Related Questions
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It’s never too early (or too late) in the year to think about itemizing your tax deductions.
FiLife checked in with Gregg Wind, a certified public accountant in Los Angeles, for a refresher. Of course, you will always want to check if your itemized deductions are greater than the standard deduction.
Medical Deductions: If you pay out of pocket for doctors or dental expenses, health insurance, prescription drugs, or, in certain cases, gym membership, you can deduct those expenses if they exceed 7.5% of your adjusted gross income(AGI). "If your AGI is $50,000, for example, anything over $3750 would be deductible."
Property Taxes: The property taxes on your home and the personal property taxes on possessions like a car or boat are deductible.
Interest: You can deduct the mortgage interest on your home loan of up to $1 million. You can also deduct the interest on a home equity line of credit of up to $100,000.
If you had to pay a loan origination fee or points on a loan when you bought a house, you can write it off in full for a new purchase. If you're refinancing, the fees are not deductible but can be written off over the life of the loan. For a 30 year loan in which you paid $3000 to get the loan, you can write off $100/year over thirty years.
Investment Interest: If you borrow money from a friend or relative to buy land or investment property and you're paying it back with interest, that's considered investment interest. You can write that off against investment income, which include dividends, interest and capital gains. Whatever investment interest you don't use can be carried over to the next tax year.
Charitable Deductions: Charitable donations can be deducted but if you give over $500 (non-cash) then you will have to fill out form 8283. "You should really have a receipt for all that stuff and, if possible, have the charity assign value. If you don't know what something is worth, the Salvation Army website has a list of suggested values for different items.”
Casualty Losses: If your home was damaged due to natural disaster or burglary, you can claim your losses. The difference in value between pre-casualty and post-casualty will determine your casualty loss to the extent that it exceeds 10% of your AGI plus $500. If you make $50,000/year, your casualty loss will need to exceed $5,500 ($5000+500). If you had $50,000 loss in value, you would be able to deduct $44,500.
Miscellanous Fees: Tax preparation fees, investment management fees and even safe deposit box fees are deductible if they exceed 2% of your AGI. In addition, unreimbursed expenses that you incur as part of your job are also deductible.
-- Gregg Wind is a partner at the accounting firm Wind Bremer Hockenberg, LLP in California
(Correction - The original version of this article included $100 instead of $500 for casualty loss.)
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The amount of non-cash charitable contributions required to file Form 8283 is incorrect. Anything over $500 requires the form. Anything $5,000 or more requires an appraisal by a certified appraiser.
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Slightly more than one third of taxpayers itemize (more than half of married taxpayers and a little less than a quarter of single filers).
Four-fifths of taxpayers who itemize have the mortgage interest deduction (only 6% points) and seven-eights deduct property taxes. Almost everybody deducts state and local income taxes. Four-fifths deduct charitable contributions, almost half deduct tax preparation fees, one-third deduct unreimbursed employee business expenses, one-fifth deduct medical and dental expenses, and one-fifth have miscellaneous deductions. Less than 5% deduct investment interest, gambling or casualty losses.
But the usual triggers for itemization are mortgage interest and real estate taxes, which together almost half of the dollar value of itemized deductions. They are followed by state and local taxes (about a fifth), charitable contributions (about a seventh) and miscellaneous deductions (almost a tenth). So if you own a home, are wealthy or generous, you should consider whether itemizing will yield more of a tax benefit than the standardized deduction.
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Information about casualty losses is incorrect. My favorite author covers itemizing versus the standard deduction in "A New Standard," an article appearing in the forthcoming November issue of Financial Planning magazine. The article notes that the nondeductible floors for casualty losses are $500 (not $100) and 10 percent of adjusted gross income. I have never known Mr. Favorite Author to be wrong.
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