Tax Tip #7 for Tax Professionals – Itemized deductions for Minnesota

The Minnesota Department of Revenue updated Schedule M1SA, Minnesota Itemized Deductions, for tax year 2020.

Clients may either itemize deductions or take the standard deduction on their Minnesota return. They do not have to choose the same deduction method as their federal return. If one spouse itemizes deductions in Minnesota, both spouses must itemize deductions.

See Schedule M1SA instructions for a complete list of allowable deductions. Common expenses that are no longer deductible include investment fees, tax preparation fees, and safety deposit box fees. 

Medical and Dental Expenses

Medical and dental expenses allowed as a deduction for federal tax purposes are allowed as deductions for Minnesota tax purposes. Clients may deduct expenses exceeding 10% of adjusted gross income.

Taxes

Real estate taxes and personal property taxes are deductible up to $10,000 ($5,000 for Married Filing Separately).

Interest You Paid

Home mortgage interest paid is deductible on the Minnesota return:

• For loans originated before December 16, 2017, interest is deductible on loans up to $1,000,000 on joint returns or $500,000 if Married Filing Separately
• For loans originated December 16, 2017, and after, interest is deductible on loans up to $750,000 on joint returns or $375,000 if Married Filing Separately

Home equity loan interest is not deductible for Minnesota.

Charitable Contributions

Qualifying charitable contributions on the federal return qualify as deductions for the Minnesota return. Clients may also carry over qualifying deductions from a prior year. The amount allowed federally

If your client does not itemize deductions, 50% of charitable contributions over $500 may still qualify for a subtraction. See line 20 on Schedule M1M, Income Additions and Subtractions for details. 

Casualty and Theft Losses

Casualty and theft losses not compensated by insurance or otherwise may be deductible for Minnesota. The amount allowed federally may be different for Minnesota. Losses do not need to occur in a federally declared disaster area to qualify. Clients may complete Schedule M1CAT, Casualty and Theft.

Unreimbursed Employee Business Expenses

Certain unreimbursed employee business expenses are deductible if they exceed 2% of clients’ adjusted gross income. Clients may complete Schedule M1UE, Unreimbursed Employee Business Expenses.