Itemized Deductions
20-1
Itemized Deductions
Introduction
This lesson will assist you in determining if a taxpayer should itemize deductions. Generally, taxpayers
should itemize if their total allowable deductions are higher than the standard deduction amount.
Objectives
At the end of this lesson, using your resource materials, you will be able to:
• Determine if a taxpayer should itemize deductions
• Determine the type of expenses that qualify as itemized deductions
• Accurately report itemized deductions on Schedule A, Itemized
Deductions
• Explain the recordkeeping requirements for claiming charitable
contributions
What do I need?
□ Form 13614-C
□ Publication 4012
□ Publication 17
□ Form 1040
□ Schedule A
□ Publication 502
□ Publication 526
□ Publication 936
Optional:
□ Publication 529
□ Publication 530
□ Publication 561
What are itemized deductions?
Itemized deductions are subtractions from a taxpayer’s Adjusted Gross
Income (AGI) that reduce the amount of income that is taxed. Most
taxpayers have a choice of taking a standard deduction or itemizing
deductions. Taxpayers should use the type of deduction that results in the
lowest tax.
Who must itemize?
Taxpayers who have a standard deduction of zero should itemize their deductions. Taxpayers who normally
fall within this category are:
• Married, ling a separate return, and their spouse is itemizing
• Filing a return for a short tax year due to a change in the annual accounting period (out of scope)
• Considered to be nonresident aliens or dual status aliens during the year (and not married to a U.S.
citizen or resident at the end of the tax year) (out of scope)
How do I decide if a taxpayer should itemize deductions?
In general, taxpayers who have deductible mortgage interest or a very large amount of unreimbursed
medical/dental expenses compared to their income would benet from itemizing their deductions.
Use the Interview Tips – Itemized Deductions in the Volunteer Resource Guide, Tab F, Deductions, to
determine if itemizing deductions would be more benecial for the taxpayer. If you think the taxpayer may
benet from itemizing, enter the qualied expenses on Schedule A. The tax software will automatically
select the larger of itemized versus standard deduction.
For taxpayers using the Married Filing Separately status, if one spouse itemizes, the other must also itemize
(even if their itemized deduction amount is zero). However, a taxpayer using the Head of Household status can use
the standard deduction even when their spouse, who is ling married separately, itemizes their deductions.
Itemized Deductions
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example
Stewart and Carmen are divorced. Their son, Raymond, lives with Carmen, who claims him as a
dependent. Carmen paid for and deducted Raymond’s standard medical and dental bills. Stewart
deducted the emergency bill he paid when Raymond broke his arm.
Itemized deductions include amounts paid for qualied:
• Medical and dental expenses
• Certain taxes paid
• Home mortgage interest
• Gifts to charity
• Casualty and theft losses (only losses derived from federally declared disaster areas are allowed)
• Certain miscellaneous deductions
Casualty and theft losses are outside the scope of the VITA/TCE programs. Refer taxpayers with these losses
to a professional tax preparer.
What medical and dental expenses are deductible?
Taxpayers can deduct only the amount of unreimbursed medical and dental expenses that exceeds 7.5% of
their Adjusted Gross Income (AGI).
The standard mileage rate allowed for out-of-pocket expenses for a car when used for medical reasons can be
found in the Volunteer Resource Guide, Tab F, Deductions. Taxpayers can also deduct parking fees and tolls.
Whose expenses are covered?
Qualied medical and dental expenses paid by the taxpayer during the tax year can be included for:
• The taxpayer
• The taxpayer’s spouse
• Dependents claimed at the time the medical services were provided or at the time the expenses were
paid
• Individuals who could be the taxpayer’s dependent except:
○ They do not meet the gross income test, or
○ They do not meet the joint return test, or
○ The taxpayers, or their spouse if ling jointly, could be claimed as a dependent on someone else’s
return
If a child of divorced or separated parents is claimed as a dependent on either parent’s return, each parent
may deduct the medical expenses that they individually paid for the child.
What types of expenses are covered?
