FAQ's >> Individual Deductions
Listed below are examples of frequent tax-related questions with corresponding answers. While many issues may seem straightforward, the
answers to many of these questions illustrate the complexity of the U.S. taxation system. For further assistance with these or any other tax
issues, please contact us.
Although the information provided herein is derived from data published by the Internal Revenue Service, it is not considered authoritative,
and should only be used as a general guide to understanding the underlying issues. Authoritative guidance should be obtained from a tax
professional or directly from the Internal Revenue Code, Regulations, Revenue Proclamations, Publications, Bulletins, Announcements, etc.
I moved to a different state to accept a new job. Will I be able to deduct all of my moving expenses?
When moving expenses coincide closely with a job transfer or the start of a new job, some of those expenses may qualify for deduction as an
adjustment to income on Form 1040, U.S. Individual Income Tax Return. You must have moved far enough, and, generally, closer to your new job
than you were before you moved. You must have started and kept full-time work for a specific period after the move. Not all moving expenses are
deductible. Deductible expenses are generally limited to one-way transportation, including lodging, of your household members along the most
direct route to your new residence, and transportation, parking and storage of household goods. You cannot deduct a reimbursed expense, unless
the reimbursement has been counted in your wages.
How do I deduct and substantiate my gambling losses?
You can deduct gambling losses only if you itemize deductions. Claim your gambling losses as a miscellaneous deduction on Form 1040,
Schedule A, Itemized Deductions. They are not subject to the 2% limit of your Adjusted Gross Income. The amount of losses you deduct cannot
total more than the amount of gambling income you have reported on your return. It is 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.
- 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; and
- amount(s) won or loss.
- Verifiable documentation includes, but is not limited to, wagering tickets, cancelled checks, credit records, bank withdrawals,
and statements of actual winnings or payment slips provided by the gambling establishment. When possible, the diary and available
documentation generated with the placement and settlement of a wager should be supported by such documentation as hotel bills, airline
tickets, gasoline credit cards, or affidavits or testimony from responsible gambling officials regarding the wagering activity.
I donated a used car to a qualified charity. I itemize my deductions, and I would like to take a charitable contribution
for the donation. Do I need to attach any special forms to my return? What records do I need to keep?
If you claim a deduction on your return of over $500 for all contributed property, you must attach a Form 8283, Noncash Charitable
Contributions, to your return. If you claim a total deduction of $5,000 or less for all contributed property, you need only complete Section A
of Form 8283. If you claim a deduction of more than $5,000 for an item or a group of similar items, you generally need to complete Section B of
Form 8283, which requires a qualified appraisal by a qualified appraiser.
You will need to obtain and keep evidence of your car donation and be able to substantiate the fair market value of the car. If you
are claiming a deduction of $250 or more for the car donation, you will also need a written acknowledgement from the charity that includes
a description of the car and a statement of whether the charity provided any goods or services in return for the car and, if so, a description
and estimate of the fair market value of the goods or services.
Is the interest amount that we paid to the IRS deductible?
Interest and penalties paid to the IRS on Federal taxes are not deductible.
I went through a divorce last year and paid a lot of legal fees. Are these deductible on my tax return?
Legal fees incurred or paid for a divorce are personal in nature, and are not generally deductible. However, legal fees incurred or paid
for the production or collection of taxable income may be deductible. You may deduct legal fees for collecting alimony because alimony is
taxable income.
Where are fees and commissions for investments deducted?
If they are deductible, investment expenses other than investment interest are taken as miscellaneous deductions on Form 1040, Schedule
A, Itemized Deductions. These deductions must be reduced by 2% of your adjusted gross income.
Commissions and fees for the acquisition or sale of an asset are added to the basis of that asset and are not deductible.
Fees for managing investments, such as custodial fees and management fees, are deductible.
Is a real estate investment considered investment property? Is the interest deductible as investment interest if you
cannot deduct it as mortgage interest?
If you borrow money and use it to buy property you hold for investment, the interest you pay is deductible as investment interest subject
to certain limits. Investment interest does not include any qualified home mortgage interest or any interest taken into account computing
income or loss from a passive activity.
My father is in a nursing home and I pay for the entire cost. Can I deduct the expenses on my tax return?
You may deduct qualified medical expenses you pay for yourself, your spouse, and your dependents, including a person you claim as a
dependent under a Multiple Support Agreement. You can also deduct medical expenses you paid for someone who would have qualified as
your dependent for the purpose of taking personal exemptions except that the person did not meet the gross income or joint return test.
Nursing home expenses are allowable as medical expenses in certain instances. If you, your spouse, or your dependent is in a nursing home,
and the primary reason for being there is for medical care, the entire cost, including meals and lodging, is a medical expense.
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 be deducted for the second mortgage?
Unless you have begun construction of a home on the bare land that you can occupy within 24 months, the land would be considered an
investment and the interest you paid on the second mortgage would not qualify as deducible mortgage interest. However, it would
constitute investment interest if you itemize your deductions.
Is interest on a home equity line of credit deductible as a second mortgage?
You may deduct Home Equity Debt Interest, as an itemized deduction, if you legally liable to pay the interest, pay the interest in the
tax year, secure the debt with your home, and do not exceed your Home Equity Debt Limit.
I refinanced my home last year and paid points. Are they all deductible this year?
Points paid to refinance your home are not, deductible in their entirety in the year paid. They are “amortized” or deducted over the life
of the loan.
Is personal credit card interest tax deductible?
No. Personal interest is not deductible.
My spouse and I are filing separate returns. How can we split our itemized deductions?
If you and your spouse file separate returns and one of you itemize deductions, the other spouse will have a standard deduction of
zero. Therefore, the other spouse should also itemize deductions.
While it is generally more advantageous to file jointly, there are special circumstances that may make it beneficial to file separately,
such as substantial medical or unreimbursed employee expenses.
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, generally, divided equally between you and your spouse. Otherwise, you can agree to divide
the deduction for jointly paid expenses in any manner you choose.
Are expenses for smoking cessation programs deductible?
You can include in medical expenses amounts you pay for a program to stop smoking. Unreimbursed amounts you pay for participation in a
smoking cessation program and for prescribed drugs designed to alleviate nicotine withdrawal are expenses for medical care that are
deductible subject to the 7.5% of adjusted gross income limitation if you itemize deductions on Form 1040, Schedule A, Itemized Deductions.
