Tax Deduction FAQs

Internal Revenue Service
  • What is "itemizing" and is it beneficial to me?

  • My spouse and I are filing separate returns . How can we split our itemized deductions?

  • What educational expenses are deductible?

  • Can I deduct the cost of classes I need for work ?

  • Am I eligible to claim both my job education expenses and the Lifetime Learning Credit on my taxes?

  • I have a child attending a private Catholic grade school . Is any or all of the tuition I pay deductible or a tax credit?

  • I will be homeschooling my child next year. What is deductible?

  • Can I take a deduction for the interest I paid on my student loan ?

  • Does consolidating my student loans impact how the 60-month period for student loan interest is calculated?

  • I am an employee. What form do I use to claim business expenses for local transportation ?

  • I moved to a different state to accept a new job. Will I be able to deduct all of my moving expenses ?

  • I donated a used car to a qualified charity . Do I need to attach any special forms to my return to take a deduction for a charitable contribution?

  • Is the interest that we paid to the IRS deductible?

  • My friend declared bankruptcy on a loan I made to her . Does the IRS cut me any slack for my loss?

  • I went through a divorce last year and paid a lot of legal fees . Are these deductible on my tax return?

  • Can I deduct alimony paid to my former spouse?

  • Where are fees and commissions for investments deducted?

  • How do I deduct and substantiate my gambling losses ?

  • I just bought a home . What can I deduct from the settlement statement?

  • Is the mortgage interest and property tax on a second residence deductible?

  • I have a mortgage for my primary residence and a second mortgage for land that I intend to build a home on . Can the interest for the second mortgage be deducted?

  • I paid my mother's mortgage and real estate taxes last year. The house is in her name. Can I deduct the mortgage interest and property tax on my tax return?

  • I took out a home equity loan to pay off personal debts . Is this interest deductible? Where do I enter this amount on my tax return?

  • May I deduct my home improvements and repairs to my home?

  • Our garage caught fire this last July. Can we claim a loss on our income tax?

  • Is personal credit card interest tax deductible?

    return?

    Q: What is "itemizing" and is it beneficial to me?

    A: "Itemizing" is listing on Form 1040, SCHEDULE A all amounts you paid during the year for certain items, such as:
    • Medical and dental care
    • State and local income taxes
    • Real estate taxes
    • Home mortgage interest
    • Gifts to charity

    When you complete your list, you total the amount spent and compare the total with your "standard deduction." The larger of the two deductions, standard or itemized, will be the deduction to choose, since it will lower the amount of federal income tax you will owe.

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    Q: My spouse and I are filing separate returns. How can we split our itemized deductions?

    A: If you and your spouse file separate returns and one of you itemizes deductions, the other spouse will have a standard deduction of zero. Therefore, the other spouse should also itemize deductions.

    You may be able to claim itemized deductions on a separate return for certain expenses that you paid separately or jointly with your spouse. Deductible expenses that are paid out of separate funds, such as medical expenses, are deductible by the spouse who pays them. If these expenses are paid from community funds, the deduction may depend on whether or not you live in a community property state. In a community property state, the deduction is divided equally between you and your spouse. Otherwise, refer to Publication 504, Divorced or Separated Individuals, for how to allocate the expenses.

    Refer to Publication 555, Community Property, for additional information about community property.

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    Q: What educational expenses are deductible?

    A: You may be able to deduct work-related educational expenses as an itemized deduction on Schedule A of Form 1040. To be deductible, your expenses must be for education that:
    • Maintains or improves skills required in your present job or
    • Serves a business purpose and is required by your employer, or by law or regulations, to keep your present salary, status, or job

    Educational expenses include amounts spent for tuition, books, supplies, laboratory fees, and similar items. They also include the cost of correspondence courses, as well as formal training and research you do as part of an educational program. Transportation and travel expenses to attend qualified educational activities may also be deductible.

    If you're an employee, you generally must complete Form 2106 or Form 2106-EZ. Educational expenses are deducted as miscellaneous itemized deductions on Schedule A of Form 1040.

    Self-employed individuals can include educational expenses on Schedule C, C-EZ, or F of the Form 1040.

