United States

Standard or itemised deductions

Some taxpayers choose to itemise their deductions if their allowable itemised deductions total is greater than their standard deduction. Other taxpayers must itemise deductions because they aren't entitled to use the standard deduction.

Instead of itemising deductions, citizens and resident aliens may claim a standard deduction. The basic standard deduction for 2024 is USD 29,200 for married couples filing a joint return, USD 14,600 for individuals, and USD 21,900 for heads of household. These amounts are adjusted annually for inflation. Non-resident aliens may not claim a standard deduction.

Individuals, including resident aliens, who are blind or age 65 or over are entitled to a higher standard deduction. For 2024, such an individual who is married may increase the standard deduction by USD 1,550; if such an individual is single, the additional standard deduction is USD 1,950. If an individual is both blind and age 65 or over, the standard deduction may be increased twice.

Employment expenses

Employees may not deduct certain "ordinary and necessary" unreimbursed work-related expenses as an itemised deduction. This includes travel expenses and transportation costs, business entertainment and gifts, computers and cell phones if required for the taxpayer's job and for the convenience of the employer, uniforms, and home office expenses, among others.

Prior law

Many of these expenses could potentially be deducted in tax years prior to 2018 as itemised expenses. However, P.L. 115-97 repealed various itemised deductions. For tax years before 2018, citizens, residents, and non-resident aliens generally were able to deduct expenses incurred for the following:

• Travel or personal living expenses (to the extent not reimbursed) while "away from home" (see Employment income in the Income determination section for more information).
• Ordinary and necessary business expenses, including those for business (or employment) connected moving.
• Travel and entertainment expenses, subject to certain limitations. Note that the deductible amount for meals and entertainment expenses was limited to 50% of actual costs.

Business expenses were deductible only to the extent that, when added to other miscellaneous itemised deductions, they exceeded 2% of adjusted gross income. However, unreimbursed moving expenses were not subject to the 2% floor and were deductible in arriving at adjusted gross income. Reimbursements for moving expenses may have been eligible for exclusion from an employee's income; if reimbursement of moving expenses was excluded, then the expenses were not deductible by the employee.

Personal deductions

Citizens and resident aliens can deduct the following common items:

• Qualified residence interest.
• State and local income or sales taxes and property taxes up to an aggregate of USD 10,000.
• Medical expenses, certain casualty, disaster, and theft losses, and charitable contributions, subject to limitations. For example, the medical expense deduction floor is 7.5% of adjusted gross income.
• Child care expenses.

Non-resident aliens may deduct, subject to limitations, casualty and theft losses incurred in the United States, contributions to US charitable organisations, and state and local income taxes.

Interest and alimony expenses

No deduction is allowed for personal interest. However, interest paid on investment debt is deductible, but only to the extent that there is net investment income (i.e. investment income net of investment expenses other than interest). Disallowed excess investment interest expense may be claimed as a deduction in subsequent years, to the extent of net investment income.

Alimony is not deductible (for divorces occurring after 31 December 2018).

Losses

Capital loss deduction

An individual's capital loss deduction is generally limited to the individual's capital gains plus USD 3,000.

Hobby loss

Losses incurred by individuals that are attributable to an activity not engaged in for profit (i.e. "hobby losses") are generally deductible only to the extent of income produced by the activity. However, any allowable hobby loss deductions are categorised as miscellaneous itemised deductions. Since P.L. 115-97 disallows miscellaneous itemised deductions for tax years 2018-2025, hobby losses are effectively non-deductible under current law.

Non-corporate taxpayer loss limitations

Net operating loss rules

For tax years beginning after 2021, individual taxpayers are eligible for:

• a 100% deduction of NOLs arising in tax years before 2018 and
• a deduction limited to 80% of taxable income for NOLs arising in tax years after 2017 with no ability to carry NOLs back to prior tax years.

Note that the CARES Act temporarily allowed taxpayers to carry back 100% of NOLs arising in tax years beginning after 2017 and before 2021 to the prior five tax years, effectively delaying the 80% taxable income limitation and carryback prohibition until 2021. The CARES Act also temporarily allowed taxpayers to claim an NOL deduction equal to 100% of taxable income (rather than the current 80% limit).

Deferral of non-corporate taxpayer loss limits

Active net business losses attributable to trades or business from flow-through entities in excess of certain limits are disallowed and treated as NOL carryforwards in the following tax year under Section 461(l). For the 2024 tax year, the limit is USD 305,000 (USD 610,000 for joint filers). Net business losses in excess of these amounts will be disallowed on the 2024 return and will be carried forward as a net operating loss carryover unless changed by legislation. 

This excess business loss limitation rule applies for tax years after 2020 and is set to expire after 2028. (The CARES Act retroactively turned off the excess active business loss limitation rule of P.L. 115-97 in Section 461(l) by deferring its effective date to tax years beginning after 31 December 2020 rather than 31 December 2017).