Allowable
Itemized Deductions

Master the rules for determining which expenses qualify as itemized deductions on Schedule A, including thresholds, limitations, and key categories.

CPA Regulation (REG)

What Are Itemized Deductions?

Itemized deductions are specific personal expenses that individual taxpayers may subtract from their Adjusted Gross Income (AGI) instead of taking the standard deduction. They are reported on Schedule A (Form 1040).

The Six Major Categories

Medical & Dental

Expenses exceeding $7.5\%$ of AGI

Taxes Paid

State/local income, property taxes (SALT cap: $\$10{,}000$)

Interest Paid

Mortgage interest, investment interest

Charitable

Cash and property donations to qualified orgs

Casualty Losses

Federally declared disaster areas only

Other Deductions

Gambling losses (to extent of winnings), etc.

From Gross Income to Taxable Income

Medical & Dental Expenses

Medical and dental expenses are deductible only to the extent they exceed $7.5\%$ of AGI. The formula is:

✓

Included: Doctor fees, prescriptions, insurance premiums (not pre-tax), dental work, eyeglasses, medical travel

✕

Excluded: Cosmetic surgery (unless for deformity), over-the-counter medicines (without prescription), gym memberships

Taxes Paid: The SALT Cap

State and local taxes (SALT) paid are deductible, but subject to a combined cap of $\$10{,}000$ ($\$5{,}000$ if MFS). This includes:

State Income Tax

OR state/local general sales tax (choose one)

Real Property Tax

On personal residence and other real property

Personal Property Tax

Based on value (e.g., vehicle registration if ad valorem)

Interest Paid Deductions

1

Qualified Residence Interest: Mortgage interest on acquisition debt up to $\$750{,}000$ ($\$375{,}000$ MFS). Applies to primary + one second home.

2

Investment Interest: Deductible up to net investment income. Excess carries forward. Elect to include capital gains to increase the limit.

3

Mortgage Points: Fully deductible in year paid if for purchase of principal residence; amortized if for refinancing.

Charitable Contributions

Donations to qualified organizations (501(c)(3)) are deductible subject to AGI percentage limits. The type of property and organization determine the ceiling:

Donation Type	Public Charity	Private Foundation
Cash	60% of AGI	30% of AGI
Capital Gain Property (FMV)	30% of AGI	20% of AGI
Ordinary Income Property	50% of AGI	30% of AGI
Excess Carryforward	5 years

Standard vs. Itemized

Feature	Standard Deduction	Itemized Deductions
Amount	Fixed ($\$13{,}850$ Single)	Varies by expenses
Documentation	None required	Receipts, records needed
Best When	Expenses < standard	Expenses > standard
Filing Status	Available to most	Required if MFS + spouse itemizes
Nonresident Alien	Generally not available	Must itemize

Casualty & Theft Losses

After the Tax Cuts and Jobs Act (TCJA), personal casualty and theft losses are deductible only if attributable to a federally declared disaster. The calculation has two floors:

How to Determine the Deduction

1

Calculate AGI: Start with gross income minus above-the-line deductions to find Adjusted Gross Income.

2

List each category: Add up medical, SALT, interest, charitable, casualty, and other deductions separately.

3

Apply floors/caps: Medical ($7.5\%$ of AGI floor), SALT ($\$10{,}000$ cap), charitable (AGI% limits), casualty ($\$100$ + $10\%$ AGI).

4

Total the amounts: Sum all allowed deductions after applying each threshold.

5

Compare to standard: Itemize only if the total exceeds the applicable standard deduction for your filing status.

Worked Example: Basic

Facts: Taylor (Single) has an AGI of $\$80{,}000$. She paid $\$9{,}500$ in medical expenses, $\$8{,}000$ in state income + property taxes, and $\$3{,}000$ in mortgage interest.

1

Medical: $\$9{,}500 - (0.075 \times \$80{,}000) = \$9{,}500 - \$6{,}000 =$ $\$3{,}500$

2

SALT: $\$8{,}000$ (under the $\$10{,}000$ cap) = $\$8{,}000$

3

Mortgage Interest: = $\$3{,}000$

4

Total: $\$3{,}500 + \$8{,}000 + \$3{,}000 =$ $\$14{,}500$

Worked Example: Charitable + SALT

Facts: Jordan and Alex (MFJ) have AGI of $\$200{,}000$. They paid $\$15{,}000$ in SALT, donated $\$25{,}000$ cash to their church (public charity), and paid $\$12{,}000$ in mortgage interest.

1

SALT: $\$15{,}000$ is capped at $\$10{,}000$

2

Charitable (Cash to public): Limit = $60\% \times \$200{,}000 = \$120{,}000$. $\$25{,}000$ is under the limit = $\$25{,}000$

3

Mortgage Interest: = $\$12{,}000$ (within $\$750{,}000$ debt limit)

4

Total: $\$10{,}000 + \$25{,}000 + \$12{,}000 =$ $\$47{,}000$ > $\$27{,}700$ MFJ standard. Itemize.

