Should I Itemize Deductions in 2020?
Taxpayers should choose to itemize their deductions is they exceed the given standard deduction amount, which is $12,200 for Single taxpayers and $24,400 if you are married filing jointly. Deductions reduce your taxable income and the major categories include medical, mortgage interest, state taxes and gifts to charity.
Medical expenses, not reimbursed by insurance, must exceed 7.5% of your adjusted gross income. For the majority of taxpayers, there will be no benefit here unless you had major medical that was not covered by insurance. Instead, taxpayers can write off common medical expenses by making a contribution to a health savings account. If you are self-employed, you can deduct amounts contributed to health insurance as an adjustment to income.
Interest paid on a loan secured by your home (or a second home) is an itemized deduction. How much interest you can deduct depends on the amount of the loan, the date of loan and how you use the funds. For mortgages taken out after December 15, 2017 the loan amount cannot exceed $750,000 for the interest to be fully deductible (and cannot exceed one million dollars for mortgages prior). So, for many taxpayers with large mortgages, their interest deduction may be prorated based on the loan amount. Points paid as loan origination fees and mortgage insurance may also be deductible. Interest on a home equity line is deductible if used to buy, build or improve your home.
Since 2018, the most sweeping change in tabulating your itemized deductions has been in state and local taxes, which is now capped at only $10,000 (previously uncapped but subject to alternative minimum tax). For many taxpayers who own real estate and/or live in high taxed cities like New York, District of Columbia and Philadelphia, actual taxes paid will far exceed this cap. This new law has created much confusion as to how much state income tax refund is taxable. Though states may send a Form 1099G showing the amount of your state tax refund, not all of the amount listed may be taxable. The refund is not included if paying the exact amount of state tax (without the refund) did not affect your deduction.
Charitable contributions to qualified organizations are allowed to compute your itemized deductions and can be in the form of cash/check or non-cash property. Cash contributions of any amount require proof of payment and for any contribution of $250 or more, the organization should provide a contemporaneous written acknowledgement. If you receive a benefit for your contribution, the receipt should indicate so and you must subtract the fair market value of that benefit from your contribution. In certain circumstances, cash contributions may be categorized as a business deduction if you anticipate receiving a future benefit to your business.
You can take a deduction for used clothing and household items if they are in good condition. The deduction is limited to the thrift value and not your original purchase price. Many organizations will give you a blank receipt and it is your responsibility to inquire what the item would sell for. If your non-cash contributions are greater than $500, you must complete IRS Form 8283. It is always a good idea to document your contribution with pictures, purchase receipts and request an acknowledgement from the organization. Contributions greater than $5,000 require a qualified written appraisal.