Itemized Deductions and the QBI Deduction

Schedule A for 2025: medical expenses over 7.5% of AGI, the new $40,000 SALT cap and its phase-down, home mortgage and investment interest, charitable contributions and their substantiation, disaster casualty losses and the few other deductions still allowed. The note ends with the section 199A deduction for individuals, which is taken whether or not the taxpayer itemizes.

Deductions and Credits5 min read7 sections

Must-know for the exam

2025 SALT cap is $40,000 ($20,000 MFS), reduced by 30% of MAGI over $500,000 ($250,000 MFS) but not below $10,000 ($5,000 MFS) (IRC 164(b)(6)-(7) as amended by P.L. 119-21).
Medical expenses are deductible above 7.5% of AGI; the 2025 medical mileage rate is 21 cents (IRC 213(a); Notice 2025-5).
Mortgage interest on acquisition debt up to $750,000 ($375,000 MFS), made permanent by P.L. 119-21; home equity interest only if used on the home (IRC 163(h)(3)(F); Pub. 936 (2025)).
Investment interest is limited to net investment income; the excess carries forward indefinitely (IRC 163(d); Form 4952 instructions (2025)).
Cash gifts to public charities are limited to 60% of AGI; long-term capital gain property at FMV to 30%; excess carries forward five years (IRC 170(b), (d); Pub. 526 (2025)).
A single gift of $250 or more needs a contemporaneous written acknowledgment; noncash gifts over $500 need Form 8283 (IRC 170(f)(8), (11)).
Personal casualty losses are deductible only for federally declared disasters, after $100 per casualty and 10% of AGI (IRC 165(h); Pub. 547 (2025)).
Miscellaneous itemized deductions subject to the 2% floor remain disallowed, now permanently; gambling losses up to winnings survive (IRC 67(g), 165(d)).
QBI deduction is taken after AGI by itemizers and non-itemizers: the smaller of 20% of QBI or 20% of taxable income less net capital gain (IRC 199A(a)).
2025 QBI threshold is $197,300 ($394,600 MFJ), with the phase-in ending at $247,300 ($494,600 MFJ) (IRC 199A(e)(2); Rev. Proc. 2024-40 sec. 3.27).

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Traps that cost marks

Still applying the $10,000 cap to 2025.
Deducting both income and sales taxes.
Treating any tax paid as deductible.
Applying the grandfathered $1 million limit to new mortgages.
Allowing home equity interest because the debt is under the $750,000 limit.
Deducting refinance points in full like purchase points.
Treating the excess as lost or deductible against other income.
Relying on a canceled check for a gift of $250 or more.

Why it matters on the exam

Schedule A questions pair a qualifying test (is this expense allowed at all?) with a limit (how much survives the floor or cap?). For 2025 the biggest change is the SALT cap, raised from $10,000 to $40,000 with a phase-down for high earners. The standard deduction also rose to $15,750 single and $31,500 joint, so itemizing helps only when the total beats those amounts (IRC 63).

The QBI deduction appears here because individuals claim it on Form 1040 line 13a, below AGI.

Medical expenses and taxes

•Floor: 7.5% of AGI. AGI of $80,000 and $9,500 of expenses gives a $3,500 deduction.
•Included: prescribed drugs and insulin, hearing aids, medical transportation, and qualified long-term care premiums up to the age limit ($4,810 for ages 61-70 in 2025, Rev. Proc. 2024-40 sec. 3.28).
•Excluded: nonprescription drugs and vitamins for general health.
•Capital improvements: deductible only above the increase in home value. A $20,000 elevator that adds $8,000 of value gives $12,000 of medical expense (Treas. Reg. 1.213-1(e)(1)(iii)).

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Deductions and Credits