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 if I pay for the computer in the year that I enroll?

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 for the amount paid to buy a computer if you need a computer to attend your university.  For more information, refer to Publication 970, Tax Benefits for Education.

May I claim both my job-related education expenses as an itemized deduction and an education credit on my tax return?

Answer:

You cannot deduct job-related education expenses as an itemized deduction. Refer to Publication 970,Tax Benefits for Education and Am I Eligible to Claim an Education Credit? to determine if you qualify for any education credits for the work-related educational expenses you incur.

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:

Your parents cannot claim the deduction for student loan interest on their tax return because you were not their dependent at the time they took out a student loan for you. However, you can claim the deduction with respect to the loan that you took out for yourself (assuming that you meet the other requirements for this deduction).

On the other hand, if the facts were different and you were your parents’ dependent at the time that they took out a student loan for you, then your parents could claim the deduction with respect to this loan. Note that you may be considered your parents’ dependent even if they were unable to claim you as a dependent on their tax returns. Note also that if your parents did claim you as a dependent on their tax returns, then you would no longer be able to claim the deduction with respect to the loan that you took out for yourself.

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:

  • The name of the charitable organization.
  • The date and location of the charitable contribution.
  • A detailed description of the car.
  • Whether the charity provided any goods or services in return for the car and a description and good faith estimate of the value of any goods and services received.
  • 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).
  • Beyond the above items, what the written acknowledgment must contain depends on what the charity does with the vehicle. If the charity sells the vehicle, the written acknowledgment must contain the date the car was sold by the charity, a certification that the charity sold the car in an arm’s length transaction between unrelated parties, the gross proceeds of the sale, and a statement that your deduction may not exceed the gross proceeds of the sale.

You must generally receive the written acknowledgment within 30 days of the sale of the car or, in certain circumstances, within 30 days of your donation, 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 income taxes aren't deductible.

For more information, refer to Items You Can’t Deduct in the Interest Expense chapter in Publication 17, Your Federal Income Tax for Individuals.

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 the expense, 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:

Interest paid on home equity loans and lines of credit is not deductible unless the proceeds are used to buy, build or substantially improve the taxpayer’s home that secures the loan.

For example, interest on a home equity loan used to build an addition to an existing home is typically deductible, while interest on the same loan used to pay personal living expenses, such as credit card debts, is not. The loan must be secured by the taxpayer’s main home or second home (known as a qualified residence), not exceed the cost of the home and meet other requirements.

Is the mortgage interest and real property tax I pay on a second residence deductible?

Answer:

Yes and maybe. 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 total amount you (or your spouse if married filing a joint return) can treat as home acquisition debt on your main and second home is $1,000,000; or $500,000 if married filing separately. If the home was acquired after December 15, 2017, the home acquisition debt limit is $750,000; or $375,000 if married filing separately.
  • 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 directly increase the value of the real 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).
  • The total deduction allowed for all state and local taxes, including real property taxes, is limited to $10,000; or $5,000 if married filing separately. 
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 monthly payments 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 deductible points not included on Form 1098 (usually not included on the Form when refinancing) should be entered on Schedule A (Form 1040), Itemized Deductions, line 8c "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 be able to 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