8524 / What are itemized deductions and how are they deducted?
Editor’s Note: The 2017 tax reform legislation suspended many itemized deductions for tax years beginning after 2017. Among those suspended were deductions for: casualty and theft losses (exceptions exist for losses occurring in a federally declared disaster area), moving expenses (with an exception for members of the armed forces), expenses related to tax preparation, and expenses relating to the trade or business of being an employee. The deduction for state and local taxes was capped at $10,000 and the mortgage interest deduction was limited to interests on mortgages not exceeding $750,000. These suspensions and limitations applied for tax years beginning after December 31, 2017 and before December 31, 2025. The 2025 OBBB largely retained the 2017 changes on a permanent basis, with the exception of the SALT cap, which was increased to $40,000 (subject to phaseout).
Planning Point: The IRS recommends that taxpayers who typically itemize deductions check their withholding to avoid surprises at tax time. Taxpayers who itemized in the past may now find it more beneficial to take the standard deduction, which could change the amount that should be withheld. The limitations on the state and local tax deduction and the mortgage interest deduction could also have a substantial impact on the value of taxpayers’ itemized deductions. A withholding calculator is available on the IRS website to help these taxpayers ensure that employers are withholding the proper amount from paychecks.
As discussed in Q 8521, taxpayers are entitled to a “below-the-line” deduction, i.e., a deduction from adjusted gross income in arriving at taxable income, of the greater of 1) the applicable standard deduction (including the additional standard deduction for taxpayers who are blind and/or age 65 or older based on filing status); or 2) the sum of their itemized deductions. So, in order to make a determination as to which amount to deduct, the taxpayer must total all deductible items that qualify as itemized deductions. If the total amount of itemized deductions exceeds the standard deduction, the taxpayer deducts that larger sum.
The following is a non-exhaustive list of the itemized deductions:
…Interest (including mortgage interest on a principal residence), within limits (see Q 8530); …Personal expenses for the production or collection of taxable in-come, within limits, or in conjunction with the determination, collec-tion or refund of any tax (but some of these expenses may be consid-ered “miscellaneous itemized deductions” (see Q 8529). These deduc-tions were suspended for 2018-2025 and eliminated entirely by the 2025 OBBB. However, certain business expenses and expenses for the production of rents and royalties are above the line deductions rather than itemized deductions; …Personal taxes of the following types: state, local and foreign real property taxes; state and local personal property taxes; state, local and foreign income, war profits and excess profits taxes (under the $10,000 “SALT” cap (for for 2018-20252024) or $40,000 (2025-2029), and the generation-skipping tax imposed on income distributions. If taxes oth-er than these are incurred in connection with the acquisition or dispo-sition of property, they must be treated as part of the cost of such property (included in basis) or as a reduction in the amount realized on the disposition; …Uncompensated personal casualty and theft losses (generally sus-pended for 2018-2025prior to 2018). These are were deductible only to the extent that the aggregate amount of uncompensated losses in ex-cess of $100 (for each casualty or theft) exceeds 10 percent of adjusted gross income. The taxpayer must file a timely insurance claim for damage to property that is not business or investment property or else the deduction is disallowed to the extent that insurance would have provided compensation. Uncompensated casualty and theft losses in connection with a taxpayer’s business or in connection with the pro-duction of income are deductible in full. For more on casualty losses incurred prior to 2018, see Q 8710 to Q 8722, and see Q 8721 for the new rules governing losses incurred in 2016 disaster areas; …Contributions to charitable organizations, within certain limitations (see Q 8543 to Q 8548); …Unreimbursed medical and dental expenses, and expenses for the purchase of prescribed drugs or insulin incurred by the taxpayer for himself and his spouse and dependents, to the extent that such ex-penses exceed 7.5 percent of adjusted gross income (10 percent in ear-lier years) (see Q 8549); …Unreimbursed expenses of an employee connected with his em-ployment (suspended for 2018-2025prior to 2018). Generally, such expenses are “miscellaneous itemized deductions” (see Q 8529); …Federal estate taxes and generation-skipping transfer taxes paid on “income in respect of a decedent.”
1. IRC § 164(a).
2. IRC § 165(h)(4)(E).