for a medical condition (crutches, wheelchairs, prescription eyeglasses, hearing aids)
  • Mileage for travel to and from doctors and medical treatment
  • Necessary travel expenses
  • Non-deductible medical expenses include:
    • Over-the-counter medications
    • Health club memberships (to improve general health & fitness)
    • Cosmetic surgery (except to restore normal appearance after an injury or to treat a genetic deformity)
• State and local taxes paid, including:
  • Income taxes (or, alternatively, state and local general sales taxes)
  • Vehicle registration license fee
  • Property taxes (assessed by reference to the value of the property)
  • but not including:
    • Use taxes
    • Excise taxes
    • Fines or penalties
• Mortgage interest expense on debt incurred in connection with up to two homes, subject to limits (up to $1,000,000 in purchase debt, or $100,000 in home equity loans)
  • also, points paid to discount the interest rate on up to two homes; points paid upon acquisition are immediately deductible, but points paid on a refinance must be amortized (deducted in equal parts over the lifetime of the loan)
  • also private mortgage insurance premiums through 2010
• Investment interest, up to the amount of income reported from investments (the balance is deferred until more investment income is declared)
• Charitable contributions to allowable recipients; this deduction is limited to either 30% or 50% of AGI, depending on the characterization of the recipient. Donations can be made as money, or in the form of goods. The value of donated services cannot be deducted as a contribution. Reasonable expenses necessary to provide donated services can, however, be deducted (such as mileage, special uniforms, or meals). Non-cash donations valued at more than $500 require special substantiation on a separate form. Non-cash donations are deductible at the lesser of the donor's cost or the current fair market value, unless the non-cash donation has been held for greater than a year (Long term), in which case it can be deducted at fair market value.
  • Eligible recipients for charitable contributions include:
    • Churches, synagogues, mosques, other houses of worship
    • Federal, state, or local government entities
    • Fraternal or veterans' organizations
  • Non-eligible recipients include:
    • Individuals
    • Political campaigns or political action committees (PACs)
• Casualty and theft losses, to the extent that they exceed 10% of the taxpayer's AGI (in aggregate), and $100 (per event, $500 starting tax year 2009)
  • After Hurricane Sandy many areas of Connecticut, New Jersey and New York have been declared disaster areas. This facilitates amendments to 2011 tax returns to claim a casualty tax deduction.

• Gambling losses, but only to the extent of gambling income (For example, a person who wins $1,000 in various gambling activities during the tax year and loses $800 in other gambling activities can deduct the $800 in losses, resulting in net gambling income of $200. By contrast, a person who wins $3,000 in various gambling activities during the year and loses $3,500 in other gambling activities in that year can deduct only $3,000 of the losses against the $3,000 in income, resulting in a break-even gambling activity for tax purposes for that year -- with no deduction for the remaining $500 excess loss.)