Refer to the Volunteer Resource Guide or Publication 17 for the medical and dental expenses checklist,
and Publication 502, Medical and Dental Expenses, for more information on medical, dental, and other
expenses.
Itemized Deductions
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EXERCISES
Answers are at the end of the lesson summary.
Question 1: Bill and Kathy Ferris le a joint return. They paid the medical and dental bills listed below.
The total of Bill and Kathy’s qualied medical expenses is $ .
Medical Expenses Amount Deductible?
Unreimbursed doctors’ bills $500
Unreimbursed orthodontist bill for braces $1,200
Hospital insurance premiums $300
Life insurance premiums $500
Unreimbursed prescription medicines $100
Vitamins $70
Hospital bill (before insurance company’s
reimbursement of $1,000)
$2,000
Smoking-cessation program $150
Total $4,820
Premiums for long-term care insurance are deductible up to a limit amount based on the age of the insured.
Refer to the Important Changes lesson in this publication or to the Volunteer Resource Guide, Tab F, Deductions.
Retired public safety ocers cannot include as medical expenses any health or long-term care premiums they
elected to have paid with tax-free distributions from their retirement plan.
If you and a taxpayer disagree as to whether a particular expense is deductible, discuss the issue with the Site
Coordinator. The taxpayer may be correct, but you should not deduct an expense if you believe it would lead to a
false return.
Taxpayers may only deduct unreimbursed medical expenses. They may not deduct medical insurance
premiums paid with pretax dollars, reimbursed by an insurance company or reimbursed through a
tax-advantaged account, such as an exible spending account (FSA) or health savings account (HSA). For
taxpayers who receive the premium tax credit (PTC), only the premiums paid out of pocket by the taxpayer
and not covered by the PTC, may be used as a medical expense when itemizing deductions.
For example, if the taxpayer’s insurance policy premium was $12,000 and they received a PTC of $10,000,
they would only be able to deduct the $2,000 premiums paid out of pocket by the taxpayer as a medical
expense deduction, subject to the appropriate applicable adjusted gross income threshold for itemized
medical expenses.
Taxpayers also deduct the excess APTC they have to repay on the return or reduce their deduction for any
additional net PTC they claim on the return.
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What taxes may be deductible?
Taxpayers can deduct certain taxes if they itemize. To be deductible, the tax must have been imposed on
and paid by the taxpayer during the current tax year. Taxes that are deductible include:
• State and local income taxes – This includes withheld taxes, estimated tax payments, or other tax
payments (such as a prior year state or local income tax refund that the taxpayer chose to credit to their
estimated tax for the following year).
• Sales taxes – It may be possible to deduct sales taxes in lieu of state and local income taxes (from the
optional sales tax tables or actual sales tax paid). Taxpayers who use the tables may be able to add the
state and local general sales taxes paid on any motor vehicle, boat, aircraft, or home construction or
improvement to the tax table amounts.
Taxpayers may deduct either sales tax or state and local income tax, but not both.
• Real estate taxes
○ State and local real estate taxes based on the assessed value of the taxpayer’s real property, such
as the taxpayer’s house or land, are deductible.
○ Taxes based on other than the assessed value of the property may be deductible in certain circum-
stances if they are levied:
• For the general public welfare
• By a proper taxing authority
• At a similar rate on owners of all properties in the taxing authority’s jurisdiction
○ Real estate taxes, which may be reported on Form 1098, Mortgage Interest Statement, or a similar
statement from the mortgage holder, are deductible. If the taxes are not paid through the mortgage
company, the taxpayer should have a record of what was paid during the year.
○ Some real estate taxes or charges that may be included on the real estate tax bill are not deductible.
These include taxes for local benets and improvements that tend to increase the value of the prop-
erty, itemized charges for services, transfer taxes, rent increases due to higher real estate taxes, and
homeowners’ association fees.
Real estate taxes reported on Form 1098 may include nondeductible amounts. Use the interview techniques
with taxpayers to determine if nondeductible amounts such as sanitation pickup and water fees are included in their
Form 1098. These items should not be included on Schedule A.
