Top Frequently Asked Questions for Itemized Deductions, Standard Deduction

My university required each incoming freshman to come to school with their own computer. Is there any way to deduct the cost of the computer from my tax liability?

Answer:

The cost of a personal computer is generally a personal expense that's not deductible. However, you may be able to claim an American opportunity tax credit if you're required to have a computer to enroll or attend your university.

For more information, refer to Publication 970, Tax Benefits for Education.

May I claim both my job-related education expenses (minus 2% of AGI) and an education credit on my tax return?

Answer:

Yes, if you qualify for both tax benefits and don't use the same educational expenses to claim both benefits (no double benefit).

  • You can choose to allocate some expenses to the deduction and others to the credit.
  • This can be desirable because a qualifying expense for one benefit may not be a qualifying expense for the other. For example, the cost of course-related books qualifies for the deduction and for the American opportunity tax credit, but will not qualify for the lifetime learning credit, unless paid to the institution as a condition of enrollment or attendance.
Last year, my parents and I both took out student loans for me. We both received Form 1098-E for our separate loans. I wasn't their dependent last year. Can we both claim student loan interest on our tax returns?

Answer:

You may be able to claim a student loan interest deduction for the payments you made on the student loan you took out on your behalf, provided you meet the other requirements.

In order for a taxpayer to claim a deduction for student loan interest, the loan must be incurred for a taxpayer, their spouse, or a person who was their dependent at the time they took out the loan. Your parents don't qualify to claim the student loan interest deduction for the interest they paid on the loan because you weren't your parents' dependent at the time the loan was taken.

However, there are exceptions where you may still be considered their dependent at the time the loan was taken out. If you were considered your parents' dependent when they took out the student loan, the interest they paid on the loan may qualify them for the student loan interest deduction. See Exceptions under Qualified Student Loan in Publication 970, Tax Benefits for Education.

I donated a used car to a qualified charity that sold the car immediately after I donated it. I would like to take the charitable contribution as an itemized deduction. Do I need to attach a special form to my return for the donation? What records should I keep?

Answer:

Recordkeeping and filing requirements depend on the amount you claim for the deduction.

1) If the deduction you claim for the car is at least $250 but not more than $500, you'll need a written acknowledgment from the charity. You must obtain the acknowledgment by the date you file your return for the donation year or by the return due date with extensions, whichever is earlier. The acknowledgment must include:

  • A detailed description of the car.
  • A statement as to whether or not the charity provided any goods or services in return for the car other than intangible religious benefits and if so, a description and good faith estimate of the value of the goods and services.
  • If the charity provided solely intangible religious benefits, a statement to that effect.

Don't attach the written acknowledgment to your return. Instead, keep it with your records to substantiate your donation.

2) If the deduction you claim for the car is more than $500 but not more than $5,000, the written acknowledgment from the charity must be timely, must be attached to your return, and must include all of the information listed in (1) above, plus the following additional information:

  • Your name and taxpayer identification number (TIN).
  • The vehicle identification number (VIN).
  • The date of the contribution.
  • A certification that the charity sold the car in an arm’s length transaction between unrelated parties.
  • The date the car was sold by the charity.
  • The gross proceeds of the sale.
  • A statement that the deductible amount may not exceed the amount of the gross proceeds of the sale.

You must generally receive the written acknowledgment within 30 days of the sale of the car for the acknowledgment to be considered timely. The charity may provide you a completed Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, which contains the same information, in lieu of the written statement.

You must also complete Section A of Form 8283, Noncash Charitable Contributions, and attach both the written acknowledgment and this form to your return.

3) If the deduction you claim for the car is more than $5,000, you must obtain a written acknowledgment with the information described in both (1) and (2) above. You must also complete Section B of Form 8283 and attach both the written acknowledgment and the form to your return. An appraisal isn't required if your deduction is limited to the gross proceeds of the sale. 

Is the interest amount that we paid to the IRS deductible?

Answer:

Interest and penalties paid to the IRS on federal taxes aren't deductible.

For more information, refer to:

  • Items You Cannot Deduct in the Interest Expense chapter in Publication 17, Your Federal Income Tax for Individuals
  • Publication 529, Miscellaneous Deductions
My father is in a nursing home and I pay for the entire cost. Can I deduct these expenses on my tax return?

Answer:

Yes, in certain instances nursing home expenses are allowable as medical expenses.

