Understanding Itemized Deductions
What they are and why they matter.
Today, I want to walk you through itemized deductions—what they are, when they apply, and how they can help reduce your tax bill.
When we file our taxes, we start with all our income—W-2s, 1099s, self-employment income, rental income, and more. We subtract the adjustments the IRS allows (like student loan interest or HSA contributions) to arrive at our adjusted gross income (AGI). Then we apply either a standard deduction or itemized deductions to reduce our taxable income.
For 2025, the standard deduction is: $15,000 for single filers and $30,000 for married filing jointly. So, when do we itemize? Simple: only if your itemized deductions add up to more than the standard deduction.
Common Itemized Deductions
1. Medical Expenses
You can deduct qualified medical expenses that exceed 7.5% of your AGI. This includes: going to the doctor, dentist, hospital fees, prescription medications, medical equipment, long-term care and mileage for medical travel.
Example: If John and Sally have a $100,000 AGI and $12,500 in medical expenses, they can deduct the portion above $7,500 (7.5% of their AGI). That’s $5,000 they can include as an itemized deduction.
2. State and Local Taxes (SALT)
You can deduct up to $5,000 for single filers or $10,000 for married couples.
This includes: State income tax (from W-2 withholdings or estimated payments), property taxes on your home, sales tax (if you live in a state without income tax).
Example: John and Sally paid $4,000 in state income tax, $3,500 in property tax, and $250 on last year’s tax bill. They can deduct $7,750.
3. Mortgage Interest
You can deduct: Mortgage interest on primary and secondary homes, interest on home equity loans used for home improvements, and RV loan interest (if the RV qualifies as a secondary home.)
Example: John and Sally paid $6,000 in mortgage interest and $400 in RV interest. Total deduction: $6,400.
4. Charitable Contributions
Donations must be made to qualified charities and must be voluntary (you can’t receive anything in return). You can deduct: cash and non-cash donations (like goods to Goodwill), stock or property donations and mileage for volunteer work (14 cents per mile.)
Example: John and Sally donated $500 in cash and $250 in goods. They can deduct $750.
Note: Donations to individuals (like GoFundMe campaigns) and political contributions are not deductible.
5. Casualty and Theft Losses
This is rare, but if you’re in a federally declared disaster area, unreimbursed losses may be deductible (with certain thresholds).
Example: John and Sally suffered $20,000 in damage. After the required deductions, they can claim $9,900.
Comparing Itemized vs. Standard Deduction
After adding all their deductions: John and Sally’s total itemized deductions totaled 29,800. The standard deduction for a married couple filing jointly is $30,000. So it makes the most sense for them to just take the standard deduction.
Quick tax tip: If you’re close to itemizing, consider bunching expenses (like donations or medical procedures) into one tax year to maximize your deductions. One year you itemize, the next you take the standard deduction.
Final Thoughts
Itemized deductions can help you lower your taxable income, but only if they exceed the standard deduction. Make sure to keep all your receipts, mileage logs and donation letters. Track all your expenses throughout the year. And reach out to us at Pack Tax if you have questions. We are here to help!