GroundSkill
Compute medical, tax, and mortgage-interest deductions under their limits
Itemized deductions are claimed on Schedule A, and each has its own limit. Medical expenses are deductible only above a percentage-of-income floor. State and local taxes face a dollar cap that grew for 2025. Home mortgage interest, including points, follows tracing and timing rules that split it across schedules and years. This lesson computes all three, so you can tell a client how much of each is deductible.
The medical expense deduction starts with a definition and ends with a floor. Qualifying costs are amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, including legal medical services rendered by physicians. Insurance reimbursements and expenses claimed elsewhere, such as premiums taken through the self-employed health insurance deduction, never enter the computation.
Timing follows payment: only amounts paid this year count — a check counts when mailed or delivered, an online or pay-by-phone payment counts on the financial-institution statement date, a credit-card charge counts in the year charged, and current payments for care to be provided substantially beyond the end of the year generally cannot be included.
Travel for care counts as well: out-of-pocket gas and oil, or for 2025 the standard medical mileage rate of 21 cents a mile, plus parking fees and tolls under either method. Amounts paid for qualified long-term care services count, while premiums for qualified long-term care insurance contracts count only up to the age-based cap for the person covered.
The floor then removes the first layer: only spending above 7.5% of adjusted gross income is deductible. With AGI of $80,000, the floor is \(80{,}000 \times 7.5\% = 6{,}000\), so $9,000 of qualifying spending yields a $3,000 deduction. Because the floor keys off AGI, every adjustment that lowers AGI also lowers the hurdle.
Ben itemizes, has AGI of $80,000, and pays $9,000 of qualifying medical and dental bills with no reimbursements. His floor is $6,000, so his deduction is \(9{,}000 - 6{,}000 = 3{,}000\). Had his bills been $5,500 instead, the entire amount would have fallen below the floor and produced no deduction at all.
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You can deduct on Schedule A (Form 1040) only the part of your medical and dental expenses that is more than 7.5% of your adjusted gross income (AGI).View on the source
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Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease and for the purpose of affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners.View on the source
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Car expenses. You can include out-of-pocket expenses, such as the cost of gas and oil, when you use a car for medical reasons. You can’t include depreciation, insurance, general repair, or maintenance expenses. If you don’t want to use your actual expenses for 2025, you can use the standard medical mileage rate of 21 cents a mile. You can also include parking fees and tolls. You can add these fees and tolls to your medical expenses whether you use actual expenses or the standard mileage rate.View on the source
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You can include only the medical and dental expenses you paid this year but generally not payments for medical or dental care you will receive in a future year. (But see Decedent under Whose Medical Expenses Can You Include, later, for an exception.) This is not the rule for determining whether an expense can be reimbursed by a flexible spending arrangement (FSA). If you pay medical expenses by check, the day you mail or deliver the check is generally the date of payment. If you use a “pay-by-phone” or “online” account to pay your medical expenses, the date reported on the statement of the financial institution showing when payment was made is the date of payment. If you use a credit card, include medical expenses you charge to your credit card in the year the charge is made, not when you actually pay the amount charged.View on the source
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Generally, you can’t include in medical expenses current payments for medical care (including medical insurance) to be provided substantially beyond the end of the year.View on the source
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Long-Term Care You can include in medical expenses amounts paid for qualified long-term care services and certain amounts of premiums paid for qualified long-term care insurance contracts.View on the source
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The amount of qualified long-term care premiums you can include is limited. You can include the following as medical expenses on Schedule A (Form 1040). 1. The most you can include depends on the age at the end of 2025 of the person for whom the premiums were paid. a. Age 40 or under—$480. b. Age 41 to 50—$900. c. Age 51 to 60—$1,800. d. Age 61 to 70—$4,810. e. Age 71 or over—$6,020.View on the source
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In figuring your medical deduction, you must reduce the total amount you spent for medical care by the total amount of insurance you received, even if the policies don’t cover some of your medical expenses.View on the source
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You can't take a medical expense deduction on Schedule A (Form 1040) for any expenses you claim for purposes of the self-employed health insurance deduction.View on the source
A single taxpayer has AGI of $80,000 and paid $11,000 of qualifying medical expenses during the year, with no reimbursements. What is the medical expense deduction on Schedule A?
The state and local tax deduction covers state and local income (or sales) taxes plus real estate and qualifying personal property taxes, combined under one overall cap. For 2025 that cap is $40,000 for every filing status except married filing separately ($20,000). Very high incomes shrink the cap once modified AGI passes $500,000 ($250,000 separate), but the cap never falls below $10,000 ($5,000 separate).
On Schedule A, line 5a, the taxpayer elects one base: state and local income taxes or state and local general sales taxes, and Table 11-1 lists each as not deductible when the other is chosen, so both cannot be claimed together. Foreign income taxes and foreign real-estate taxes do not enter this deduction at all.
Two type tests sit underneath the cap. Real estate tax is deductible only to the extent actually remitted to the taxing authority, so escrow funding ahead of remittance gives no deduction. Personal property tax qualifies only when it is charged yearly on the property and keyed to value alone; flat fees for services, licenses, and inspections fail that test even when a government collects them.