○ Personal property taxes
• The state and local personal property taxes paid, but only if the taxes were based on value alone
and were imposed on a yearly basis.
Which taxes are not deductible?
Not all taxes are deductible and some items aren’t actually classied as taxes. Some examples include
employment taxes, federal income taxes, and license fees. No deduction is allowed for foreign property
taxes unless it relates to a trade or business or for the production of income.
How do I handle taxes that are deductible?
Deductible taxes are reported on Form 1040, Schedule A in the Taxes You Paid section. The aggregate
deduction for state or local income (or sales taxes in lieu of income taxes) and state or local property taxes
is limited to $10,000 ($5,000 if Married Filing Separately) per return.
Itemized Deductions
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State and local income taxes or state and local sales taxes
Include tax withheld, estimated tax payments to a state or local government, and tax payments for an earlier
year paid during the current tax year. Do not include penalties or interest. Enter both the state and local
income taxes and the state and local sales taxes. The software will use the greater amount.
The total deduction for state and local income, sales, and property taxes is limited to a combined, total deduc-
tion of $10,000 ($5,000 if Married Filing Separately). Any state and local taxes paid above this amount cannot be
deducted as an itemized deduction.
Foreign income taxes
Generally, income taxes that were paid to a foreign country can be taken as an itemized deduction on
Schedule A, or as a credit against U.S. income tax on Form 1040. More information will be provided on this
credit in subsequent lessons. You should compare claiming the foreign taxes paid as a nonrefundable credit
to taking it as an itemized deduction and use whichever results in the lowest tax.
See the Taxes chapter in Publication 17 for more information.
How do I handle interest paid?
Certain types of interest payments qualify as itemized deductions. Home mortgage interest, points (paid as
a form of interest), and investment interest can be deducted on Schedule A. Investment interest is outside
the scope of the VITA/TCE programs and taxpayers with investment interest should be referred to a
professional tax preparer.
Home Mortgage Interest
Generally, home mortgage interest is any interest paid on a loan, line of credit, or home equity loan secured
by the taxpayer’s home. The deduction for home equity mortgage interest is not allowed unless the loan
proceeds were used to build, buy, or substantially improve the taxpayer’s qualied residence. The ow chart
Is My Home Mortgage Interest Fully Deductible? in Publication 936, Home Mortgage Interest Deduction, will
help you determine if interest paid by the taxpayer should be included on Schedule A.
EXERCISES (continued)
Question 2: Which of the following taxes are deductible on Schedule A?
A. Federal income tax
B. State, local, and foreign income tax and real estate tax
C. Tax on alcohol and tobacco
D. Foreign sales tax
Question 3: For a tax to be deductible, a tax must be ____. (Select all that apply.)
A. Imposed during the tax year
B. Imposed on the taxpayer
C. Paid during the tax year
D. Paid by the taxpayer
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example
From 1991 through 1998, Alfredo and Cindy Kendall obtained home equity loans totaling $91,000.
Alfredo and Cindy used the loans to pay o gambling debts, overdue credit payments, and some
medical expenses.
The current balance of Alfredo and Cindy’s home equity loan is $72,000. The fair market value of their
home is $230,000, and they carry $30,000 of outstanding acquisition debt (the amount used to buy,
build, or improve their home).
If Alfredo and Cindy le a joint return, they cannot deduct the interest on their home equity loans
because none of the loan proceeds was used to build, buy, or improve the taxpayer’s qualied
residence. The interest on the acquisition debt is deductible.
Members of the clergy and military can deduct qualied mortgage interest even if they receive a nontaxable
housing allowance.
Generally, the total amount of home mortgage interest paid by a taxpayer is shown on Form 1098. Only
taxpayers who are legally liable for the debt can deduct the interest in the year it is paid. Remember that
taxpayers may have more than one mortgage or may have renanced during the year and may have
multiple Mortgage Interest Statements.
