Itemized Tax Deductions for 2021
You can deduct your expenses using either the standard deduction or itemized deductions. Not sure whether to itemize deductions or use the standard deduction? When you prepare and e-File your tax return on eFile.com, we will make this easy for you and you can be assured that the results are in your best interest based on the latest tax updates. If you have questions, you can always contact one of our Taxperts.
If you want to learn more about itemized deductions, read on for a list of expenses you can itemize on your 2021 Tax Return.
Itemize Deductions 2021
In order to itemize deductions, your total deductions on Schedule A should allow for a greater deduction amount than the federal standard deduction. Generally, most taxpayers do not fall into this category as the standard deduction was increased greatly in 2018. For 2021 Returns, use the eFile Tax App to determine which deduction method is best for you - sign up free here.
1. Unreimbursed Medical and Dental Expenses
It might be beneficial for you to itemize your, your spouse's, and your dependents' unreimbursed (not covered by health insurance) medical and dental care expenses on Schedule A associated with Form 1040. When you prepare and e-File your taxes via the eFile.com app, we will give you this option and will compare it with your standard deduction and calculate which is most beneficial to you.
To find out how much you can deduct or itemize, add up your total medical and dental expenses for yourself, your spouse, and dependents for Tax Year 2021. You can only deduct the medical expense amount that exceeds 7.5% of your 2021 adjusted gross income (AGI).
Let's say your AGI is $40,000 and your medical expenses are $5,000. As a result, you could claim $2,000 on your tax return: $40,000 AGI * 7.5% = $3,000. Thus, $2,000 exceeds your $3,000 limit of your $5,000 medical expenses.
Line 1: Your total 2021 medical/dental expenses (not reimbursed or paid by others) are: $5,000
Line 2: Your AGI in 2021 (Line TBD of 2021 Form 1040) is: $40,000
Line 3: 7.5% of your AGI is: $3,000
Subtract Line 3 from Line 1, and this is the amount you can deduct: $2,000
If Line 3 is greater than Line 1 you cannot deduct your medical/dental expenses. In the example above, you can deduct $2,000 of your expenses.
2. Long-term Care Insurance Premiums
Long term care premiums are different than medical expenses. These insurance premiums are deductible to the extent that the premiums exceed 10% of your adjusted gross income (AGI. There is a limit based on your age, and it must be for qualified long term care insurance.
2. Taxes You Paid
Deductions for state and local sales tax (SALT), income, and property taxes can be itemized on Schedule A. The total amount you are claiming for state and local sales, income, and property taxes cannot exceed $10,000.
Keep in mind that state, local, sales, and foreign property taxes deducted on Schedule C, Schedule E or F do not have a limit. For example, if an individual owned and rented a property, their property taxes are not capped.
If you paid $3,210 of property taxes on your home residence, it would be to your advantage to deduct this amount if it is above your standard deduction.
3. Interest You Paid
Home mortgage interest is the interest you paid on debt taken out to buy, build, or improve your home. Just to be clear, you can only deduct the interest you paid on your mortgage debt, not on the debt amount. The interest amount is reported to you on Form 1098 provided for the year by your mortgage company.
A. For home mortgage debt taken out on or after December 15, 2017: Your home mortgage interest deduction is limited to the following debt amounts: $750,000 (Single, Married Filing Joint/Qualifying Widow/Widower, Head of Household) and $375,000 (Married Filing Separately).
B. For home mortgage debt taken out before December 15, 2017: Your home mortgage interest deduction is limited to the following debt amounts: $1,000,000 (Single, Married Filing Joint/Qualifying Widow/Widower, Head of Household) and $500,000 (Married Filing Separately).
As it stands now, for Tax Year 2026, the mortgage interest cap goes back to home mortgage interest paid on all mortgages $1,000,000 or lower.
If you sell your home, you can still exclude up to $250,000 from capital gains taxation ($500,000 if Married Filing Jointly) if you owned and used the home as a primary residence for two of the past five years.
Home Mortgage Amount: $235,500
Annual Interest Rate: 4.1%
Annual Mortgage Interest Payment: $9,655.50
You can deduct the $9,655.50 mortgage interest you paid during the tax year.
