What can I itemize (deduct) from my income tax?

Question

I know I can deduct the interest I paid on my mortgage but can I deduct home improvement expenses? Also, is the deduction cut-off still $10,000? I mean, we tried to deduct things before but our tax guy told us that unless we had $10,000 in deductions, we couldn't deduct anything. Is this still the case? We have done alot of projects to the house this year and if you include the mortgage interest, we have about $12,500 in deductions. Can I itemize this year? Any tax gurus please advise. Thanx!

Answer 1

You cannot deduct home improvements. You add them to the cost basis of the home.

There is no "cut-off". You can itemize as much or little as you choose; however, if your itemized deductions result in more tax than using the standard deduction, it makes sense to do the latter.

Home mortgage interest is not the only thing you can itemize. You include property taxes, state and local income or sales taxes, charitable contributions and a variety of others if they meet certain threshold limits.

Answer 2

No, not home improvements, those are on your nickel, but you can deduct mortgage interest and real estate taxes.  But save the receipts - if you owe any tax when you sell the house, they'll save you taxes then.

There are many other things that can be deducted, but the interest and taxes all are the deductions for your house.  If you made any charitable contributions, those are itemized deductions.  Download 1040 schedule A and its instructions to see what else you might be able to deduct.  For medical and dental, note that you can only deduct the amount that exceeds 7.5% of your income, and very few people reach that amount unless the have no insurance and a horrible year.

If you don't itemize, then you get a standard deduction, which for 2008 is $10,900 for a married couple.  If your total itemized deductions aren't more than that, you're ahead to take the standard deduction.