As a taxpayer, when it comes to deductions you have two basic options to choose from; claim the standard deduction or itemize deductions. Which one you should take depends on the total deduction amount. For single filers, the standard deduction amount is $12,400 in 2020. If the total amount of itemized deductions is over this amount, you should itemize instead of going the easy route. Even though itemizing deductions can take more time than simply claiming the standard deduction, you will end up paying significantly less tax since you’re going to have a smaller taxable income.
Itemizing deductions require taxpayers to track their expenses. If you’ve been itemizing for a few years already, you are going to have little to no issue with knowing whi.ch of your expenses grant you a deduction. One thing to pay attention though is the changes to the deductions you’re going to claim.
Every year, there are minor changes to the tax law as far as the deductions are concerned. This can ultimately reduce or increase your itemized deductions. For this reason, it is always going to be in your best interest to pay attention to the tax changes. Here are the key takeaways for 2020 itemized deduction you may want to know before itemizing deductions.
Medical Expenses Deduction
Prior to 2020, taxpayers could claim medical expenses that exceed 7.5% of their AGI on their tax returns. This threshold is now 10% for 2020 and beyond. While many tax deductions is the same as part of the Tax Cuts and Jobs Act of 2017 and will run through 2025, medical expenses aren’t a part of it.
This means a deduction loss of 2.5% of your AGI. Whether this is going to be a significant drop in your itemized deductions or not, it certainly is a loss.
The medical expenses deduction includes insurance premiums, out-of-pocket costs, and purchase of medical equipment and supplies for your own and family’s well being.
Mortgage Interest Deduction
The mortgage interest you pay up to $750,000 in principal is tax-deductible. However, the debt must be a qualified personal residence debt. Therefore, the residence you pay the mortgage on must be your occupied residence or a vacation/second home. If not, you won’t be able to claim the mortgage interest deduction on your federal income tax return in 2020.
Also, there is one thing that doesn’t meet the eye at first glance about this particular tax deduction. The home equity debt that was incurred for other reasons than being your primal or second residence does not qualify for this tax deduction.
Other Itemized Deduction Changes
Aside from the ones that are listed above, there aren’t any significant changes to the itemized tax deductions. However, there are changes that happen as a by-product of certain expenses and contributions. One of these is the Individual Retirement Account contributions. From 2018 to 2019, the IRA contributions have been increased by $1,000. This means an additional $1,000 tax deduction if you contribute as much as you can.
The tax season this year is pretty much the same as the last year and the biggest takeaway is the medical expenses deduction change. The bottom line here is there shouldn’t be a major difference in your itemized deductions compared to the previous tax year.