9-1. What is itemizing and is it beneficial to me?

"Itemizing" is listing on Form 1040, Schedule A all amounts you paid during the year for certain items such as medical and dental care, state and local income taxes, real estate taxes, home mortgage interest, and gifts to charity.

When you complete your list, you total the amount spent and compare the total with your standard deduction. The larger of the two deductions, standard or itemized, will be the deduction to choose, since it will lower the amount of federal income tax you will owe. For additional information see Topic 501, Should I Itemize?

9-2. My father is in a nursing home and I pay for the entire cost. Can I deduct this 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 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 or home for the aged, 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. For more information, see Publication 502, Medical and Dental Expenses.

9-3. I paid my mother's real estate taxes last year. Can I deduct this on my tax return?

Generally, you can deduct only taxes that are imposed on you. For additional information on deductible taxes, refer to Tax Topic 503.

9-4. I refinanced my home last year and paid points. Are they all deductible this year?

No. Points paid solely to refinance your home mortgage cannot be deducted in the year paid. Instead, they must be deducted over the life of the loan. For more details, refer to Tax Topic 504, Home Mortgage Points, or Publication 936, Home Mortgage Interest Deduction.

9-5. Can I take a deduction for the interest I paid on my student loan?

Beginning January 1, 1998, taxpayers who have taken loans to pay the cost of attending an eligible educational institution for themselves, their spouse, or their dependent in some circumstances may be able to subtract from gross income the interest they pay on these student loans. See Tax Topic 456, Student Loan Interest Deduction.

9-6. I donated a used car to a qualified charity. Do I need to attach any special forms to my return to take a deduction for a charitable contribution?

You must fill out Section A of Form 8283, Noncash Charitable Contributions, if your total deduction for all noncash contributions is more than $500. If you make a contribution of noncash property worth more than $5,000, generally an appraisal must be done. In that case, you also fill out Section B of Form 8283. Attach Form 8283 to your return. For a contribution of $250 or more, you can claim a deduction only if you obtain written acknowledgement from the qualified organization. For more information on this requirement, refer to Publication 526, Charitable Contributions. For general information on charitable contributions, refer to Tax Topic 506, Contributions.

9-7. Our garage caught fire this last July. Can we claim a loss on our income tax return?

If you lose property through casualty or theft, you may be entitled to a tax deduction. A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual in nature. Some examples of casualties include car accidents, fires, and vandalism. If your property is covered by insurance, you cannot deduct a loss unless you file a timely insurance claim for reimbursement. To claim a casualty or theft loss, you must complete Form 4684, Casualties and Thefts, and attach it to your return. A non-business casualty or theft loss may be claimed only if you itemize deductions on Form 1040, Schedule A. If your loss took place in a declared disaster area, please refer to Tax Topic 515, Disaster Area Losses (Including Flood Losses). For additional information, refer to Form 4684, Casualties and Thefts, or Tax Topic 507, Casualty Losses, or Publication 547, Casualties, Disasters, and Thefts (Business and Non-business). If many items are involved, also refer to Publication 584, Non-business Disaster, Casualty, and Theft Workbook.

9-8. I went through a divorce last year and paid a lot of legal fees. Are these deductible on my tax return?

Legal fees for the divorce itself and for property settlement are not deductible, however, legal fees to collect taxable income, such as alimony, are deductible as miscellaneous itemized deductions on Form 1040, Schedule A. Most miscellaneous itemized deductions are subject to the 2% limit. This means you can deduct the amount left after you subtract 2% of your adjusted gross income from their total. For additional information, refer to Tax Topic 508, Miscellaneous Expenses, and Publication 529, Miscellaneous Deductions.

9-9. I use part of my living room as an office. Can I take a deduction for business use of my home?

In general, if you use a part of your home for both personal and business purposes, no expenses for business use of that part are deductible. Exceptions apply for qualified day-care providers and for the storage of inventory or product samples used in the business. For additional information on business use of your home, refer to Tax Topic 509, or Publication 587, Business Use of Your Home (Including Use by Day-Care Providers).

9-10. I use my home for business. Can I deduct the expenses?

If you use part of your home exclusively and regularly as the principal place of business or as a place where you meet or deal with customers you may deduct expenses for use of part of your home. If you deduct your business expenses on Form 1040, Schedule C, you must figure your deduction on Form 8829, Expenses for Business Use of Your Home, and attach it to Form 1040 with Schedule C. For more information refer to Tax Topic 509, Business Use of Home, or Publication 587, Business Use of Your Home (Including Use by Day-Care Providers).

9-11. What are the standard mileage rates for 1998, 1999, and 2000?

For 1998, the standard mileage rate is 32.5 cents a mile for all business miles. The higher rate for U.S. Postal Service employees with rural routes has been repealed. The rate for moving or medical reasons is 10 cents a mile. The rate for travel for charitable volunteer work is 14 cents a mile.

For 1999, the rate remains at 32.5 cents a mile until 4/1/99, when it dropped to 31 cents per mile (Rev. Proc. 98-63). The other rates remain unchanged from 1998 to 1999.

For 2000, the standard mileage rate is increased back to 32.5 cents per mile (up from 31 cents) per Revenue Procedure 99-38. The other rates again remain unchanged from 1999 to 2000.

For more information, see Topic 510, Business Use of Car, Publication 463, Travel, Entertainment, and Gift Expenses.

9-12. For business travel, are there limits on the amounts deductible for meals?

Meal expenses are deductible only if your trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. Generally, the deduction for unreimbursed business meals is limited to 50% of the cost.