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    Q: Can I deduct the cost of classes I need for work?

    A: Your expenses aren't deductible if the education is required to meet the minimum educational requirements of your job, or is part of a program that will lead to qualifying you in a new trade or business.

    Although the education must relate to your present work, educational expenses incurred during vacation or other temporary absence from your job may be deductible. However, after your temporary absence you must return to the same kind of work. Usually, absence from work for one year or less is considered "temporary."

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    Q: Am I eligible to claim both my job education expenses and the Lifetime Learning Credit on my taxes?

    A: You cannot deduct educational expenses and claim a credit for those same expenses. You must choose one or the other.

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    Q: I have a child attending a private Catholic grade school. Is any or all of the tuition I pay deductible or a tax credit?

    A: The tuition is neither deductible as an educational expense nor as a charitable contribution, and there are no tax credits for the tuition. You cannot deduct as a charitable contribution tuition, or amounts you pay instead of tuition, even if you pay them for children to attend parochial schools or qualifying nonprofit day-care centers. Refer to Publication 526, Charitable Contributions. You also cannot deduct any fixed amount you may be required to pay in addition to the tuition fee to enroll in a private school, even if it is designated as a "donation."

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    Q: I will be homeschooling my child next year. What is deductible?

    A: There is no deduction for your child's home schooling expenses. These are nondeductible personal, living or family expenses. Please refer to Publication 529, Miscellaneous Deductions.

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    Q: Can I take a deduction for the interest I paid on my student loan?

    A: Beginning January 1, 1998, taxpayers who have taken loans to pay the cost of attending an eligible educational institution for themselves, their spouse or their dependent in some circumstances may be able to subtract from gross income the interest they pay on these student loans. For information, refer to IRS Publication 970, Tax Benefits for Higher Education.

    If you're otherwise qualified to deduct interest paid on a student loan, you can deduct the full interest paid if you're single and make less than $40,000, or married filing jointly ("MFJ") and make less than $60,000. If you make more than $40,000 but less than $55,000 if single, or more than $60,000 but less than $75,000 if MFJ, then your interest deduction is limited. If you make more than $55,000 and single, or more than $75,000 and MFJ, there is no student loan interest deduction. For more information, refer to IRS Publication 970, Tax Benefits for Higher Education.

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    Q: Does consolidating my student loans impact how the 60-month period for student loan interest is calculated?

    A: No, refinancing or consolidating an education loan does not extend the 60-month period. The 60-month period is based upon the original loan.

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    Q: I am an employee. What form do I use to claim business expenses for local transportation?

    A: Generally, you must use Form 2106, Employee Business Expense, or Form 2106-EZ, Unreimbursed Employee Business Expenses, to give your deduction for employee business expenses, and attach if to your Form 1040. Your deductible expense is then taken to IRS Form 1040, SCHEDULE A as a miscellaneous itemized deduction subject to the 2% of adjusted gross income limit. Special rules may apply, depending on your employee's reimbursement arrangement. For additional information, refer to IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses.

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    Q: I moved to a different state to accept a new job. Will I be able to deduct all of my moving expenses?

    A: If you moved because of a change in your job location or because you started a new job, you may be able to deduct your moving expenses. To qualify for the moving expense deduction, you must meet two tests involving distance and time. You can only deduct certain moving expenses that occur within the first year and were not reimbursed by your employer. For additional information, see IRS Publication 521, Moving Expenses.

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    Q: I donated a used car to a qualified charity. Do I need to attach any special forms to my return to take a deduction for a charitable contribution?

    A: You must fill out Section A of IRS Form 8283, Noncash Charitable Contributions, if your total deduction for all noncash contributions is more than $500. If you make a contribution of noncash property worth more than $5,000, generally an appraisal must be done. In that case, you also fill out Section B of Form 8283. Attach Form 8283 to your return.

    For a contribution of $250 or more, you can claim a deduction only if you obtain written acknowledgement from the qualified organization. For more information on this requirement, refer to IRS Publication 526, Charitable Contributions.

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    Q: Is the interest that we paid to the IRS deductible?

