Making Sense of Itemized Deductions in 2023

If you are a homeowner, you may be wondering if you can itemize your deductions to get a higher tax benefit. To itemize, you first have to be above the standard deduction. If you are, then it is likely that you or your tax preparer can itemize on your taxes.

These deductions include, but are not limited to:

• Home mortgage interest payments
• City/state/school property taxes
• Personal property taxes
• State income taxes
• Other miscellaneous deductions

First, you need to determine if you qualify for itemized deductions for the 2022 tax year. You must meet the standard deduction of: $12,950 for single, $19,400 for head of household, and $25,900 for married filing joint.

Once these criteria are exceeded, you need to gather your documentation for itemizing. These are just a few examples and each of these categories have limitations. For example:

• Medical costs
  • Limitations for medical, dental, prescriptions and any qualifying medical payments that is in excess of 7.5% of your adjusted gross income (AGI).
  • This would also include certain travel costs and the number of miles driven to doctor’s appointments.
• Taxes paid
  • As in the previous years, this is capped at $10,000. These taxes can be state and local sales tax, income tax or real estate property taxes.
• Interest paid
  • You can deduct the interest paid on your mortgage. If you purchased your home after December 14, 2017, the maximum amount of indebtedness you can deduct the interest for is $750,000 of mortgage debt. This would also include Home equity lines of credit (HELOC) or Home Equity Loans used for purposes of capital improvements to your home. Any portion of HELOCs or loans used for anything else (debt consolidation, education costs, etc.) are not deductible.
• Gifts to charity
  • Cash Contributions to charities that are 501c(3) organizations are capped at 60% of your AGI.
  • You can also have non-cash donations, which would be capped at 20%-50% of your AGI depending on the type of items donated. For many people this would include donated clothing or household items that are in good used condition or better, which has the 50% cap of AGI. Typically, they are donated to places like Goodwill, Salvation Army or Habitat for Humanity. Kindly note with this type of donation, you need to keep a detailed itemized list of what items are donated and obtain a receipt from the organization. From there, you will need to determine the Fair Market Value of the items donated which is normally far less than the actual purchased price.
    • If the fair market value is more than $500 for an item, then you will have to get a qualified appraisal valuing the item.
    • For any total non-cash donation in excess of $500 you would need to complete an IRS Form 8283 with your tax return.

• Miscellaneous Itemized Deductions
  • A few Common miscellaneous deductions that are fully deductible:
    • Amortizable premium on a taxable bond
    • Gambling losses to the extent of gambling winnings
    • Casualty and theft losses from income-producing property
    • Estate taxes imposed on taxable income (income in respect of a decedent)

• Should I track this if I cannot itemize on my Federal return?
  • We would say yes, because there are some states that have “de coupled” from the Federal return. This means that even if you do not itemize on your federal return, you may be able to itemize on your state return. That being said, it is a good idea to keep the records of potentially itemized deductions even if you do not think you can itemize on your federal return.

Two categories no longer covered by the TCJA law are:

• Miscellaneous (unreimbursed job expenses, professional fees including investment and tax prep fees) that were subjected to the 2% of AGI limit
• Deductions for theft and personal casualty losses.
  • Only exception to this exclusion is if the personal casualty losses are attributable to a federally declared disaster. This loss would be reported on Form 4684.

We know understanding the ever-changing tax laws can be challenging. As always, do not hesitate to contact our Team for more information, clarification or discussion.