Instead of keeping records of your meal expenses and deducting the actual cost, you can generally deduct a standard meal allowance ranging from $30 to $46 in 1999 depending on where and when you travel. For more information on business travel expenses and restrictions, refer to Tax Topic 511, or Publication 463, Travel, Entertainment, Gift, and Car Expenses.

9-13. Are business gifts deductible?

If you give business gifts in the course of your trade or business, you can deduct the cost subject to special limits and rules. In general, you can deduct no more than $25 for business gifts you give directly or indirectly to any one person during your tax year. Exceptions may apply. For additional information, refer to Tax Topic 512 and Chapter 28 of Publication 17, Your Federal Income Tax.

9-14. I took an accounting course in order to keep my salary on my current job. My employer did not reimburse me for the expenses. Can I take a deduction on my tax return for the cost of the course?

You may be able to deduct work-related educational expenses as a miscellaneous itemized deduction subject to the 2% adjusted gross income limitation on Form 1040, Schedule A. 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 or regulations, to keep your salary, status, or job.

Your expenses are not deductible if the education is required to meet the minimum educational requirements of your job or is part of a program that will lead to qualifying you in a new trade or business. For additional information on deductible educational expenses, refer to Tax Topic 513, or Publication 508, Educational Expenses.

9-15. I am an employee. What form do I use to claim business expenses for local transportation?

Generally, you must use Form 2106, Employee Business Expense, or Form 2106-EZ, Unreimbursed Employee Business Expenses, to figure your deduction for employee business expenses, and attach if to your Form 1040. Your deductible expense is then taken to Form 1040, Schedule A as a miscellaneous itemized deduction subject to the 2% of adjusted gross income limit. Special rules may apply, depending on your employer's reimbursement arrangement. For additional information, refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses, and Tax Topic 514, Employee Business Expense.

9-16. 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 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. For additional information on disaster area losses (including flood losses), refer to Tax Topic 515, or Publication 547, Casualties, Disasters and Thefts (Business and Non-Business). Publication 584, Non-business Disaster, Casualty, and Theft Loss Workbook, can be used to help you catalog your property.

9-17. I am in a disaster area and heard the IRS could help me. What can the IRS do?

If you have been impacted by a Presidentially declared disaster the IRS can help you by delaying the filing of returns and payment of taxes you owe and by waiving penalties and interest in some circumstances if the disaster has caused you to file or pay late. We can provide copies or transcripts of previously filed tax returns free of charge, and you may be able to get some money back from the IRS right now.

We have also assembled a set of forms and publications you can download for further assistance. There is a set for individuals and a set for businesses.

Also check Around the Nation for any additional information your local IRS office may have provided.

9-18. How do I deduct and substantiate my gambling losses?

You can deduct gambling losses only if you itemize deductions. Claim your gambling losses as a miscellaneous deduction on Form 1040, Schedule A. However, the amount of losses you deduct cannot total more than the amount of gambling income you have reported on your return. It is important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.

The Service provides the following guidelines for proving gambling winnings and losses:

1. An accurate diary or similar record regularly maintained by the taxpayer, supplemented by verifiable documentation usually is acceptable evidence for substantiation of wagering winnings, and losses. In general, the diary should contain at least the following information:
   1. date and type of specific wager or wagering activity;
   2. name of gambling establishment;
   3. address or location of gambling establishment; and
   4. name(s) of other person(s) present with you at gambling establishment.
   5. amount(s) won or lost.
2. Verifiable documentation includes, but is not limited to, wagering tickets, canceled checks, credit records, bank withdrawals, and statements of actual winnings or payment slips provided by the gambling establishment. When possible, the diary and available documentation by the placement and settlement of a wager should be supported by such documentation as hotel bills, airline tickets, gasoline credit cards, or affidavits or testimony from responsible gambling officials regarding the wagering activity.

Refer to Publication 529, Miscellaneous Deductions for information on record keeping. For additional information, refer to Publication 525, Taxable and Nontaxable Income.

9-19. Where can I find the per diem rates for foreign countries?

Foreign Per Diem Rates are available at this location.

The federal per diem rates for foreign locations are also published monthly in the Maximum Travel Per Diem Allowances for Foreign Areas. Your employer may have these rates available, or you can purchase the publication from the:

Superintendent of Documents
U.S. Government Printing Office
P.O. Box 371954
Pittsburgh, PA 15250-7954

You can also order it by calling the Government Printing Office at (202) 512-1800 (not a toll-free number).

Reference(s):RP 96-28 SEC 3.02; PUB 1542

9-20. I just bought a home. What can I deduct from the settlement statement?

If you bought your home, you probably paid settlement or closing costs in addition to the contract price. These costs are divided between you and the seller according to the sales contract, local custom, or understanding of the parties. If you built your home, you probably paid these costs when you bought the land or settled on your mortgage.

The only settlement or closing costs you can deduct are home mortgage interest, certain points and certain real estate taxes. You deduct them in the year you buy your home if you itemize your deductions. You can add certain other settlement or closing costs to the basis of your home. There are some settlement or closing costs that you cannot deduct or add to the basis.

Real estate taxes are usually divided so that you and the seller each pay taxes for the part of the property tax year that each owned the home.

You can include in your basis the settlement fees and closing costs that are for buying your home. You cannot include in your basis the fees and costs that are for getting a mortgage loan. A fee is for buying the home if you would have had to pay it even if you paid cash for the home.

See Publication 530, Tax Information for First Time Homeowners, for more information about settlement or closing costs and determining the basis of your home.

9-21. 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 not qualify for the standard deduction and 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 divided equally between you and your spouse. Otherwise, see Publication 504, Divorced or Separated Individuals, for how to allocate the expenses.

See Publication 555, Community Property, for additional information about community property.

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