When the taxpayer does not receive a Form 1098, such as a seller-nanced mortgage, additional
information is needed to complete Schedule A. See Form 1040 Schedule A instructions.
See the Temporary Provisions lesson contained in this publication for information regarding qualied mortgage
insurance premiums.
A taxpayer may be able to deduct interest on a main home and a second home. A home can be a house,
cooperative apartment, condominium, mobile home, house trailer, or houseboat that has sleeping, cooking,
and toilet facilities.
Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until the
loan is paid in full. When paid, interest on a reverse mortgage must satisfy the qualied home mortgage
interest criteria to be deductible. See Publication 936 for information on reverse mortages.
What are points?
Points are the charges paid by a borrower and/or seller to a lender to secure a loan. They are also called:
• Loan origination fees (including VA and FHA fees)
• Maximum loan charges
• Premium charges
• Loan discount points
• Prepaid interest
When are points deductible?
Only points paid as a form of interest (for the use of money) can be deducted on Schedule A. Generally,
points must be spread over the life of the mortgage. However, if the loan is used to buy or build a taxpayer’s
main home, the taxpayer may be able to deduct the entire amount in the year paid. See Publication 936 for
more information.
Points paid to renance a mortgage are generally not deductible in full the year they were paid, unless the
points were paid in connection with the improvement of a main home and certain other conditions are met.
Beware of certain charges that some lenders call points. Points paid for specic services, such as appraisal
fees, preparation fees, VA funding fees or notary fees, are not interest and are not deductible.
Itemized Deductions
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Use the ow chart in Publication 936 to help determine if points are fully deductible.
What types of interest are not deductible?
Interest that cannot be deducted includes:
• Interest on car loans where the car is used for nonbusiness purposes
• Other personal loans
• Credit investigation fees
• Loan fees for services needed to get a loan
• Interest on a debt the taxpayer is not legally obligated to pay
• Finance charges for nonbusiness credit card purchases
How do I handle gifts to charity?
A charitable contribution is a donation or gift to a qualied organization, which may be deductible if the
taxpayer itemizes. Cash, check, and noncash contributions should be reported on Schedule A on either the
Gifts by cash or check line or the Other than by cash or check line, respectively. Deductions may be taken
for contributions to:
• Organizations that operate exclusively for religious, charitable, educational, scientic, or literary
purposes
• Organizations that work to prevent cruelty to children or animals
• Organizations that foster national or international amateur sports competition if they do not provide
athletic facilities or equipment
• War veterans’ organizations
• Certain nonprot cemetery companies or corporations
• The United States, or any state, the District of Columbia, a U.S. possession (including Puerto Rico), a
political subdivision of a state or U.S. possession, or an Indian tribal government or any of its subdivi-
sions that perform substantial government functions
EXERCISES (continued)
Question 4: Joe and Angela le a joint return. During the year, they made the interest payments listed
below. The total of Joe and Angela’s fully deductible interest for the tax year is $ .
Interest Payments Amount Deductible?
Qualied interest on their home mortgage, reported on
Form 1098
$2,180
Credit card interest used for personal purchases $400
Points paid to renance their mortgage for a better
interest rate (None of the points qualify as interest.)
$1,500
Interest on a car loan $2,000
Total $6,080
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Taxpayers who do not itemize deductions are able to deduct up to $300 of cash contributions to charitable
organizations per return. Married couples ling a joint return may deduct up to $600 (all other lers are limited to
$300). Additionally, the deduction does not reduce adjusted gross income.
To be deductible, contributions must be made to a qualifying organization, not an individual.
Qualied organizations are listed in Publication 78, Cumulative List of Organizations. An online version is
oered to help taxpayers eciently search organizations that are eligible to receive tax-deductible charitable
contributions. To nd out if the organization is a qualied charity, go to https://www.irs.gov.
