Sometimes it’s not easy to know whether to use a standard or itemized deduction for your personal Federal income taxes. We’ll break it down for you!
A standard deduction is an amount (indexed annually for inflation) of income not subject to federal taxation. It reduces taxable income. The alternative to taking the standard deduction is itemizing deductions on Schedule A. The Tax Cut Jobs Act (TCJA) of 2017 substantially increased the amount of the standard deduction, reducing the number of taxpayers who can benefit from itemizing. The chart below shows the standard deduction for different filing statuses for 2020. irs-provides-tax-inflation-adjustments-for-tax-year-2020:
FILING STATUS STANDARD DEDUCTION STANDARD DEDUCTION (If 65 Years or Older)
Single / Married, Filing Separately (MFS) $12,400 $14,050
Head of Household $18,650 $20,300
Married, Filing Jointly (MFJ) $24,800 $26,100 if one spouse is 65+ $27,400 if both spouses are 65+
Surviving Spouse $24,800 $26,100
The 2017 Tax Reform limits home mortgage interest deduction to interest on the first $750,000 in loans for homes purchased after December 15, 2017. The limitation is up to $1,000,000 in loans if the home was acquired on or before December 15, 2017. Both limits are halved for married filing separately. Interest from a home-equity loan used to purchase, build, or substantially improve the home is also qualified up to the above limits in aggregate.
Investment interest paid (on borrowed money) allocable to property held for investment is deductible. This deduction is limited to net taxable investment income for the year; any excess gets carried over to future years. This excludes interest allocable to securities or passive activities used to generate tax-exempt income.
Points on a main home/primary residence are deductible in the year the home is acquired or ratably over the life of the loan. Other restrictions apply.
4. For 2018 (retroactively) and 2019, qualified mortgage Insurance premiums is deductible if a taxpayer’s AGI is at or below $109,000 ($54,500 for married filing separately).
5. Out-of-pocket medical and dental expenses such as insurance premiums, prescription drugs, eyeglasses, etc. for tax years 2019 and 2020 that exceed 7.5% of the taxpayer’s AGI are deductible. This is a difficult threshold to meet, but if you have incurred major out of pocket medical expenses, it could be the deciding factor that tips you over to using itemized deductions.
The information above does not constitute tax advice. It is intended for information only. If you have any questions, please consult with our office at 775-786-6141 or E-mail at firstname.lastname@example.org