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 2017, the federal income tax allows itemized deductions for:

• state and local property and either income or sales taxes
• mortgage and investment interest
• charitable contributions
• medical expenses in excess of 10 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)

Itemized deductions are limited for higher income taxpayers who are 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 income thresholds for tax year 2017 are:

• $313,800 for married couples filing joint returns,
• $156,900 for married separate filers,
• $261,500 for single filers,
• $287,650 for heads of household.

The income thresholds are adjusted annually for inflation.

Taxpayers may choose to claim a standard deduction instead of itemized deductions. For tax year 2017, the federal standard deduction is:

• $12,700 for married couples filing joint returns
• $6,350 for married separate filers
• $9,350 for heads of household
• $6,350 for single filers

An additional standard deduction amount is allowed for filers who are over age 65 or blind. In tax year 2017, the additional amount is $1,250 for married filers and $1,550 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 2017, the minimum standard deduction is $1,050. Dependents with wage income may claim a standard deduction equal to the amount of their wage income plus $350, up to the standard deduction for single filers ($6,350 in tax year 2017), if this amount is greater than the $1,050 minimum standard deduction.

State

The state income tax allows all federal itemized deductions, except the deduction for state income or sales tax.

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 standard deduction and also the additional deduction allowed for taxpayers who are over 65 or blind, are the same at the state level as at the federal level.

Minnesota does not conform to the federal limitation on itemized deductions for higher income filers, but instead imposes its own limitation. In tax year 2017, the income thresholds are:

• $186,350 for married couples filing joint returns
• $93,175 for married separate filers
• $186,350 for single filers
• $186,350 for heads of households

The income thresholds are adjusted annually for inflation.

Taxpayers with income above the thresholds are required to subtract from state itemized deductions (federal deductions minus the state income or sales tax deduction), the lesser of:

• 3 percent of income over the 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 table shows the percentage of Minnesota residents claiming the standard deduction and itemized deductions in 2014 (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.

January 2017