How Deductions Work
Deductions reduce your taxable income — the number your tax brackets are applied to. A $10,000 deduction does not save you $10,000 in taxes; it saves you $10,000 x your marginal tax rate. At the 22% bracket, a $10,000 deduction saves you $2,200.
Each year you subtract one or the other from your Adjusted Gross Income (AGI): the standard deduction (a flat amount) or itemized deductions (a tally of qualifying expenses). The IRS gives you whichever is larger, but you cannot mix and match in the same year.
2025 Standard Deduction Amounts
| Filing Status | Standard Deduction |
|---|
| Single | $15,000 |
| Married Filing Jointly | $30,000 |
| Head of Household | $22,500 |
| Married Filing Separately | $15,000 |
| Age 65+ or blind (additional) | +$1,600 (single) / +$1,300 (married) |
* The additional amount for age 65+ or blindness stacks on top of the base standard deduction.
What You Can Itemize
These are the main categories on Schedule A. You add them up — and if the total exceeds your standard deduction, itemizing saves you money.
- Mortgage interest (High for homeowners): Interest on up to $750,000 of mortgage debt (loans after Dec. 15, 2017). Older loans may qualify up to $1M. Usually the largest itemized deduction for homeowners.
- State & local taxes (SALT) (Capped at $10,000): Property taxes plus state income or sales tax. Capped at $10,000 per return ($5,000 MFS) — a major limitation for high-tax states like CA, NY, NJ.
- Charitable contributions (Depends on giving): Cash donations up to 60% of AGI to qualifying organizations. Non-cash donations (clothing, furniture) up to 30% of AGI with receipts.
- Medical expenses (High threshold): Only the portion exceeding 7.5% of AGI is deductible. Most people do not clear the threshold unless they had major medical costs.
Who Should Itemize?
Likely worth itemizing:
- Homeowner with a large mortgage (interest alone may exceed standard deduction)
- High property taxes in a high-tax state (even at $10K SALT cap)
- Made significant charitable donations
- Had major unreimbursed medical expenses (7.5%+ of AGI)
Standard deduction usually wins:
- Renters with no mortgage interest
- People in low or no income tax states
- Those with modest income and small deductions
- Most single filers under $80,000 (SALT cap + small mortgage < $15,000)
The Bunching Strategy: If your itemized deductions are close to but not quite above the standard deduction, consider bunching: push two years of charitable donations into one tax year (itemize that year), then take the standard deduction the next year. Example: You normally donate $5,000/year and have $12,000 in other deductions — that is $17,000, just above the $15,000 standard deduction, not worth the complexity. Instead: donate $10,000 every other year — $22,000 in deductions vs $15,000 standard. You save an extra $7,000 x your tax rate every two years.
Key Terms
- Standard Deduction: A flat dollar amount the IRS lets you subtract from your AGI without tracking individual expenses. In 2025: $15,000 (single), $30,000 (MFJ), $22,500 (HOH).
- Itemized Deductions: A list of specific eligible expenses (mortgage interest, SALT, charitable gifts, medical costs) that you tally up on Schedule A. Only beneficial if the total exceeds the standard deduction.
- SALT Cap: The $10,000 annual limit on state and local tax deductions (state income or sales tax + property tax combined). Introduced by the 2017 Tax Cuts and Jobs Act — currently still in effect.
- Bunching Strategy: Deliberately concentrating deductible expenses (especially charitable donations) into one tax year to clear the standard deduction threshold, then taking the standard deduction the next year.
Quick Summary
- You choose one per year: standard deduction or itemized — whichever is larger
- 2025 standard deduction: $15,000 (single), $30,000 (MFJ), $22,500 (HOH)
- Main itemized deductions: mortgage interest, SALT (capped at $10K), charitable gifts, medical expenses
- Most renters and low-debt households do better with the standard deduction
- Homeowners with large mortgages in high-tax states often benefit from itemizing
- Bunching strategy: concentrate charitable giving to clear the threshold every other year
