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Itemized Deductions As Per U.S. Tax Reforms

Last Update Date : April 30, 2019
Estimated Read Time: 6 min

The itemized deductions are those eligible expenses which when claimed by an individual taxpayer on federal income tax return decreases their taxable income. In accordance with the new U.S. tax reforms, there is no longer an overall limitation on itemized deductions based on your adjusted gross income.

Difference between Itemized Deduction & Standard Deduction

The major differences between the Standard Deductions and the Itemized deductions are as follows:

              Itemized Deduction              Standard Deduction
Non-resident aliens and the dual-status alien can claim for itemized deduction.Non-resident aliens and the dual status alien cannot claim for standard deductions.
Determined by your expenses.Determined by your filing status. Not based on expenses made during the year.
A fixed dollar amount is not deducted. Amount deducted depends on your expenses.A fixed dollar amount is deducted.

Purpose

Government uses itemize deductions to help the taxpayers with the financial incentives so that the taxpayers can use the money saved for other purposes like buying a home or for donation purposes, etc. and claim the tax deduction on the return.

Eligibility

Eligible

You are eligible for the itemized deduction if you fall under the following categories

  1. If you are a U.S citizen, resident alien or a nonresident alien, you are eligible to claim for the Itemized deductions.
  2. The taxpayer who has maintained the necessary records of expenses can claim for itemized deductions.

Not-eligible

You are not liable to claim for itemized deductions if you fall under the following

  1. If you have chosen Standard deduction, you cannot claim for Itemized deductions.
  2. In case of married filing separately, if the spouse of the taxpayer chooses for the standard deduction, then the taxpayer cannot claim for itemized deductions.

How can you determine whether to itemize or not?

In order to determine whether you should itemize your deductions or not, you need to add up the sum of your total deductible expenses keeping in mind the limitations on each. The Taxpayer has the option of choosing either of the deductions- standard deductions or itemized deductions whichever is greater to get the advantage of more deductions on your taxable income.

  1. If you are a single taxpayer and if your deduction exceeds $12000, you should itemize your deduction.
  2. If you are married, filing jointly and if your deductions exceed $24000, you should itemize your deduction.
  3. If you are married, filing separately, and your deduction exceeds $12000, you should itemize your deduction, however only if your spouse also claims for itemized deductions.

Where to file?

You can file your income taxes for itemized deductions by using Form 1040 and thereby listing your itemized deductions on Schedule A.

How can you Claim Itemized Deductions?

  1. On filing form 1040, you will find a question asking to either choose itemize deduction or standard deduction.
  2. You will be required to fill a separate form – Schedule A which is available on the IRS website with your 1040 form to calculate your itemized deductions.
  3. The schedule A form will guide you on how to calculate each expense.
  4. After adding all the expenses, you will have to take the final amount of the expenses on the second page of the Schedule A form where itemized deduction needs to be mentioned.
  5. This amount will be subtracted from your income to claim for the deductions.

Documents

If you choose to itemize deductions, you will have to produce accurate records related to the expenses made during the tax year to prove the following:

  1. You have paid the expenses that you will itemize, during the year.
  2. If the expenses you have paid fall under the category of deductible expenses.

Itemized Deduction Expenses

Eligible Expenses

The eligible expenses which fall under the category of deductible itemized deductions are as follows:

State and Local Taxes

  1. Include the State and local income taxes or general sales taxes on line 5a.
  2. Include the State and local real estate taxes on line 5b.
  3. Include the state and local personal property taxes on line 5c.
  4. Income taxes you paid to a foreign country should be included in line 6 of Schedule A.

Home Mortgage Interest

  1. You need to mention the home mortgage interest paid and points which are reported to you on form 1098 on line 8a.
  2. You need to mention home mortgage interest which is not reported on form 1098 on line 8b. You also need to mention the name, identifying number and address of the person from whom you have purchased your home.

