For the past two weeks we've focused on medical expenses, especially for senior taxpayers, that are deductible and may well make a better tax result for those seniors to itemize their deductions instead of taking the standard deduction. Many senior taxpayers claim the standard deduction on their annual income tax return instead of itemizing deductions. If they have significant medical expenses, they should consider itemizing.
After identifying and adding up all available medical expenses and subtracting 7.5% of Adjusted Gross Income (AGI), the next step is to add other itemized deductions from the following categories:
Taxes that you paid:
You can deduct from federal income tax state and local income taxes or state and local sales taxes, but only if you chose to claim sales taxes instead of claiming state and local income taxes. If you choose to deduct sales tax you can use either your actual expenses or the state and local sales tax tables to figure your sales tax deduction.
You can deduct real estate (property) taxes, and personal property taxes. Vehicle registration fees are deductible only to the extent they are based on the value of the vehicle. Flat registration fees, such as those in Pennsylvania, are not deductible.
Interest that you paid:
Home mortgage interest is deductible. Home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan.
If you borrow money to buy property you hold for investment, the interest you pay is investment interest. Margin interest is an example. You cannot deduct interest you incurred to produce tax-exempt income. Generally, your deduction for investment interest expense is limited to the amount of your net investment income.
Stay tuned for part two, next week.
- Patti Spencer