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Itemized and Standard Deductions in the U.S. and Minnesota Income Tax

Both the federal and state income tax allow taxpayers to claim either a standard deduction or itemized deductions.

Federal

For tax year 2012, the federal income tax allows itemized deductions for:

• state and local property and either income or sales taxes
• mortgage and investment interest
• mortgage insurance
• charitable contributions
• medical expenses in excess of 7.5 percent of income
• casualty and theft losses in excess of 10 percent of income
• job expenses and miscellaneous expenses (most only allowed in excess of 2 percent of income)

In tax year 2012, there is no limit on itemized deductions for higher income taxpayers. In tax years 1991 through 2005, taxpayers were required to subtract from total itemized deductions the lesser of:

• 3 percent of income in excess of an income threshold; or
• 80 percent of total itemized deductions, excluding deductions for medical expenses, investment interest, casualty and theft losses, and gambling losses to the extent offset by gambling gains.

The federal Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 phased out the limitation on itemized deductions. It reduced the limitation by one-third for tax years 2006 and 2007, by two-thirds for 2008 and 2009, and eliminated the limitation in tax year 2010. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended the elimination of the limitation for two years, to tax years 2011 and 2012. Unless Congress acts to further extend the elimination, the limitation will be reinstated in the tax year 2013.

Taxpayers may choose to claim a standard deduction instead of itemized deductions. For tax year 2012, the federal standard deduction is:

• $11,900 for married couples filing joint returns
• $5,950 for married separate filers
• $8,700 for heads of household
• $5,950 for single filers

An additional standard deduction amount is allowed for filers who are over age 65 or blind. In tax year 2012, the additional amount is $1,150 for married filers and $1,450 for single and head of household filers. Filers who are over 65 and blind may claim two additional standard deduction amounts. The standard deduction and the additional amounts for blind and over age 65 filers are adjusted annually for inflation.

A special calculation determines the standard deduction amount allowed for individuals who are claimed as dependents on another person's tax returns (i.e., the taxpayer's children). These individuals are guaranteed a minimum standard deduction, which is adjusted annually for inflation. For tax year 2012, the minimum standard deduction is $950. Dependents with wage income may claim a standard deduction equal to the amount of their wage income plus $300, up to the standard deduction for single filers ($5,950 in tax year 2012), if this amount is greater than the $950 minimum standard deduction.

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State

The state income tax allows all federal itemized deductions, except the deduction for state income or sales tax. Laws 2011, first special session, chapter 7, provides for the limitation on itemized deductions to be in effect at the state level in tax years 2011 and 2012.

If itemized deductions remaining after subtracting the state income or sales tax deduction total less than the standard deduction, taxpayers are allowed the standard deduction. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended the increase in the standard deduction for married joint filers for two years, to tax years 2011 and 2012. Laws 2011, first special session, chapter 7, requires married filers to add to state taxable income the difference between the old and new federal standard deduction amounts. For tax year 2012, the standard deduction for state tax purposes will be $9,900 for married joint filers, and $4,950 for married separate filers. The standard deduction for single and head of household filers, and also the additional deduction allowed for taxpayers who are over 65 or blind, are the same as at the federal level.

The table shows the percentage of Minnesota residents claiming the standard deduction and itemized deductions in 2009 (the most recent year for which data is available). The final column shows the percentage whose itemized deductions remained higher than the standard deduction after the state disallowance of the income tax deduction.

December 2011