FAQ 3.- Itemized Deductions/Standard Deductions: Autos, Computers, Electronic Devices (Listed Property)

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My university required each incoming freshman to come to school with their own computer. Is there any way to deduct the cost of the computer from my tax liability?

The cost of a personal computer is generally a personal expense that is not deductible. However, if the school bills everyone, as a condition of attendance or enrollment, for proprietary computer devices and/or software available no where else, then this may qualify as an expense towards either the Lifetime Learning Credit or Hope Credit. For more information, refer to Publication 970, Tax Benefits for Education, chapters 2 and 3.

What types of educational expenses are deductible?

Deductible 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. For more information, refer to Publication 970, Tax Benefits for Education; chapter 12 and Tax Topic 513, Educational Expenses.

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

In some cases, you may be able to deduct the cost of classes you need for work. This deduction, however, would be subject to the 2 percent of AGI limitation, along with most other miscellaneous itemized deductions you list on Form 1040, Schedule A (PDF), Itemized Deductions.

To be deductible, your expenses must be for education that:

(1) Maintains or improves skills required in your present job, or

(2) Serves a business purpose and is required by your employer, or by law, to keep your present salary, status, or job.

However, these same expenses are not deductible if:

(1) The education is required to meet the minimum educational requirements of your job, or

(2) The education is part of a program that will lead to qualifying you in a new trade or business.

Educational expenses, related to your present work, that are incurred during periods of temporary absence from your job may also be deductible provided you return to the same job or same type of work. Generally, absence from work for one year or less is considered temporary.

For more information, refer to Publication 970, Tax Benefits for Education chapter 12; and Tax Topic 513, Educational Expenses

Am I eligible to claim both my job education expenses (minus 2% of AGI) and the Lifetime Learning Credit on my taxes?

If you are eligible to deduct educational expenses and are also eligible for the lifetime learning credit, then it is possible to claim both, as long as you do NOT use the SAME educational expenses to claim both benefits. Your expenses must be divided between the two. This is sometimes desirable because a qualifying expense for one benefit may not be a qualifying expense for the other tax benefit. For more information, refer to Publication 970, Tax Benefits for Education; chapter 3, Form 8863 (PDF), Education Credits (Hope and Lifetime Learning Credits); and Tax Topic 513, Educational Expenses.

My employer is including my graduate school tuition reimbursements on my W-2 as wages. Where do I claim these education expenses on my Form 1040?

If your graduate school tuition is deductible and the reimbursements are included in your income as wages, you may take the expense as a miscellaneous itemized deduction on Form 1040, Schedule A (PDF), Itemized Deductions. You may also need to attach Form 2106 (PDF), Employee Business Expenses. For more information, refer to Publication 970 Tax Benefits for Education chapter 12; Tax Topic 513, Educational Expenses; and Form 2106 (PDF), Employee Business Expenses.

How do I claim an educational expense on my return?

Employees, generally, must complete Form 2106 (PDF), Employee Business Expenses or Form 2106-EZ (PDF), Unreimbursed Employee Business Expenses, when job-related educational expenses are involved. Educational expenses are deducted as miscellaneous deductions, on Form 1040, Schedule A (PDF), Itemized Deductions. Alternatives to educational expense deductions should also be considered, such as the Lifetime Learning and Hope Credits, as discussed in Publication 970, Tax Benefits for Education, chapter 2 and 3.

Self-employed individuals include educational expenses as deductions on Form 1040 Schedule C (PDF), Profit or Loss From Business; Form 1040, Schedule C-EZ (PDF) , Net Profit From Business; or Form 1040, Schedule F (PDF), Profit or Loss From Farming. For more information, refer to the forms, instructions, and publications listed above plus Tax Topic 513, Educational Expenses, and Tax Topic 605, Education Credits.

What are the limits for deducting interest paid on a student loan?

The maximum deductible interest on a qualified student loan is $2,500 per return. If you are a taxpayer whose return status is married filing jointly, you are allowed to deduct the full $2,500 only when your modified adjusted gross income (MAGI) is $100,000 or less. If your MAGI is more than $105,000, but less than $135,000, the amount of your student loan interest deduction is gradually reduced. The instructions for Form 1040 (PDF) show you how to compute the deduction. If your MAGI is $135,000 or more, you are not able to take any deduction.

For those whose filing status is single, head of household, or qualifying widow(er), the full $2,500 deduction is allowed for MAGI levels equal to or below $50,000. For MAGI between $50,000 and $65,000, the deduction amount is gradually reduced. The Form 1040 Instructions. show you how to compute the deduction. If your MAGI amount is $65,000 or more, there is no deduction.

There is no deduction if you file as married filing separately, if you are claimed as a dependent, or if the loan is from a related party or a qualified employer plan. For more information, refer to Publication 970, Tax Benefits for Education chapter 4; Tax Topic 505, Interest Expense ; and Tax Topic 513, Educational Expenses .

Last year, my parents took out a student loan for me in their name and I also took out a student loan. My parents received Form 1098-E for their loan and I also received Form 1098-E for my loan. Can we both claim the interest from the loans on our tax returns? Last year, I was not their dependent.

In order for a taxpayer to claim a deduction for student loan interest, the loan must be incurred for the taxpayer, the taxpayer's spouse, or a person who was the taxpayer's dependent when the taxpayer took out the loan. Since you were not your parents' dependent when they took out the student loan, the interest they paid on the loan does not qualify for deduction. However, the student loan interest payments you made on the student loan you took out on your behalf are eligible for deduction, provided all the other requirements are met. For more information, refer to Publication 970, Tax Benefits for Education chapter 4; Tax Topic 505, Interest Expense; and Tax Topic 513, Educational Expenses.