Casualty and Theft Losses

  1. You need to attach form 4684 and enter the amount from line 18 of form 4684 on line 15 of Schedule A, in case of federally declared disaster losses.

Charitable Contribution

  1. The total value of gifts made in cash or by check of $250 or more should be entered on line 11.
  2. If any gift is made of $250 or more, other than cash or check, it should be entered on line 12
  3. Attach form 8283, if the charitable contribution is made other than cash or check and in case the value exceeds $500.

Medical and Dental Expenses

  1. After reducing the eligible medical and dental expenses for any payments you received from insurance or other sources, enter the total of these expenses in line 1 of Schedule A.
  2. You should start with filing Form 8962 and then proceed with filling out Schedule A, line 1 in case premium tax credits were paid in advance, or your premium tax credit is eligible to be claimed by you.
  3. Can make a separate article for medical and dental expenses.

Personal Expenses that are Deductible

Gambling Expenses

  1. Gambling expenses are limited to your income.
  2. You can claim gambling expenses by reporting the full amount of your winnings as income, thereby claiming your losses on line 16 of Schedule A.
    Examples: lottery losses, casino, horse riding.

Investment Interest Expenses

  1. To figure out your deductions, you need to attach form 4952
  2. You are not required to file form 4952 if all the below conditions apply:
  3. a. If your investment interest expense is less than your investment income from interest and ordinary dividends minus any qualified dividends.
  4. b. If you lack any other deductible investment expenses.
  5. c. If you lack disallowed investment interest expense from 2017.

Non-Eligible Expenses

The miscellaneous itemized deductions are not deductible. They are as follows:

  1. Deductions for employee business expenses (Rent expenses, cell phone expenses, meal expenses etc.)
  2. Fees for tax preparation.
  3. Investment expenses including investment management fees.
  4. Education expenses relating to education.
  5. Expenses for the job search.
  6. Fees for the safe deposit box.
  7. Personal casualty and theft losses.
  8. Investment expenses from pass-through entities.

The phaseout limit of itemized deduction is removed.

Merits

There are various advantages of choosing itemized deductions. They are as follows:

  1. There are a number of deductions that can be claimed under itemized deductions if you qualify for the expenses.
  2. Itemizing is a manual process of keeping records for the proof of your expenses so that you get more deductions.
  3. You get the option of best financial advantage by itemizing your expenses.

Demerits

As every coin has a double side, hence there are demerits too of the itemized deductions. They are as follows:

  1. Itemizing is a time- consuming process which involves the effort of maintaining the records.
  2. Itemizing is not an easy process.
  3. You cannot claim for the itemized deduction if you don’t have expenses.
  4. You cannot claim the whole deduction in accordance with the new tax reforms in the U.S as limitation has been imposed on itemized expenses.
  5. Many itemized deductions like moving expenses, miscellaneous expenses have been removed. The taxpayer will not be able to claim deductions on the same.

People Also Ask

Q. Is cosmetic surgery deductible in medical and dental expenses?

A. No, Cosmetic surgery is not deductible unless it is necessary to improve a deformity related to a congenital abnormality, an injury from an accident or trauma.

As per US Tax Law, the itemized deductions are the eligible expenses which can be claimed by taxpayers on a federal income tax return to lower down their taxable income. These expenses according to the new tax reform in the U.S includes charitable donations, medical expenses, state and local taxes, property tax, home mortgage interest, investment interest expenses as well as the gambling expenses. Hence to claim for the itemized deductions, the taxpayer can calculate the deductions, on Schedule A of Form 1040.

How H&R Block can help you?

H&R Block is the global leader in the Income Tax filing services domain. Get your U.S. Expat tax filing done by our tax experts who will help you understand your tax modalities, prepare your return and file it online.

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Anshu Jain
Anshu Jain is the Manager, Offshore Operations at H&R Block (India). She holds an MBA in Finance and has an experience of over ten years in business operations, U.S. tax advisory and program management. When she is not working, Anshu enjoys reading and writing about U.S. taxation.

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