Deductible items include:
• Monetary donations
• Dues, fees, and assessments paid to qualied organizations above the value of benets received
• Fair market value of used clothing, furniture, and other items in good condition
• Cost and upkeep of uniforms that have no general use but must be worn while performing services
donated to a charitable organization
• Unreimbursed transportation expenses that relate directly to the services the taxpayer provided for the
organization
• Part of a contribution above the fair market value for items received such as merchandise and tickets to
charity balls or sporting events
• Transportation expenses, including bus fare, parking fees, tolls, and either the cost of gas and oil or the
standard mileage deduction may be taken. Refer to the Volunteer Resource Guide, Tab F for the stan-
dard mileage deduction for charitable contributions.
Form 1098-C, Contributions of Motor Vehicles, Boats and Airplanes, is out of scope. Taxpayers who have
made these contributions should be referred to a professional tax preparer.
Which gifts are not deductible?
Contributions to the following types of organizations are not deductible as charitable contributions:
• Business organizations, such as the Chamber of Commerce
• Civic leagues and associations
• Political organizations and candidates
• Social clubs
• Foreign organizations
• Homeowners’ associations
• Communist organizations
Amounts that may not be deducted as charitable contributions include:
• Cost of rae, bingo, or lottery tickets
• Tuition
• Value of a person’s time or service
• Blood donated to a blood bank or Red Cross
• Car depreciation, insurance, general repairs, or maintenance
Itemized Deductions
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• Direct contributions to an individual
• Sickness or burial expenses for members of a fraternal society
• Part of a contribution that benets the taxpayer, such as the fair market value of a meal eaten at a
charity dinner
What limits apply to charitable deductions?
Taxpayers whose charitable contributions total more than 20% of their AGI may be able to deduct only a
percentage of their contributions and must carry over the remainder to a later tax year. The percentage
varies depending on the type of gift and the type of charitable organization. More information on these
limitations is available in Publication 526, Charitable Contributions. Individuals aected by limits on
charitable deductions should be referred to a professional tax preparer.
What records should the taxpayer keep for charitable contributions?
Taxpayers must keep records to verify the cash and noncash contributions they make during the year.
Advise taxpayers that they cannot deduct a cash contribution, regardless of the amount, unless one of the
following records of the contribution is kept:
• A credit card statement or a bank record, such as a canceled check, a bank copy of a canceled check,
or a bank statement containing the name of the charity, the date, and the amount
• A written communication from the charity, which must include the name of the charity, date of the contri-
bution, and amount of the contribution
Monetary contributions of $250 or more
• Taxpayers can claim a deduction of $250 or more only if they have a statement from the charitable
organization showing the amount of any money contributed and whether the organization did or did not
provide any goods or services in return for the contribution.
• During the interview, be sure to review the documentation requirements with the taxpayer and conrm
that they have the appropriate documentation.
Out-of-pocket expenses related to donated services
For unreimbursed expenses related to donated services, the taxpayer must have:
• Adequate records of the expenses
• Organization’s written acknowledgment and description of the taxpayer’s services for unreimbursed
expenses of more than $250
Only out-of-pocket expenses that are directly related to the donated services can be deducted. The value of
time or services donated cannot be deducted. See Publication 526 for the rules applicable to out-of-pocket
expenses incurred when rendering services to a qualifying organization.
example
Susan ran a 10K organized by the Chamber of Commerce to benet a qualied charitable organization.
She paid the race organizers a $30 entry fee and received a “free” T-shirt and pancake breakfast after
the race.
Susan did not make a contribution to the qualifying organization. She paid the Chamber of Commerce,
which allotted funds to the beneting organization. Therefore, none of Susan’s entry fee is tax
deductible. If the race had been organized by the qualifying organization itself, part of her entry fee may
have been deductible.
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What records should the taxpayer keep for noncash contribution deductions?
Deductions are not allowed for the charitable contribution of clothing and household items if the items are not
in good used condition or better.
Noncash contributions less than $250
For any single contribution of less than $250, the taxpayer must keep:
• A receipt or other written communication from the organization or the taxpayer’s own reliable written
records for each item, showing:
○ Name and address of the organization
○ Date and location of the contribution
○ Reasonably detailed description of the donated property
○ Fair market value of the donated property
If the taxpayer is donating capital gain property or property that was previously depreciated, refer them to a
professional tax preparer.