    A: No, only mortgage or investment interest is deductible on Schedule A. Interest paid to the IRS is considered personal interest and nondeductible. It would be the same as interest on a credit card or automobile loan. Refer to Items You Cannot Deduct in Chapter 25 of IRS Publication 17, Your Federal Income Tax.

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    Q: My friend declared bankruptcy on a loan I made to her. Does the IRS cut me any slack for my loss?

    A: If someone owes you money you can't collect, you have a bad debt. There are two kinds of bad debts - business and nonbusiness.

    Bad debts are deductible only if the amount owed has been lent or previously included in your income. A business bad debt, generally, is one that comes from operating your trade or business.

    All other bad debts are nonbusiness. Nonbusiness bad debts must be totally worthless to be deductible. You cannot deduct a partially worthless nonbusiness bad debt. You must establish you have taken reasonable steps to collect the debt and that the debt is worthless. You may take the deduction only in the year the debt becomes worthless. A debt becomes worthless when there is no longer any chance the amount owed will be paid. You do not have to wait until the debt comes due.

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    Q: I went through a divorce last year and paid a lot of legal fees. Are these deductible on my tax return?

    A: Legal fees for the divorce itself and for property settlement are not deductible. However, legal fees to collect taxable income, such as alimony, are deductible as miscellaneous itemized deductions on Form 1040, SCHEDULE A. Most miscellaneous itemized deductions are subject to the "two percent limit." This means you can deduct the amount left after you subtract two percent of your adjusted gross income from their total. For additional information, see IRS Publication 529, Miscellaneous Deductions.

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    Q: Can I deduct alimony paid to my former spouse?

    A: If you're divorced or separated, you may be able to deduct alimony or separate maintenance payments you're required to make to your spouse or former spouse, or on behalf of that spouse. For additional information, see IRS Publication 504, Divorced or Separated Individuals.

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    Q: Where are fees and commissions for investments deducted?

    A: If they're deductible, investment expenses are deductible as itemized deductions on IRS Form 1040, SCHEDULE A, Itemized Deductions. The taxpayer has to itemize his or her deductions to deduct these expenses, and that may not be as beneficial for the taxpayer as taking the standard deduction. These expenses are deductible only to the extent that the total exceeds two percent of the taxpayer's adjusted gross income.

    Commissions and fees for the acquisition or sale of an asset are added to the basis of that asset, and aren't deductible. For example, acquisition fees, sales commissions, and load charges paid in connection with the purchase or sale of mutual fund shares aren't deductible. They can usually be added to the basis of the shares.

    Fees for managing investments, such as custodial fees and management fees, are deductible. Fees you pay a broker to collect taxable bond interest or stock dividends are deductible. Fees that pass through to you from nonpublicly-offered mutual funds, partnerships or trusts are deductible. All of these fees are subject to the two percent limit.

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    Q: How do I deduct and substantiate my gambling losses?

    A: You can deduct gambling losses only if you itemize deductions. Claim your gambling losses as a miscellaneous deduction on IRS Form 1040, SCHEDULE A. However, the amount of losses you deduct can't total more than the amount of gambling income you've reported on your return. It's important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.

    The IRS provides the following guidelines for proving gambling winnings and losses:

    An accurate diary or similar record regularly maintained by the taxpayer, supplemented by verifiable documentation usually is acceptable evidence for substantiation of wagering winnings and losses. In general, the diary should contain at least the following information

    • Date and type of specific wager or wagering activity
    • Name of gambling establishment
    • Address or location of gambling establishment
    • Name(s) of other person(s) present with you at gambling establishment
    • Amount(s) won or lost

    Verifiable documentation includes, but is not limited to:

    • Wagering tickets
    • Canceled checks
    • Credit records
    • Bank withdrawals
    • Statements of actual winnings or payment slips provided by the gambling establishment

    When possible, the diary and available documentation of the placement and settlement of a wager should be supported by such documentation as:

    • Hotel bills
    • Airline tickets
    • Gasoline credit cards
    • Affidavits or testimony from responsible gambling officials regarding the wagering activity

    Refer to IRS Publication 529, Miscellaneous Deductions, for information on record keeping. For additional information, refer to IRS Publication 525, Taxable and Nontaxable Income.