The Parkers file jointly with MAGI of $300,000 and pay $28,000 of state income tax plus $24,000 of real estate tax. Their $52,000 combined total exceeds the $40,000 cap, and their income is below the $500,000 shrink point, so they deduct $40,000. Had they filed separately, each spouse's combined taxes would have faced the $20,000 separate cap instead.
Form 1040 Instructions Page 7
State and local tax deduction limit increased. The overall limit on the deduction for state and local income, sales, and property taxes has increased to $40,000 ($20,000 if married filing separately). The overall limit is reduced if your modified adjusted gross income is more than $500,000 ($250,000 if married filing separately) but will not be reduced below $10,000 ($5,000 if married filing separately).View on the source
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If your monthly mortgage payment includes an amount placed in escrow (put in the care of a third party) for real estate taxes, you may not be able to deduct the total amount placed in escrow. You can deduct only the real estate tax that the third party actually paid to the taxing authority.View on the source
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Personal property tax is deductible if it is a state or local tax that is: • Charged on personal property; • Based only on the value of the personal property; and • Charged on a yearly basis, even if it is collected more or less than once a year.View on the source
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You can elect to deduct state and local general sales taxes, instead of state and local income taxes, as an itemized deduction on Schedule A (Form 1040), line 5a.View on the source
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Income taxes State and local income taxes. Federal income taxes. Foreign income taxes. Employee contributions to private or voluntary disability plans. Employee contributions to state funds listed under Contributions to state benefit funds. State and local general sales taxes if you choose to deduct state and local income taxes. General sales taxes State and local general sales taxes, including compensating use taxes. State and local income taxes if you choose to deduct state and local general sales taxes.View on the source
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Income taxes State and local income taxes. Federal income taxes. Foreign income taxes.View on the source
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Tenant's share of real estate taxes paid by a cooperative housing corporation. Foreign real estate taxes. Taxes for local benefits (with exceptions).View on the source
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Fees and charges that aren’t expenses of your trade or business or of producing income, such as fees for driver's licenses, car inspections, parking, or charges for water bills (see Taxes and Fees You Can’t Deduct).View on the source
A single filer paid $26,000 of state income tax (withholding plus good-faith estimated payments) and $17,000 of state and local real estate tax imposed on the taxpayer's own home and paid this year. What is the SALT deduction on Schedule A, lines 5a through 5c, before any MAGI reduction?
Home mortgage interest follows tracing: the use of the property decides the schedule. Interest on a rental half is a rental expense on Schedule E; interest on the owner's own half is personal interest deductible on Schedule A for itemizers. The duplex arithmetic shows the method: split the total by a reasonable measure such as equal halves or square footage, and place each share on its own schedule.
Points, the prepaid interest paid to obtain a loan, follow timing rules instead. Points are never added to the property's basis. The general rule spreads them over the loan term, which is what makes refinance points a multi-year deduction. The exception covers points on a mortgage to purchase a main home: when the requirements are met, those points are fully deductible in the year paid. This step covers tracing (which schedule), points timing (which year), and the acquisition-debt dollar cap: only interest on the first $750,000 of home acquisition debt counts ($375,000 if married filing separately), with a higher $1 million limit ($500,000 if married filing separately) for debt incurred before December 16, 2017 — apply that cap before splitting and timing the interest.
Owen pays $3,000 in points on a mortgage to purchase his main home and meets the requirements, so he deducts the full $3,000 this year. Later he refinances an older loan and pays $2,400 in points on a 10-year note; those points are deducted at roughly $240 a year over the term. Lena's $10,000 of duplex interest splits $5,000 to Schedule E and $5,000 to Schedule A.
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Points. If you pay points to obtain a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), don't add the points to the basis of the related property. Generally, you deduct the points over the term of the loan.View on the source
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Points on home mortgage. Special rules may apply to points you and the seller pay when you obtain a mortgage to purchase your main home. If certain requirements are met, you can deduct the points in full for the year in which they're paid.View on the source
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You own a duplex and live in one half, renting out the other half. Both units are approximately the same size. Last year, you paid a total of $10,000 mortgage interest and $2,000 real estate taxes for the entire property. You can deduct $5,000 mortgage interest and $1,000 real estate taxes on Schedule E. If you itemize your deductions, include the other $5,000 mortgage interest and $1,000 real estate taxes when figuring the amount you can deduct on Schedule A.View on the source
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Home mortgage interest. You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. However, higher limitations ($1 million ($500,000 if married filing separately)) apply if you are deducting mortgage interest from indebtedness incurred before December 16, 2017.View on the source
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• For debt secured after October 13, 1987, and prior to December 16, 2017, the limit is $1 million ($500,000 if married filing separately). • For debt secured after December 15, 2017, the limit is $750,000 ($375,000 if married filing separately). However, a taxpayer who entered into a written binding contract before December 15, 2017, to close on the purchase of a principal residence before January 1, 2018, and who purchased such residence before April 1, 2018, is considered to have incurred the home acquisition debt prior to December 16, 2017.View on the source
A taxpayer owns a duplex with two equal units, lives in one unit, rents out the other, and paid $10,000 of mortgage interest for the year on the duplex loan. How is the interest treated?
The course asks you questions like these as you learn, brings back the ones you miss, and ends with full-length practice exams.
See the course Or take the free 12-question checkGroundSkill is independently produced and is not affiliated with or endorsed by the IRS. Sources last checked 2026-09-14. Exam preparation, not tax advice.