Many taxpayers opt for the standard deduction because it is easier. But sometimes itemizing your deductions is the better choice ”“ often resulting in a lower tax bill. Whether you bought a house, refinanced your current home or had extensive gambling losses, you may be able to take advantage of tax breaks for taxpayers who itemize. Here”™s what to keep in mind:
Deducting state and local income, sales and property taxes. The deduction that taxpayers can claim for state and local income, sales and property taxes is limited to a combined, total deduction of $10,000””$5,000 if married filing separately. State and local taxes paid above this amount can”™t be deducted.
Refinancing a home. The deduction for mortgage interest is limited to interest paid on a loan secured by the taxpayer”™s main home or second home. Homeowners who choose to refinance must use the loan to buy, build, or substantially improve their main home or second home, and the mortgage interest they may deduct is subject to the limits described in “buying a home” below.
Buying a home. People who bought a new home in 2019 can only deduct mortgage interest paid on a total of $750,000 ($375,000 married filing separately) in qualifying debt for a first and second home. For existing mortgages, if the loan originated on or before December 15, 2017, taxpayers may continue to deduct interest on a total of $1 million in qualifying debt secured by first and second homes.
Charitable donations. Donations to a qualified charity also qualify as a tax break. Taxpayers must itemize deductions to deduct charitable contributions and must have proof of all donations. The nonprofit organization must be a 501(c)(3) public charity or private foundation and non-cash donations may require a qualified appraisal.
Deducting mileage for charity. Miles driven using a personal vehicle for charitable service activities could qualify you for a tax break. Itemizers can deduct 14 cents per mile for charitable mileage driven in 2019.
Reporting gambling winnings and claiming gambling losses. Taxpayers who itemize can deduct gambling losses up to the amount of gambling winnings. You may deduct gambling losses; however, the amount of losses you deduct can’t be more than the amount of gambling income you report on your return. Furthermore, you must keep a record of your winnings and losses, for example, you must keep an accurate diary or similar record of your gambling winnings and losses and be able to provide receipts, tickets, statements, or other records that show the amount of both your winnings and losses.
Investment interest expenses. Investment interest expense is interest paid or accrued on a loan or part of a loan that is allocated to property held for taxable investments””the interest on a loan you took out to buy stock in a brokerage account, for example. Taxable investments include interest, dividends, annuities or royalties.
This writeup is for information only and is not meant as advice. Taxes can be complicated and mistakes may be costly, so it is advisable to discuss your particular situation with a tax professional.
Norm Grill, CPA, (N.Grill@GRILL1.com) is managing partner of Grill & Partners LLC (www.GRILL1.com), certified public accountants and consultants to closely held companies and high-net-worth individuals, with offices in Fairfield and Darien, 254-3880.