Worked Example: Casualty Loss

Facts: Sam (Single, AGI = $\$100{,}000$) suffered damage from a federally declared hurricane. His property had an adjusted basis of $\$50{,}000$, FMV decline was $\$35{,}000$, and insurance paid $\$10{,}000$.

1

Loss: Lesser of FMV decline ($\$35{,}000$) or basis ($\$50{,}000$) = $\$35{,}000$. Minus insurance: $\$35{,}000 - \$10{,}000 =$ $\$25{,}000$

2

Per-event floor: $\$25{,}000 - \$100 =$ $\$24{,}900$

3

$10\%$ AGI floor: $\$24{,}900 - (0.10 \times \$100{,}000) = \$24{,}900 - \$10{,}000 =$ $\$14{,}900$ deductible

Common Mistakes

✕ Forgetting the SALT Cap

Deducting full SALT paid instead of applying the $\$10{,}000$ ceiling. This is the most commonly tested TCJA change.

✕ Wrong Medical Floor

Deducting total medical expenses instead of only the amount exceeding $7.5\%$ of AGI.

✕ Including Non-Qualifying Items

Deducting federal tax, personal interest, or cosmetic surgery as itemized deductions when they are explicitly excluded.

✕ Casualty Without Declaration

Claiming personal casualty losses for events that are not in a federally declared disaster area (post-TCJA).

Summary of Thresholds & Caps

Category	Floor / Cap	Key Detail
Medical & Dental	Floor: $7.5\%$ of AGI	Only excess is deductible
SALT	Cap: $\$10{,}000$	$\$5{,}000$ if MFS
Mortgage Interest	Debt limit: $\$750K$	$\$375K$ if MFS
Charitable (Cash)	60% of AGI (public)	5-year carryforward
Charitable (CG Prop.)	30% of AGI (public)	FMV for LTCG property
Casualty Loss	$\$100$ + 10% AGI	Federal disaster only

Question 1 of 5

A single taxpayer has AGI of $\$60{,}000$ and total medical expenses of $\$7{,}000$. What is the deductible medical expense?

The $7.5\%$ floor is $0.075 \times \$60{,}000 = \$4{,}500$. Deductible = $\$7{,}000 - \$4{,}500 = \$2{,}500$.

Question 2 of 5

A married couple filing jointly paid $\$14{,}000$ in state income taxes and $\$5{,}000$ in property taxes. What is their allowable SALT deduction?

Total SALT paid is $\$14{,}000 + \$5{,}000 = \$19{,}000$, but the SALT deduction is capped at $\$10{,}000$ for MFJ filers under TCJA.

Question 3 of 5

Which of the following is NOT deductible as an itemized deduction?

Federal income taxes are never deductible as an itemized deduction. Only state and local taxes qualify under the SALT deduction (subject to the cap).

Question 4 of 5

A taxpayer donates stock (held for 3 years, FMV = $\$50{,}000$) to a public charity. Their AGI is $\$100{,}000$. What is the maximum charitable deduction this year?

Long-term capital gain property donated to a public charity at FMV is limited to 30% of AGI. $0.30 \times \$100{,}000 = \$30{,}000$. The remaining $\$20{,}000$ carries forward for up to 5 years.

Question 5 of 5

If one spouse on a Married Filing Separately return chooses to itemize deductions, what must the other spouse do?

When filing MFS, if one spouse itemizes, the other spouse must also itemize. This prevents one spouse from getting the benefit of both deduction methods.

Feature	Standard Deduction	Itemized Deductions
Amount	Fixed (\(\$13{,}850\) Single)	Varies by expenses
Documentation	None required	Receipts, records needed
Best When	Expenses < standard	Expenses > standard
Filing Status	Available to most	Required if MFS + spouse itemizes
Nonresident Alien	Generally not available	Must itemize

Category	Floor / Cap	Key Detail
Medical & Dental	Floor: \(7.5\%\) of AGI	Only excess is deductible
SALT	Cap: \(\$10{,}000\)	\(\$5{,}000\) if MFS
Mortgage Interest	Debt limit: \(\$750K\)	\(\$375K\) if MFS
Charitable (Cash)	60% of AGI (public)	5-year carryforward
Charitable (CG Prop.)	30% of AGI (public)	FMV for LTCG property
Casualty Loss	\(\$100\) + 10% AGI	Federal disaster only

AllowableItemized Deductions

What Are Itemized Deductions?

The Six Major Categories

From Gross Income to Taxable Income

Medical & Dental Expenses

Taxes Paid: The SALT Cap

Interest Paid Deductions

Charitable Contributions

Standard vs. Itemized

Casualty & Theft Losses

How to Determine the Deduction

Worked Example: Basic

Worked Example: Charitable + SALT

Worked Example: Casualty Loss

Common Mistakes

Summary of Thresholds & Caps

Question 1 of 5

Question 2 of 5

Question 3 of 5

Question 4 of 5

Question 5 of 5

Allowable
Itemized Deductions