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    Q: I just bought a home. What can I deduct from the settlement statement?

    A: If you bought your home, you probably paid settlement or closing costs in addition to the contract price. These costs are divided between you and the seller according to the sales contract, local custom, or understanding of the parties. If you built your home, you probably paid these costs when you bought the land or settled on your mortgage.

    The only settlement or closing costs you can deduct are home mortgage interest, certain points and certain real estate taxes. You deduct them in the year you buy your home if you itemize your deductions. You can add certain other settlement or closing costs to the basis of your home. There are some settlement or closing costs that you can't deduct or add to the basis.

    Real estate taxes are usually divided, so that you and the seller each pay taxes for the part of the property tax year that each owned the home.

    You can include in your basis the settlement fees and closing costs that are for buying your home. You cannot include in your basis the fees and costs associated with getting a mortgage loan. A fee is for buying the home if you would have had to pay it even if you paid cash for the home.

    Refer to IRS Publication 530, Tax Information for first Time-Homeowners, for more information about settlement or closing costs and determining the basis of your home.

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    Q: Is the mortgage interest and property tax on a second residence deductible?

    A: Real estate taxes paid on your primary and second residence are usually deductible. Deductible real estate taxes include any state, local, or foreign taxes on real property levied for the general public welfare. Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property.

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    Q: I have a mortgage for my primary residence and a second mortgage for land that I intend to build a home on. Can I deduct the interest for the second mortgage?

    A: No. Until you've started a home or have one built, the land would be considered an investment. The interest doesn't qualify as deductible mortgage interest. Refer to IRS Publication 550, Investment Income and Expenses, for further information.

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    Q: I paid my mother's mortgage and real estate taxes last year. The house is in her name. Can I deduct the mortgage interest and property tax on my tax return?

    A: Generally, you can deduct only taxes that are imposed on you. You can't deduct the property taxes unless you are the legal owner of the property. You also can't deduct the mortgage interest unless you're legally liable for the loan. Your mother can't deduct these expenses either, because she didn't make the payments.

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    Q: I took out a home equity loan to pay off personal debts. Is this interest deductible? Where do I enter this amount on my tax return?

    A: If you took out a loan for reasons other than to buy, build, or substantially improve your home, it may qualify as home equity debt. In addition, debt you incurred to buy, build, or substantially improve your home, to the extent it is more than the home acquisition debt limit, may qualify as home equity debt. Refer to IRS Publication 936, Home Mortgage Interest Deduction, for more information.

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    Q: May I deduct my home improvements and repairs to my home?

    A: Home improvements add to the value of your home, prolong its useful life, or adapt it to new uses. You add the cost of improvements to the basis of your property.

    Examples of improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, putting on a new roof, or paving your driveway.

    For a list of some other examples of improvements, refer to IRS Publication 523, Selling Your Home.

    Repairs maintain your home in good condition. They don't add to its value or prolong its life, and you don't add their cost to the basis of your property.

    Some examples of repairs include repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering and replacing broken window panes.

    The entire job is considered an improvement, however, if items that would otherwise be considered repairs are done as part of an extensive remodeling or restoration of your home.

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    Q: Our garage caught fire this last July. Can we claim a loss on our income tax return?

    A: If you lose property through casualty or theft, you may be entitled to a tax deduction. A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual in nature. Some examples of casualties include car accidents, fires, and vandalism.

    If your property is covered by insurance, you cannot deduct a loss unless you file a timely insurance claim for reimbursement. To claim a casualty or theft loss, you must complete IRS Form 4684, Casualties and Thefts, and attach it to your return. A nonbusiness casualty or theft loss may be claimed only if you itemize deductions on Form 1040, SCHEDULE A. If your loss took place in a declared disaster area see IRS Publication 547, Casualties, Disasters, and Thefts (Business and Non-business). If many items are involved, also refer to IRS Publication 584, Non-business Disaster, Casualty, and Theft Workbook.

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    Q: Is personal credit card interest tax-deductible?

    A: No.

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