Nora is head of household with AGI of $75,000 and is evaluating whether to itemize. She paid $7,000 of unreimbursed medical expenses (deductible only above $,7.5%$ of AGI), $8,700 of state and local taxes (subject to a $10,000 cap), $5,200 of qualified home mortgage interest, and $1,900 of cash charitable contributions. The standard deduction for head of household is $21,900. How should the taxpayer optimize their deductions to minimize taxable income?
- Itemize because allowable itemized deductions exceed $21,900
- Take the standard deduction because allowable itemized deductions are less than $21,900 (correct answer)
- Itemize because medical expenses are fully deductible once they exceed $5,000
- Take the standard deduction because mortgage interest is not deductible for head of household
Explanation: This question tests the decision between itemizing and taking the standard deduction for head of household filers. The key facts are: medical expenses of 75,000 × 7.5% = $5,625), resulting in $1,375 being deductible; SALT of $8,700 is fully deductible (under the $10,000 cap); mortgage interest of $5,200 is fully deductible; and charitable contributions of $1,900 are fully deductible. The total itemized deduction is $1,375 + $8,700 + $5,200 + $1,900 = $17,175. Since itemized deductions of $17,175 are less than the standard deduction of $21,900, Nora should take the standard deduction. Choice B correctly identifies this, Choice A incorrectly suggests itemizing, Choice C makes false claims about medical expense thresholds, and Choice D incorrectly states mortgage interest rules. For tax planning, head of household filers need significantly higher itemized deductions than single filers to benefit from itemizing due to their higher standard deduction.