Noncash contributions of at least $250 but not more than $500
For any single contribution of at least $250 and not more than $500, the taxpayer must have all the
documentation described for noncash contributions less than $250. In addition, the organization’s
written acknowledgment must state whether the taxpayer received any goods or services in return and a
description and good faith estimate of any such items.
Noncash contributions of more than $500
Taxpayers with more than $500 in total noncash contributions must le Form 8283, Noncash Charitable
Contribution, and should be referred to a professional tax preparer.
Noncash contributions of more than $500?
Noncash charitable contributions of more than $500 but not over $5,000 are in scope for active
military taxpayers. In guring whether the deduction is $500 or more, combine claimed deductions for all
similar items of property donated to any qualied organization during the year.
If taxpayers claim a deduction over $500 but not over $5,000 for a noncash charitable contribution, Form
8283 must be completed and taxpayers must have a contemporaneous written acknowledgment (dened
earlier).
EXERCISES (continued)
Question 5: Julia made the following contributions last year:
• $600 to St. Martin’s Church (The church gave her a letter verifying the amount.)
• $32 to Girl Scouts (not for cookies!)
• $40 to a family whose house burned
• $50 for lottery tickets at a fundraiser
• $100 for playing bingo at her church
The amount that Julia can claim as deductible monetary contributions is $ .
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Form 8283 must include:
• Taxpayer’s name and taxpayer identication number,
• The name and address of the qualied organization,
• The date of the charitable contribution, and
• The following information about the contributed property:
a. A description of the property in sucient detail under the circumstances (taking into account the
value of the property) for a person not generally familiar with the type of property to understand that
the description is of the contributed property;
b. The fair market value of the property on the contribution date and the method used in guring the fair
market value;
c. In the case of real or tangible property, its condition;
d. In the case of tangible personal property, whether the donee has certied it for a use related to the
purpose or function constituting the donee’s basis for exemption under Section 501 of the Internal
Revenue Code or, in the case of a governmental unit, an exclusively public purpose;
e. In the case of securities, the name of the issuer, the type of securities, and whether they were
publicly traded as of the date of the contribution;
f. How the taxpayer got the property, for example, by purchase, gift, bequest, inheritance, or exchange;
g. The approximate date the taxpayer got the property or, if created, produced, or manufactured by or
for the taxpayer, the approximate date the property was substantially completed; and
h. The cost or other basis, and any adjustments to the basis, of property held less than 12 months and,
if available, the cost or other basis of property held 12 months or more. This requirement, however,
doesn’t apply to publicly traded securities.
What about casualty and theft losses?
Only casualty losses derived from federally declared disaster areas are allowed. All other losses are not
allowed except to the extent of casualty gains. Taxpayers with deductible casualty and theft losses should
be referred to a professional tax preparer.
What miscellaneous expenses are deductible?
Examples of miscellaneous itemized deductions include:
• Gambling losses to the extent of gambling winnings (taxpayers must have a record of their losses)
• Work-related expenses for disabled individuals that enables them to work, such as attendant care
services at their workplace
All itemized deductions subject to the 2% of AGI limitation are not allowed through the end of 2025. This
includes employee business expenses.
Gambling losses in excess of winnings are not deductible. The full amount of winnings must be reported as
income and the losses (up to the amount of winnings) can be claimed as an itemized deduction.
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Summary
Medical and Dental Expenses
Unreimbursed medical and dental expenses that exceed 7.5% of the taxpayer’s AGI are deductible; they
are reported on lines 1 through 4 of Schedule A.
Qualied medical and dental expenses are those paid during the tax year for the taxpayer, spouse, and
dependents and certain nondependents.
Taxes
Deductible taxes are reported on Schedule A and include the following:
• State and local income taxes, or state and local general sales taxes
• State or local real estate taxes
• Personal property taxes
These taxes are subject to an aggregate limitation of $10,000 ($5,000 if Married Filing Separately).
