Posted by Itemized deductions vs. standard deduction
Both in my professional return tax preparation and my volunteer work (Give it up for AARP TaxAide!) I have struggled with how to explain to clients why itemizing their deductions will not help them. So let’s take a simple example, using 2026 numbers.
Jim and Kaie bought their first home. Their adjusted gross income (AGI) is $120,000. Their mortgage interest is $12,000 for 2026. The real estate taxes are $6,000. Their tax table sales tax is $2,000 and they paid $1,000 of sales tax on a new car; their state income tax is $5,000, total cash donations are $4,000 and their total donations of goods are $1,000. They have $3,000 of unreimbursed medical expenses.
Last things first. The medical expenses don’t even go into the hopper. There is a threshold of 7.5 percent of AGI. In this case that is $9,000. Since their expenses are below this, nothing gets added in. If they had $10,000 of expenses, $1,000 would be added in.
They can choose to deduct the higher of the sales tax, or $3,000, and the state income tax, $6,000. They’ll choose $5,000. Running total – $5,000.
Real estate tax is deductible. – Running total – $11,000. (Note – after 2029, the $10,000 cap will apply again, so they will only be able to deduct $10,000.)
Mortgage interest on loans under $750,000 is fully deductible. Running total – $23,000
Charitable contributions are deductible. Running total – $28,000.
The standard deduction for a married couple filing jointly is $32,200. Being financially literate, they will choose the standard deduction.
A couple of notes. First, all those receipts for Goodwill/Salvation Army donations will not help. Second, when the realtor told you you’d get a big tax break for the home purchase, he or she lied.
When will itemizing actually help lower your taxes
Itemizing can help wealthy Americans. The person with a $750,000 mortgage will have about $45,000 of mortgage interest. They’ll probably have over $10,000 of state and local taxes. So they are over the $32,200 hump. If they have a piece of art which they bought for $10,000 and they get an appraisal for $60,000, they can donate it to Houston Public Media or Main Street Theater and deduct (with certain limits) $60,000. Not to mention their cash donations.
For the average portion, the only time itemizing helps is when they have astronomical medical expenses – typically skilled nursing care. Let’s say James and Katie have Luigicare and they get hit with a $60,000 medical bill. $51,000 is deductible.
One of the things that should trigger questions for the preparer is a sell-off of assets. A couple that sells, say, $10,000 of mutual funds every year for five years and suddenly sells off $$60,000 probably has some unexpected expenses and the most likely reason, in the US, is medical care.
Death and Taxes 