Standard vs. Itemized Deductions

For 2016, the standard deduction is $12,600 if your tax-filing status is married filing jointly, $9,300 for heads of household and $6,300 for single individuals. For 2017, the standard deduction rises to $12,700 for those married filing jointly, $9,350 for heads of household and $6,350 for single individuals. The standard deduction is slightly higher if you are elderly or blind. You take the standard deduction if it’s greater than the sum of your various itemized deductions. In 2014, the standard deduction was claimed on 69% of individual tax returns.

Why is the standard deduction so important? Besides representing a sum you can earn each year without getting taxed, it also should guide your financial behavior. For instance, if you take the standard deduction, you aren’t getting any tax benefit from the mortgage interest you pay, so it may make sense to pay off your mortgage more quickly. You only benefit from the mortgage-interest tax deduction if you itemize your deductions using Schedule A.

A subtle point: Imagine you’re single and your itemized deduction is $8,000, mostly because of mortgage interest. All that interest might seem like a valuable tax deduction. But arguably, it’s only valuable to the extent that it exceeds 2017’s $6,350 standard deduction—and thus your mortgage interest isn’t generating huge tax savings.

On Schedule A, you also list other deductions, including those for property taxes, medical and dental expenses, charitable contributions, and state and local income taxes. Instead of deducting state and local income taxes, you can deduct state and local sales taxes—a useful deduction for those who live in states with low or no income tax. As part of the tax law passed by Congress in December 2015, this deduction was made permanent.

Even if you itemize, you may not get the full tax benefit from all the items listed on Schedule A. In 2016, your itemized deductions are reduced if your adjusted gross income is above $311,300 and you’re married filing jointly, above $285,350 and you’re head of household, and above $259,400 and you’re single. In 2017, the reduction will affect you if your income is above $313,800 and you are married filing jointly, above $287,650 if head of household and above $261,500 if single.

At these income levels, the value of your personal exemptions also phases out. The full value of each personal exemption is $4,050 in both 2016 and 2017. You can typically claim a personal exemption for yourself, your spouse and all dependents.

Next: Medicare Surtax

Previous: Marginal vs. Average Tax Rates

Have a question or comment? Add it here: