This guide is written for Australians and internationally active individuals who have a US Form 1040 filing obligation. US federal rules and Australian Taxation Office (ATO) rules are separate systems, and a deduction in one does not carry over to the other.
"2026 tax return" here means the 2026 tax year (income and expenses from 1 January to 31 December 2026). The IRS says its 2026 inflation adjustments generally apply to returns filed in 2027.
Key Takeaways
- Itemize only when Schedule A deductions beat your standard deduction.
- Main categories: medical, state and local taxes, mortgage interest, charity, and some casualty or gambling losses.
- Reimbursed, pre-tax and personal expenses cannot be itemized.
- Australian taxes are not automatically deductible on Schedule A.
- Some 2026 forms are still drafts, so check final IRS instructions before filing.
What Are Itemized Deductions for the 2026 Tax Year?
Itemized deductions are eligible expenses totalled on Schedule A of Form 1040. They reduce taxable income. They do not reduce tax owed dollar-for-dollar the way a credit does.
You choose each year between the standard deduction and itemizing. You cannot take both on the same return, so compare the two annually.
2026 standard deduction: your comparison point
Under IRS Revenue Procedure 2025-32, the 2026 basic amounts are:
| Filing status | Standard deduction |
|---|---|
| Married filing jointly / qualifying surviving spouse | $32,200 |
| Head of household | $24,150 |
| Single / married filing separately | $16,100 |
Age 65 or older, or blind, adds $1,650 per condition, or $2,050 if unmarried and not a surviving spouse. A dependent's standard deduction is the greater of $1,350 or earned income plus $450, capped at the regular amount.
If your Schedule A total is below your figure, the standard deduction wins.
Special restrictions
- A married person filing separately must itemize if their spouse itemizes.
- Nonresident aliens generally cannot take the standard deduction but may claim certain itemized deductions on Form 1040-NR, tied to effectively connected income. Eligible students and business apprentices from India are a treaty exception.
- Dependents have their own standard deduction limit.
Picking the standard deduction doesn't cost you every other deduction. Adjustments to income, business expenses and the new Schedule 1-A deductions (covered below) remain available.
Common Itemized Deductions to Review
Work category by category. Count only amounts paid in the tax year, strip out reimbursements and pre-tax payments, and apply each category's own floors, caps and phaseouts.
Medical and dental expenses
Only the amount above 7.5% of AGI is deductible. Qualifying costs include unreimbursed medical, dental, hospital, prescription, insulin and vision costs, plus medical-care insurance premiums.
- Travel for care qualifies when primarily for and essential to treatment.
- Lodging counts up to $50 per person per night.
- 2026 medical mileage is 20.5 cents/mile (January to June) and 23.5 cents/mile (July to December).
- Trips for general health or a change of scenery don't qualify.
Never deduct a cost twice. Amounts reimbursed by insurance, an HRA or an employer, or paid from a tax-free HSA or FSA, are out. Self-employed health insurance is usually a Schedule 1 adjustment, and only any unclaimed premium can count as a medical expense.
State and local taxes (SALT)
For 2026 the cap is $40,400 combined ($20,200 if married filing separately), per the IRS SALT correction. It phases down by 30% of MAGI above $505,000 ($252,500 MFS), but not below $10,000 ($5,000 MFS).
The higher cap is temporary and reverts to $10,000 after 2029. The old $10,000 figure is not the general 2026 cap.
What counts:
- State and local income tax or general sales tax, never both
- Real estate taxes, which must be uniformly assessed
- Personal property taxes, which must be value-based
Federal income tax is not deductible. Australian income tax isn't a Schedule A SALT item either. Foreign income tax sits outside the cap and can be claimed as an "other tax" deduction or as a foreign tax credit. The credit is often the better route. Foreign property taxes aren't deductible on Schedule A.
Gather wage statements, estimated-tax confirmations, property tax bills and sales-tax calculations.
Home mortgage interest and points
Interest on a qualified main or second home is deductible when loan proceeds were used to buy, build or substantially improve that home.
- Debt limit: $750,000 ($375,000 MFS) for debt after 15 December 2017; $1 million ($500,000 MFS) for older debt.
- Home-equity interest qualifies only if proceeds improved the securing home.
- Points on a main-home purchase may be deductible in the year paid if IRS tests are met. Second-home and most refinance points are spread over the loan term.
- Mortgage insurance premiums return as a deduction from 2026. Confirm phaseout figures once Publication 936 is finalised (draft starts above $100,000 AGI).
Form 1098 generally reports interest of $600 or more, plus points and premiums.
Charitable contributions
Keep a bank record or receipt for cash gifts. Any single gift of $250 or more needs a written acknowledgement from the charity. Noncash gifts over $500 in total require Form 8283, and a qualified appraisal is generally needed above $5,000.
Limits for 2026:
- Deductions are generally capped at 60% of AGI, with 50%, 30% or 20% limits for certain gifts.
- A new 0.5% floor applies to itemizers. On $200,000 AGI and $10,000 of giving, the first $1,000 is lost.
- Non-itemizers may deduct up to $1,000 ($2,000 joint) in cash gifts. Noncash gifts don't qualify.
