Itemized Deductions: A Complete Educational Guide

Itemized deductions are specific qualifying expenses that you report on Schedule A of Form 1040 instead of taking the standard deduction. You itemize when your eligible expenses total more than your standard deduction amount. Only about 10% of taxpayers itemize.

1. Mortgage Interest

Interest paid on loans secured by your primary or secondary residence
Loan limit: Mortgage debt of up to $750,000 (or $1 million for loans taken before December 16, 2017)
Reported on Form 1098 sent by your lender in January
Points paid when taking out a mortgage may also be deductible
Home equity loan interest is deductible only if the funds were used to buy, build, or substantially improve the home

2. State and Local Taxes (SALT)

You can deduct: state and local income taxes (or sales taxes) PLUS property taxes
Standard SALT cap: $10,000 per return ($5,000 if married filing separately) — established by the 2017 Tax Cuts and Jobs Act
2025 update: The One Big Beautiful Bill Act of 2025 temporarily raised the SALT cap to $40,000 for filers with income up to $500,000, subject to income phase-outs
You must choose between deducting income taxes OR sales taxes — not both

Residents of high-tax states (California, New York, New Jersey, Illinois) benefit most from SALT deductions. Verify the current SALT cap with the IRS or a tax professional, as this may be subject to legislative changes.

3. Charitable Contributions

Cash donations to qualified 501(c)(3) organizations: up to 60% of your AGI
Donations of non-cash property (clothing, furniture, stocks): up to 30% of AGI
Donations of appreciated capital assets (e.g., stocks): you can deduct fair market value and avoid capital gains tax
Written acknowledgment required for all donations of $250 or more
For non-cash gifts over $500: Form 8283 required; appraisal needed for gifts over $5,000
Donations to individuals, political campaigns, or foreign organizations are NOT deductible

4. Medical and Dental Expenses

Only the portion exceeding 7.5% of your AGI is deductible
Example: AGI $60,000 × 7.5% = $4,500 threshold. If you had $7,000 in medical expenses, you can deduct $2,500.
Deductible expenses include: Doctor and dentist visits, hospital care, prescriptions, eyeglasses/contacts, hearing aids, medical equipment, health insurance premiums (if paid out-of-pocket), long-term care premiums (limited by age), transportation for medical care
NOT deductible: Cosmetic surgery (unless medically necessary), non-prescription drugs (except insulin), gym memberships, vitamins

5. Casualty and Theft Losses

Only applicable for federally declared disasters (personal casualty losses from other events are not deductible after 2017 tax law change)
Loss must exceed $100 per event AND the total must exceed 10% of your AGI
You must reduce the loss by any insurance reimbursement received
Use Form 4684 to calculate the deductible loss

6. Student Loan Interest (Above-the-Line)

Deduct up to $2,500 in interest paid on qualified student loans
This is an "above-the-line" deduction — you can claim it without itemizing
2025 income limits (phase-out): MAGI $85,000–$100,000 (single), $170,000–$200,000 (married filing jointly)
You must be legally obligated to repay the loan; the loan must have been for qualified education expenses

Documentation Requirements

If you itemize, maintain thorough records:

Form 1098 (mortgage interest) from your lender
Property tax statements and receipts
Charitable donation receipts and acknowledgment letters
Medical bills and insurance Explanation of Benefits (EOB) statements
State and local tax payment records

Keep all records for at least 3 years after filing your return (longer for complex situations).