One Important Change Regarding Home Equity Debt
Interest paid up to $100,000 in home equity debt taken to improve an existing home or to purchase a home is deductible on debts incurred on or before December 15, 2017. You could also use the debt to pay college tuition, credit card debt, or other non-home expenses. In effect, you could deduct interest on a $1.1 million mortgage/debt amount.
For home equity debts incurred after December 15, 2017, you cannot deduct interest on the debt on 2018-2025 Tax Returns unless it is used to buy, build, or improve your home that secures the debt. Your interest deduction is limited to the $750,000 (Married Filing Jointly) and $375,000 (Married Filing Separately) debt amounts. Debts incurred on or before December 15, 2017 are grandfathered into the old amounts listed above. Unless new legislation changes this, it will revert to its prior state for Tax Year 2026 and you will again be able to deduct interest on $1 million mortgage and $100,000 on home equity debt, regardless of when the mortgage was taken out.
4. Charity Contributions
Charitable deduction allowances have been extended as a result of the Consolidated Appropriations Act, 2021 or "second stimulus" legislation from Dec. 2020. For your 2020 and 2021 tax return you can have a charitable deduction of up to $300 made during 2020 or 2021, and you don't need to itemize to have this deduction. The gift must go directly to charity in cash rather than to a donor-advised fund or private foundation. Otherwise, you generally need to itemize to take the charitable deduction, which fewer people do since the standard deduction doubled a few years ago.
- Married joint filers can take an above-the-line deduction up to $600 for such contributions in 2021 and in future years.
- Income tax return charity overstatements could result penalties equal to 50% of the tax underpayment resulting from the overstatement.
Also for Tax Year 2021 Tax Returns, your cash donation to a public charity cannot exceed 60% of your AGI or adjusted gross income in order to be deductible on your income tax return. Appreciated assets including long-term appreciated stocks or property is generally deductible at fair market value not to exceed 30% of your adjusted gross income. For record keeping purposes please consider the following:
1. The public charity or private foundation is a non-profit, IRS registered 501(c)(3) organization.
2. Keep a record of the contribution (usually the tax receipt from the charity).
3. For non-cash donations, you might have to obtain a qualified appraisal to substantiate the value of the deduction you are claiming.
You made a cash contribution to a Private Charity for $1,110. If your AGI is $30,000, 30% of your AGI is $9,000 so you can deduct $1,110 of the charitable contribution.
5. Casualty and Theft Losses
The itemized deduction for personal casualty and theft losses has been removed for Tax Years 2018 through 2025 with the exception of losses attributable to a federal disaster as declared by the President. If you have these losses to report, only losses in excess of 10% of your adjusted gross income (AGI are deductible.
6. Job Expenses and Other Miscellaneous Deductions
For Tax Years 2018-2025, job expenses and miscellaneous deductions limited to 2% of your Adjusted Gross Income or AGI are eliminated. These include expenses incurred on the job and are not reimbursed (e.g. tools, supplies, uniforms, dues and subscriptions, job search expenses, un-reimbursed travel mileage, home office deductions. In summary, deductions for un-reimbursed employee expenses and tax preparation expenses cannot be included on 2018-2025 Tax Returns.
7. Total Itemized Deduction Limits
There is no limit on itemized deductions for Tax Years 2018 through 2025.
8. Itemized or Standard Deduction?
Below is a summary of the sample amounts listed above in comparison to the 2021 Tax Return standard deductions.
1. Medical Expenses: $1,000
2. Taxes you paid, property taxes: $3,210
3. Mortgage Interest Payment: $9,655.50
4. Charity Contributions: $1,110
Total itemized deductions: $14,975.50
$14,975.50 in itemized deductions compared to the standard deduction for single taxpayers of $12,550.
As you can see, with the filing status Single and Married Filing Separately, you would be well advised to itemize your deductions. All other filing statuses would do better with the standard deduction.
Important Tax Tip! If you are not sure, the eFile.com tax app will select the most tax advantageous option for you - standard or itemized, and you can see for yourself! If you still want to change it from one to the other and see the difference, we will also let you do that.
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