Itemized Deductions

An itemized deduction is any deduction a taxpayer can claim only by choosing to itemize, which means adding up specific deductible costs on Schedule A instead of taking the flat standard deduction. The choice is either-or and is made annually: section 63(e)(1) of the Internal Revenue Code says that "unless an individual makes an election under this subsection for the taxable year, no itemized deduction shall be allowed."

The name is misleading in a way worth understanding, because it suggests a defined list of qualifying costs. The statute works the other way round. Section 63(d) defines itemized deductions as "the deductions allowable under this chapter other than" two groups: the deductions used to arrive at adjusted gross income, and the deductions section 63(b) lets a non-itemizer take. Everything left over is an itemized deduction. So the category is defined by what it excludes, which is why a deduction can move in or out of it whenever Congress amends either of those two lists, and why several 2026 deductions that feel like itemized deductions legally are not.

The election, not the arithmetic, is the first question. Because you take the standard deduction or your itemized total and never both, an individual itemized deduction is worth nothing at all until the itemized total exceeds the standard amount, and then only the excess produces any benefit. That is why "is this deductible?" is usually the wrong question and "do we itemize?" is the right one. Most households do not, so a mortgage interest statement or a charitable receipt can be entirely legitimate and entirely worthless in the same year.

What is actually left in the category. State and local income, sales and property taxes, subject to a dollar cap that rises each year through 2029 and is reduced at higher incomes. Home mortgage interest, where the acquisition debt limit of $750,000 ($375,000 for a married person filing separately) is now permanent under section 163(h)(3)(F)(i), interest on home equity borrowing not used to buy, build or improve the home is disallowed, and mortgage debt incurred on or before December 15, 2017 remains grandfathered at the older $1 million limit. Qualified mortgage insurance premiums are again treated as deductible residence interest, phased out above $100,000 of adjusted gross income ($50,000 filing separately) and unavailable for contracts issued before 2007. Charitable contributions, subject to percentage-of-income ceilings of 60% for cash to public charities and 30% for most other gifts, and since 2026 subject to a floor of 0.5% of the contribution base, so the first slice of an itemizer's giving produces nothing. Unreimbursed medical and dental expenses above 7.5% of adjusted gross income under section 213. Personal casualty losses, which section 165(h)(5) permanently limits to losses attributable to a federally declared or a state declared disaster. And wagering losses, where section 165(d)(1) now allows only 90% of the losses and then only up to that year's wagering gains, a change effective for years beginning after 2025 that means a gambler who merely broke even has taxable income.

Miscellaneous itemized deductions are permanently gone, and this is the most commonly misstated point in the whole area. Unreimbursed employee business expenses, tax preparation fees, investment advisory fees and hobby expenses were all "miscellaneous itemized deductions," allowable before 2018 only above a 2%-of-income floor. Section 67(h) now reads: "Notwithstanding subsection (a), no miscellaneous itemized deduction shall be allowed for any taxable year beginning after December 31, 2017." There is no end date in that sentence. The 2025 tax law struck the January 1, 2026 expiry that used to be there and moved the provision from subsection (g) to subsection (h), so guidance saying the suspension "expires after 2025" is describing repealed text, and a citation to section 67(g) written before 2026 now points at a different rule entirely.

One carve-out was added in the same amendment and is almost unreported. Educator expenses are now listed in section 67(b)(13) as something other than a miscellaneous itemized deduction, which means they escape the suspension and are deductible as an ordinary itemized deduction. Section 67(g) defines them by reference to the above-the-line educator deduction but without its dollar limit, without the exclusion for nonathletic health and physical education supplies, reading "as part of instructional activity" in place of "in the classroom," and extending the list of eligible educators to an interscholastic sports administrator or coach. An eligible educator therefore has a capped above-the-line amount and an uncapped itemized route for the remainder.

A third category exists that is neither above-the-line nor itemized. Section 63(b) now lists seven deductions a non-itemizer may take alongside the standard deduction: the standard deduction itself, personal exemptions under section 151, the qualified business income deduction under section 199A, the charitable deduction for non-itemizers under section 170(p), the tips deduction under section 224, the overtime deduction under section 225, and car loan interest under section 163(h)(4)(A). Because section 63(d)(2) excludes anything "referred to in any paragraph of subsection (b)," none of those seven is an itemized deduction, and they are not in the list that produces adjusted gross income either. Two practical consequences follow. All seven are available whether or not you itemize. And because section 68 reaches only itemized deductions, none of them is trimmed by it.