Volunteer time isn't deductible, but directly connected unreimbursed costs may be. The 2026 charitable mileage rate is 14 cents/mile. Australian charities generally don't qualify, since the treaty exceptions cover only certain Canadian, Mexican and Israeli organisations.
Casualty, theft and gambling losses
Personal casualty and theft losses are made permanent from 2026 and now cover qualifying state-declared disasters as well as federally declared ones. Use Form 4684.
Gambling losses are limited to the lesser of 90% of losses or your winnings. Winnings stay fully reportable, and you need a diary, receipts or tickets. Nonresident aliens generally can't deduct gambling losses unless they're Canadian residents.
Ordinary losses, recreational spending and unsupported estimates don't count.
What Is Not an Itemized Deduction, and What Changed for 2026?
Deductions that belong elsewhere
- Schedule 1 adjustments: student-loan interest, deductible traditional IRA contributions, HSA contributions, self-employed health insurance
- Business deductions: home-office costs and ordinary business expenses, reported with business income
- Unreimbursed employee expenses and other miscellaneous itemized deductions remain disallowed, apart from an educator-expense exception
New deductions for non-itemizers
Four OBBBA deductions on Schedule 1-A apply for 2025 to 2028 on top of either the standard or itemized deduction:
- Qualified tips: up to $25,000
- Qualified overtime: up to $12,500 ($25,000 joint)
- Passenger-vehicle loan interest: up to $10,000
- Enhanced senior deduction: up to $6,000 per person aged 65+
Each has phaseouts and eligibility rules, such as a valid SSN. Vehicle interest generally needs a new US-assembled personal-use vehicle, and nonresident aliens generally aren't eligible. Check IRS instructions rather than software summaries.
Common exclusions
- Personal living expenses
- Reimbursed costs and expenses paid with pre-tax funds
- Federal taxes
- Unsupported charitable gifts
How to Decide Whether to Itemize
- Collect medical, SALT, mortgage interest, charity and other eligible costs.
- Adjust each category for its floor, cap, phaseout and reimbursements.
- Total the figures on Schedule A.
- Compare the total with your 2026 standard deduction, including add-ons.
- File by transferring the permitted total to Form 1040 with supporting schedules, checking nothing is claimed twice.
Itemizing is worth examining with large mortgage interest, high state or local taxes, unusually big medical bills, substantial donations or a qualifying disaster loss. None guarantees a benefit.
The value depends on your marginal rate, not gross expenses. For 2026, high earners also face a reduction of 2/37 of the lesser of itemized deductions or income above the 37% bracket threshold.
IRS Publication 4801 shows about 9.4% of 2023 returns itemized. When the result is close, compare draft returns both ways.
Records, Common Errors and When to Seek Help
Document checklist
- Form 1098 and lender statements
- Property tax records
- Wage and estimated-tax records
- Medical invoices and insurance statements
- Donation receipts and appraisals
- Disaster documentation
- Gambling logs
- Proof of reimbursements
Keep records for at least three years, or six if more than 25% of gross income was omitted, per the IRS.
Common errors
- Using the wrong tax year
- Claiming reimbursed medical costs
- Claiming both income and sales tax
- Counting federal tax in SALT
- Deducting home-equity interest not used on the home
- Assuming foreign charities or foreign property tax qualify
- Exceeding the gambling loss limit
- Confusing US deductions with ATO deductions
When to get professional help
US citizens and residents abroad are taxed on worldwide income. Australians with US filing duties may weigh the foreign earned income exclusion against the foreign tax credit. Foreign taxes on excluded income cannot also be credited. The US-Australia treaty allocates taxing rights, but it doesn't replace Schedule A rules.
Get a professional review if you have multiple jurisdictions, self-employment, foreign-source income, business interests or complex records. VJM Global prepares US individual returns (Form 1040 and 1040-NR) and supports cross-border accounting and tax compliance for internationally active clients. A consultation can confirm whether that support fits your situation.
Frequently Asked Questions
Is it worth it to itemize your deductions?
Usually only when your allowable Schedule A deductions, after all limits, exceed your standard deduction. Compare both options for 2026. Only about 9.4% of 2023 US returns itemized.
Can you take the standard deduction if you itemize your taxes?
No. You choose one on the same US federal return. Adjustments to income and the Schedule 1-A deductions may still apply either way.
Which itemized deduction is limited to $10,000?
That was the SALT cap. For 2026 it is $40,400 ($20,200 MFS), phasing down above $505,000 MAGI, with a $10,000 floor ($5,000 MFS).
How can I maximize my itemized deductions?
Keep complete records, time payments legitimately, categorise correctly and avoid double-counting. Consider a professional review. You can't create deductions from personal or unsupported expenses.
How do I find my itemized deductions?
Gather expense records, follow the Schedule A categories and instructions, total the permitted amounts and compare with your standard deduction.
What expenses count as common itemized deductions?
Medical and dental costs above 7.5% of AGI, SALT, qualified mortgage interest, charitable gifts, and certain casualty or gambling losses. Each has its own rules.
