Some Clarification About Itemized Deductions

• Medical Deductions

Medical expenses are deductible in the year paid, including payment with a credit card.
The expenses are deductible for any person for whom the taxpayer paid more than half that person’s support for the year, however, if the person is of no relation to the taxpayer, they must have lived with the taxpayer the entire year. For divorced parents, if either parent can claim the child as a dependent, then each parent can claim his or her portion of medical expenses paid for the child, regardless of which parent takes the exemption.

• Taxes

State and local income taxes are deductible in the year paid. This includes estimated state payments, or payments for prior year returns. Real estate taxes are deductible in the year it is paid to the taxing authority. Real estate taxes are deductible for all property owned by the taxpayer. The advalorem tax (the tax based on the assessed value) on a taxpayer’s vehicles is deductible in the year paid.

• Interest

Mortgage interest on a taxpayer’s home or second home is deductible. The loan must be secured by the home(s). Home equity debt interest is deductible but the applicable home equity debt is limited to the FMV of the home minus the original loan balance. Points are deductible in full in the year paid if the loan is to purchase a home or build a home. Points must be amortized if they are paid on a refinance.

• Contributions

Deductible contributions include money or property given to: churches and other religious organizations, federal, state and local governments (if solely for public purposes), nonprofit schools, hospitals and volunteer fire companies, public parks, war veterans’ groups, Salvation Army, Red Cross, Goodwill, United Way, etc.
For charitable contributions greater than $250, the taxpayer must have written substantiation from the organization to constitute a deduction. For non-cash donations, the taxpayer must have the name of the organization, the date and location of the contributions, a description of the property, the FMV of the property and the method of valuing the property. Again, if the contribution is greater than $250, a receipt from the organization is necessary.

• Miscellaneous

Gambling losses, up to the amount of gambling winnings are deductible. Certain expenses are deductible but are limited to the excess of 2% of the taxpayer’s AGI. Expenses include employee business expenses, investment expenses, job-hunting expenses, tax return preparation fees, safe deposit box fees, professional and union dues, work clothes and uniforms (if required and not suitable for street wear), and legal fees for collecting taxable income, keeping a job, or obtaining tax advice.

If you would like more information on the above topics, please contact us at 859-986-3756. We are located at 206 ½ Richmond Road in Berea.

You may reach Sammy at SammyLee@skleecpa.com