Educational information, not individual financial advice.
Key Takeaways
When you file your taxes, you get to reduce taxable income in one of two ways: take the standard deduction (a flat amount based on filing status) or itemize specific deductions (summing up qualifying expenses). You pick whichever is larger.
These amounts increased significantly under the Tax Cuts and Jobs Act starting in 2018, which is why most taxpayers now take the standard deduction. Before TCJA, roughly a third of filers itemized; after TCJA, only about 10% do.
The main categories:
State and Local Taxes (SALT). State income tax, local income tax, property taxes, and (in limited cases) sales tax. Capped at $10,000 total under TCJA. For high-SALT states (California, New York, New Jersey), this cap is often the reason itemizing doesn't beat standard.
Mortgage interest. On up to $750,000 of acquisition debt for mortgages originated after Dec 15, 2017 ($1 million for older mortgages). Home equity debt interest is deductible only if used for home improvements.
Charitable contributions. Cash donations to qualified charities up to 60% of AGI; non-cash contributions at fair market value with various limits. Requires documentation (receipt for $250+, appraisal for $5,000+).
Medical expenses. Only the portion above 7.5% of AGI. High bar for most taxpayers — someone with $100k AGI needs over $7,500 of out-of-pocket medical before the deduction starts.
Casualty and theft losses. Only losses in a federally declared disaster area; effectively narrow.
You itemize when the total of your qualifying expenses exceeds the standard deduction. For a married couple in 2026, that's $32,200. Common scenarios where itemizing wins:
If your itemized deductions hover just below the standard deduction, you're getting no benefit from them — they're consumed by the standard amount either way. Bunching deliberately concentrates deductible expenses into alternating years:
Year 1 (normal year): take standard deduction, skip itemizing. Year 2 (bunching year): prepay property tax early, double up on charitable giving (often via a donor-advised fund), combine medical procedures, etc. Exceed the standard deduction by a wide margin; itemize. Year 3 (normal year): take standard deduction again.
This can generate meaningful additional deduction over the two-year cycle.
Donor-advised funds (DAFs) are a common bunching tool. You contribute, say, 5 years of planned charitable giving in one lump sum and take the full deduction that year. Then you distribute from the DAF to actual charities over the subsequent years. The IRS deduction rules consider the DAF contribution a completed charitable gift, even though the money hasn't reached the end charity yet.
"Above-the-line" deductions reduce AGI and are available whether you itemize or not. Examples: Traditional IRA contributions, HSA contributions, student loan interest, self-employment tax, self-employed retirement plans.
"Below-the-line" deductions (standard or itemized) reduce taxable income below AGI.
Above-the-line is generally better — it reduces AGI, which affects many other tax outcomes (Roth IRA eligibility, IRMAA Medicare premiums, ACA subsidies, various phase-outs). Always take available above-the-line deductions.
The Qualified Business Income (QBI) deduction lets certain self-employed and pass-through business owners deduct up to 20% of business income below the line. Complex rules; consult a CPA if you're self-employed.
Student loan interest (up to $2,500) and educator expenses ($300) are above-the-line.
Horizons doesn't compute itemized deductions line-by-line — that's tax software's job. But your tax expense in Horizons reflects your estimated effective rate, which already bakes in whether you're taking standard or itemized. When running long-range forecasts, changing your effective rate periodically (e.g., after a mortgage payoff) keeps the projection realistic.
Known limitations
Sources
Educational information distilled from the Horizons engine methodology — not individual financial advice.
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