Itemized Deductions

How It Works

Itemized deductions allow you to subtract qualifying expenses from your adjusted gross income when those expenses exceed the standard deduction. The major categories include state and local taxes (capped at $10,000 under SALT), mortgage interest on loans up to $750,000, charitable contributions, and medical expenses exceeding 7.5% of AGI. Since the 2017 tax reform nearly doubled the standard deduction, only about 10% of filers itemize — mostly high-income taxpayers in high-tax states with large mortgages. To itemize, you file Schedule A with your tax return and list each deduction with supporting documentation. The decision to itemize versus take the standard deduction should be recalculated each year because your circumstances change. Mortgage interest declines over time as you pay down principal, property taxes may rise or fall, and charitable giving varies. A strategic approach called "bunching" involves concentrating deductible expenses into alternating years — for example, making two years of charitable donations in one year to exceed the standard deduction threshold, then taking the standard deduction the next year. Donor-advised funds are a popular vehicle for bunching charitable deductions while maintaining a steady giving schedule.