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 (PDF), 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 (PDF). 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 (PDF) which requires, in most cases, an 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 contemporaneous 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.

For more information on these requirements, refer to Publication 526, Charitable Contributions, Publication 561, Determining the Value of Donated Property; Form 8283, Noncash Charitable Contributions; and its instructions, and Tax Topic 506, Contributions.

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

Interest and penalties paid to the IRS on Federal taxes are not deductible. For more information, refer to Items You Cannot Deduct in Chapter 25, Interest Expense, in Publication 17, Your Federal Income Tax for Individuals; and Tax Topic 505, Interest Expense.

Can I deduct alimony paid to my former spouse?

If you are divorced or separated, you may be able to deduct the alimony or separate maintenance payments that you are required to make to your spouse or former spouse, or on behalf of that spouse. For additional information, refer to Tax Topic 452, Alimony Paid (this topic covers alimony under decrees or agreements after 1984); and Publication 504, Divorced or Separated Individuals .

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. If the individual is in the home mainly for personal reasons, then only the cost of the actual medical care is a medical expense, and the cost of the meals and lodging is not deductible.

You deduct medical expenses on Form 1040, Schedule A (PDF), Itemized Deductions. The total of all allowable medical expenses must be reduced by 7.5% of your Adjusted Gross Income. For more information, refer to Publication 502, Medical and Dental Expenses.

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 deductible mortgage interest. However, it would constitute investment interest if you itemize your deductions. For more information, refer to Publication 550, Investment Income and Expenses, chapter 3 and Publication 936, Home Mortgage Interest Deduction.

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 are legally liable to pay the interest, pay the interest in the tax year, secure the debt with your home, and do not exceed certain limitations. For more information, refer to Publication 936, Home Mortgage Interest Deduction; and Tax Topic 505, Interest Expense.

I refinanced my home last year and paid points. Are they all deductible this year?

Generally 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. For more information, refer to Publication 936, Home Mortgage Interest Deduction, and Tax Topic 504, Home Mortgage Points.

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 loan taken out for reasons other than to buy, build, or substantially improve your home, such as to pay off personal debts may qualify as home equity debt. The interest would be deducted on Form 1040, Schedule A (PDF), Itemized Deductions. The amount you can deduct as interest on home equity debt is subject to certain limitations. For more information, refer to Publication 936, Home Mortgage Interest Deduction; and Tax Topic 505, Interest Expense.

Our home was seriously damaged by flooding last year. Are there special provisions for claiming a loss since our home is located in a declared disaster area?

Casualty losses not compensated for by insurance or otherwise are generally deductible only in the year the casualty occurred. However, if you have a deductible loss from a disaster in an area that is officially designated by the President of the United States as eligible for federal disaster assistance, you can choose to deduct that loss on your return for the year immediately preceding the loss year. In other words, you may treat the loss as having occurred in either the current year or the previous year, whichever provides the best tax results for you. If you have already filed your return for the preceding year, the loss may be claimed by filing an amended return, Form 1040X (PDF), Amended U.S. Individual Income Tax Return. For more information on disaster area losses (including flood losses), refer to Tax Topic 515, Disaster Area Losses (Including Flood Losses), or Publication 547, Casualties, Disasters and Thefts . Publication 584, Casualty, Disaster, and Theft Loss Workbook, can be used to help you catalog your property.

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

The mortgage interest on a second home which you use as a residence for some portion of the taxable year, is generally deductible if the interest satisfies the same requirements for deductibility as interest on a primary residence. Real estate taxes paid on your primary and second residence are, generally, 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 do not include taxes charged for local benefits and improvements that increase the value of the property. For more information, refer to Publication 17, Your Federal Income Tax for Individuals; chapter 24 Tax Topic 503, Deductible Taxes; and Publication 530, Tax Information for First-Time Home Owners.

If I must deduct points over the life of my mortgage, and I have a 30 year mortgage, does this mean that I divide the points paid by 30 and enter that amount on Schedule A?

No, you don't divide the points by 30. If you choose to use the straight-line method, you need to divide the points by the number of payments over the term of the loan and deduct points for a year according to the number of payments made in the year. If the loan ends prematurely, due to payoff or refinance with a different lender, for example, then the remaining points are deducted in that year. Points not included in Form 1098 (PDF) (usually not included on a refinance) should be entered on Form 1040, Schedule A (PDF), Itemized Deductions. For more information, refer to Publication 936, Home Mortgage Interest Deduction; and Tax Topic 504, Home Mortgage Points.

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 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, generally, divided equally between you and your spouse. For more information refer to Publication 504, Divorced or Separated Individuals; and Publication 555, Community Property.

I am in a disaster area and heard the IRS could help me. What can the IRS do?

If you have been affected by a Presidentially declared disaster, the IRS may help you by allowing additional time for filing returns and making payments, and in some circumstances, waiving penalties if the disaster has caused you to file or pay late. The IRS may also, provide copies or transcripts of previously filed returns, free of charge. You may be eligible to file for a casualty loss deduction on the prior year's tax return, or if you have already filed, by amended return (Form 1040X). For additional information on this subject, refer to Tax Topic 515, Casualty, Disaster, and Theft Losses, and Publication 547, Casualties, Disasters, and Theft.

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