  • If you or someone who was your spouse or your dependent, either when the service was provided or when you paid them, is in a nursing home primarily for medical care, then the entire cost including meals and lodging is deductible as a medical expense.
  • If the individual is in the home mainly for personal reasons, then only the cost of the actual medical care is deductible as a medical expense, not the cost of the meals and lodging.

To determine if your father qualifies as your dependent for this purpose, refer to Whose Medical Expenses Can You Include and Nursing Home in Publication 502, Medical and Dental Expenses.

Is interest on a home equity line of credit deductible as a second mortgage?

Answer:

Yes, you may deduct home equity debt interest as an itemized deduction if all the following conditions apply:

  • You pay the interest in the tax year
  • The debt is secured with your home
  • The home equity debt is limited to the fair market value of the home reduced by home acquisition debt, up to a total of $100,000 ($50,000 if filing as married filing separately).
Is the mortgage interest and real property tax I pay on a second residence deductible?

Answer:

Yes, state and local real property taxes are generally deductible. Mortgage interest paid on a second residence is also deductible as long as you don't rent out the residence during the tax year, and the mortgage satisfies the same requirements for deductible interest as on a primary residence. If you do rent out the residence, you must use it for more than 14 days or more than 10% of the number of days you rent it out, whichever is longer, for the mortgage interest to be deductible.

  • The combined limitation for mortgage interest on your primary and secondary residence for a married couple filing a joint return or for an unmarried taxpayer is $1,000,000 for acquisition indebtedness and $100,000 for home equity indebtedness.
  • State and local real property taxes are generally deductible.
  • Deductible real property taxes include any state, local, or foreign taxes based on the value of the real property and levied for the general public welfare.
  • Deductible real property taxes don't include taxes charged for local benefits and improvements that increase the value of the property, such as assessments for sidewalks, water mains, sewer lines, parking lots, and similar improvements.
  • Also, an itemized charge for services to specific property or people isn't a real property tax, even if the charge is paid to the taxing authority. You can't deduct the charge as a real property tax when it's a unit fee for the delivery of a service (such as a $5 fee charged for every 1,000 gallons of water you use), a periodic charge for a residential service (such as a $20 per month or $240 annual fee charged for trash collection), or a flat fee charged for a single service provided by your local government (such as a $30 charge for mowing your lawn because it had grown higher than permitted under a local ordinance).
If I must deduct points over the life of my mortgage, and I have a 30-year mortgage, should I divide the points paid by 30 and enter that amount on Schedule A?

Answer:

No, while you must deduct the points over the life of the loan ratably (equally), you don't divide the points by 30 years. Instead, you divide the points by the number of payments scheduled over the term of the loan (360 months in the case of a 30-year mortgage) and deduct points each year according to the number of payments you made in that year (less than twelve payments in some cases).

  • If the loan ends prematurely, for example, because you paid it off or refinanced with a different lender, then the remaining points are deductible in that year.
  • Any points not included on Form 1098, (usually not included on a refinance) should be entered on Schedule A (Form 1040), Itemized Deductions, line 12 "Points not reported to you on Form 1098."
My spouse and I are filing separate returns. How do we split our itemized deductions?

Answer:

If you and your spouse file separate returns and one of you itemizes deductions, the other spouse must also itemize, because in this case, the standard deduction amount is zero for the non-itemizing spouse.

  • You may claim itemized deductions on a separate return for certain expenses that you paid separately or jointly with your spouse.
  • When paid from separate funds, expenses are deductible only by the spouse who pays them.
    • For example, if otherwise deductible medical expenses are paid from an account owned by one of the spouses or in a community property state from an account that's the separate property of one of the spouses under the laws of that state, only that spouse may claim a deduction for the expenditure.
  • When expenses are paid from funds owned by both spouses, such as from a joint checking account or accounts considered community property under the laws of the state in which the spouses reside, you should generally split the deduction between you and your spouse.
    • For example, if amounts are paid from a joint checking account for interest on a residence both you and your spouse own, you would each deduct half of the mortgage interest paid on your separate returns.
    • However, if only one of you is eligible for a deduction for an expense (for example, real estate taxes on a property owned only by the eligible spouse), only the spouse who is eligible for the deduction is allowed to claim it, even if the expense is paid from joint funds. Each spouse must maintain records documenting who is considered to have paid the expense.

Frequently Asked Question Subcategories for Itemized Deductions, Standard Deduction