Note: Taxes paid as part of a trade or business or for the production of income are not subject to the
aggregate $10,000 limit.
Interest
Deductible interest is reported on Schedule A.
Generally, the taxpayer receives Form 1098, Mortgage Interest Statement, which shows the total amount of
interest paid. To be deductible, the loan proceeds must be used to buy, build or improve the home and the
interest must be paid by the taxpayer during the tax year. Only taxpayers who are legally liable for the debt
can deduct the interest.
Only points paid as a form of interest (for the use of money) can be deducted on Schedule A. Generally,
points must be spread over the life of the mortgage. However, if the loan is used to buy or build a taxpayer’s
main home, and certain other conditions are met, the taxpayer may be able to deduct the entire amount in
the year paid.
EXERCISES (continued)
Question 6: Philip had the expenses shown below. What is the total of Philip’s qualied miscellaneous
itemized expenses? $ .
Expense Amount Deductible?
Income tax preparation fee $100
Safe deposit box rental (to store bonds) $75
Life insurance premiums $300
Credit card convenience fee for income tax payment $70
Loss on sale of personal home $1,800
Investment journals and newsletters $250
Investment expenses $200
Attorney fees for preparation of a will $100
Total $2,895
Itemized Deductions
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Gifts to Charity
Qualied charitable contributions are reported on Schedule A.
The contributions to qualifying organizations that taxpayers can deduct include:
• Monetary donations
• Dues, fees, and assessments paid to qualied organizations above the value of benets received
• Fair market value of used clothing and furniture at the time of donation
• Cost and upkeep of uniforms that have no general use but must be worn while performing donated
services for a charitable organization
• Unreimbursed transportation expenses or out of pocket expenses that relate directly to the services the
taxpayer provided for the qualifying organization
• Part of a contribution above the fair market value for items received such as merchandise and tickets to
charity balls or sporting events
Taxpayers are required to keep receipts and records of all their contributions.
Miscellaneous Deductions
Only gambling losses to the extent of gambling winnings and certain other items are in scope as
miscellaneous deductions.
What situations are out of scope for the VITA/TCE programs?
The following is out of scope for this lesson. While this list may not be all inclusive, it is provided for your
awareness only.
• Casualty and theft losses
• Investment interest
• Form 1098-C, Contributions of Motor Vehicles, Boats and Airplanes
• Taxpayers aected by limits on charitable deductions
• Taxpayers that le Form 8283 to report noncash contributions of more than $500, except for active
Military returns with Military certication
• If the taxpayer is donating property that was previously depreciated
• If the taxpayer is donating capital gain property such as appreciated stock or artwork
• Repayment of income over $3,000. Note there is also a credit that may be better – see Publication 525,
Taxable and Nontaxable Income
• Loss or termination of an annuity by a deceased annuitant – see Publication 575, Pension and Annuity
Income
TAX LAW APPLICATION
To gain a better understanding of the tax law, complete the practice return(s) for your course of study
using the Practice Lab on L<.
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Notes
EXERCISE ANSWERS
Answer 1: The total of qualied medical and dental expenses is $3,250, which does not include life
insurance premiums, vitamins, or reimbursed hospital expenses.
Answer 2: B. State, local, foreign income tax, and real estate taxes are all deductible on Schedule A.
Answer 3: B, C, and D. Taxpayers cannot deduct a tax they did not owe, did not pay, or that they paid
during another year. However, the tax may have been imposed in a prior year.
Answer 4: $2,180. The only interest that is fully deductible for the tax year is Joe and Angela’s home
mortgage interest. The points they paid to renance are not deductible because they don’t qualify as
interest, and the other interest paid was personal interest and is not deductible.
Answer 5: The amount that Julia can claim as deductible cash contributions is $632 (donations to
her church and to the Girl Scouts). Bingo, lottery tickets, and donations to individuals in need are not
deductible.
Answer 6: Zero. None of these expenses are qualied miscellaneous itemized deductions.