Section 68 is a new provision that happens to sit where an old one used to. For tax years beginning after 2025 it reduces itemized deductions "by 2/37 of the lesser of" the itemized deductions themselves, or the amount by which taxable income, computed with those deductions added back, exceeds the point where the 37% bracket begins. Subsection (b) applies it after every other limitation. The design produces exactly 35 cents of benefit per deducted dollar for a taxpayer in the top bracket, because keeping 35/37 of a deduction at a 37% rate is the same as deducting the whole thing at 35%. Two precisions are worth carrying. This is not the Pease limitation, which cut itemized deductions by the lesser of 3% of adjusted gross income above a filing-status threshold or 80% of the deductions it reached; that version was switched off for years after 2017, the 2025 law rewrote the section generally, and the current rule shares only its number. And because the comparison runs against income measured before the itemized deductions come out, a filer whose taxable income lands in the 35% bracket can still be caught if the deductions are large enough to carry the combined figure past the 37% threshold. In that case the reduction is smaller, because it is limited by the excess rather than by the whole deduction. So 35 cents is exact at the top and a ceiling below it.

The rule that catches married couples filing separately. Section 63(c)(6)(A) sets the standard deduction to zero for "a married individual filing a separate return where either spouse itemizes deductions." One spouse's choice therefore binds the other: if one itemizes, the other gets no standard deduction and must itemize whatever they have, even if that is nothing. It is not obvious from either return in isolation and it is expensive when discovered late.

Three steps decide what an itemized deduction is worth, and the second is the one estimates usually skip.

1. Confirm it is actually an itemized deduction. If it reduces adjusted gross income, or if it appears in the section 63(b) list, it counts whether or not you itemize and none of what follows applies.

2. Compare the itemized total with the standard deduction. If the standard amount is larger, every itemized deduction is worth zero this year. If itemizing wins, only the excess over the standard amount produces benefit.

3. Multiply that excess by the marginal rate, then apply section 68 if taxable income plus itemized deductions reaches the 37% threshold.

A hypothetical example of step two, using round numbers. Assume a married couple whose itemized deductions come to $6,000 more than their standard deduction, and whose marginal rate is 22%. Itemizing is the right choice, but the benefit is not 22% of their whole itemized total. It is 22% of the $6,000 excess, or about $1,320. A further $1,000 charitable gift in the same year would be worth about $220, because at that point they are already itemizing and every additional dollar counts in full.

A second hypothetical example, this time of section 68. Assume a filer whose taxable income is well inside the 37% bracket, with $50,000 of itemized deductions, and whose income measured with those deductions added back exceeds the start of the 37% bracket by more than $50,000, so the reduction is limited by the deductions rather than by the excess. Section 68 removes 2/37 of $50,000, which is about $2,703, leaving $47,297 allowable. At 37% that is roughly $17,500 of tax saved on $50,000 of spending, which is 35 cents per dollar rather than 37.

What itemizing does well

• It taxes income net of costs the code has decided should not be taxed, which is why heavy state taxes, large medical bills and substantial charitable giving can all reduce a bill the standard deduction would not.
• It rewards planning, because several categories are within your control as to timing: which year a property tax bill, an elective medical procedure or a charitable gift lands in can decide whether you clear the standard deduction at all.
• The categories that remain are the ones with real substantiation trails (a mortgage interest statement, a property tax bill, a charity's acknowledgment), so the recordkeeping burden is lower than it was when miscellaneous expenses were in scope.

Limits and cautions

• It is all-or-nothing against the standard deduction, so a household whose deductions hover near the threshold gets an erratic benefit from year to year unless it deliberately bunches.
• The value tracks your marginal rate, so the same deductible cost is worth less to a lower earner, and at the very top it is now capped below the marginal rate.
• Several of the largest categories carry their own limits that arrive before the standard-deduction comparison: a cap on state and local taxes, a debt limit on mortgage interest, a floor under medical costs, and a floor and percentage ceilings on charitable gifts.
• A married person filing separately can be forced into itemizing by a spouse's choice and left with no standard deduction and little to itemize.
• The category's contents change with legislation rather than with principle, so an explanation more than a couple of years old is a poor guide, and the permanent removal of miscellaneous expenses is still widely described as temporary.