Itemized Deductions(p28)

Nonresident aliens can claim some of the same itemized deductions that resident aliens can claim. However, nonresident aliens can claim itemized deductions only if they have income effectively connected with their U.S. trade or business.

You can claim the same itemized deductions as U.S. citizens, using Schedule A of Form 1040. These deductions include certain medical and dental expenses, state and local income taxes, real estate taxes, interest you paid on a home mortgage, charitable contributions, casualty and theft losses, and miscellaneous deductions.

If you do not itemize your deductions, you can claim the standard deduction for your particular filing status. For further information, see Form 1040 and instructions.

You can deduct certain itemized deductions if you receive income effectively connected with your U.S. trade or business. These deductions include state and local income taxes, charitable contributions to U.S. organizations, casualty and theft losses, and miscellaneous deductions. Use Schedule A of Form 1040NR to claim itemized deductions.

If you are filing Form 1040NR-EZ, you can only claim a deduction for state or local income taxes. If you are claiming any other itemized deduction, you must file Form 1040NR.

Nonresident aliens cannot claim the standard deduction. However, see Students and business apprentices from India, next.

A special rule applies to students and business apprentices who are eligible for the benefits of Article 21(2) of the United States–India Income Tax Treaty. You can claim the standard deduction provided you do not claim itemized deductions.

Use Worksheet 5-1 to figure your standard deduction. If you are married and your spouse files a return and itemizes deductions, you cannot take the standard deduction.

Your standard deduction is increased by a loss from a disaster that was declared a federal disaster after 2007 and that occurred before 2010 but which you could not deduct in the year it occurred because you were not sure whether part of it would be reimbursed and you became reasonably certain in 2010 that it would not be reimbursed. This amount is shown on Form 4684, line 17. You must file Form 1040NR to claim a net disaster loss.

If you check the "Yes" box, you may be able to include some or all of the state or local sales and excise taxes you paid in 2010 for any new motor vehicle(s) (defined below) purchased after February 16, 2009, and before January 1, 2010. However, if the amount on Form 1040NR, line 37, or Form 1040NR-EZ, line 10, is equal to or greater than $135,000, you cannot include these taxes. To determine the amount of state or local sales and excise taxes to enter on line 7, refer to the sales invoice(s) for any new motor vehicle(s) you purchased. Taxes deductible in arriving at adjusted gross income, such as taxes on a vehicle used in your business, cannot be used to increase your standard deduction.

The states of Alaska, Delaware, Hawaii, Montana, New Hampshire, and Oregon do not have a sales tax. However, you may be charged other fees or taxes on the purchase of a new motor vehicle in one of these six states that is similar to a sales tax. The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle's sales price or as a per unit fee. You can include these fees or taxes on line 7.

One example of a fee you can include on line 7 is the 3.75% document fee when registering a title with the Delaware Division of Motor Vehicles. The fee is 3.75% of the purchase price.

A new motor vehicle is any of the following. The original use of the vehicle must begin with you.

• A passenger automobile or light truck that is self propelled, designed to transport people or property on a street or highway, and the gross vehicle weight rating of the vehicle is not more than 8,500 pounds.
• A motorcycle (defined below) with a gross vehicle weight rating of not more than 8,500 pounds.
• A motor home (defined below).

A vehicle with motive power having a seat or saddle for the use of the rider and designed to travel on not more than three wheels in contact with the ground.

A multi-purpose vehicle with motive power that is designed to provide temporary residential accommodations, as evidenced by the presence of at least four of the following facilities.

• Cooking.
• Refrigeration or ice box.
• Self-contained toilet.
• Heating and/or air conditioning.
• Potable water supply system including a faucet and sink.
• Separate 110-125 volt electrical power supply and/or propane.

Enter on line 8 the cost of the new motor vehicle(s). Do not include on line 8 any state or local sales or excise taxes you entered on line 7.

If you check the "Yes" box, the amount you can include for state or local sales and excise taxes is limited to the taxes imposed on the first $49,500 of the purchase price of each new motor vehicle. To figure the amount to enter on line 9, you will need to know the rate(s) of tax that apply in the state and locality where you purchased each new motor vehicle. If the state and locality where you purchased the new motor vehicle imposes a fixed rate, multiply the combined state and local rate by the smaller of $49,500 or the purchase price (before taxes) of the new motor vehicle. See the Example below.

Some taxing jurisdictions may provide for a sales tax that is limited to a certain dollar amount per purchase. One example is Manatee County, Florida. Manatee County charges an additional 1/2% (.005) discretionary sales tax that is collected on the first $5,000 of a purchase, not to exceed $25.

You purchased a new motor vehicle on December 3, 2009, for $56,500 before taxes. You paid the sales tax on February 3, 2010. The state where you purchased the vehicle imposes a fixed sales tax rate of 5% and the locality also charges a fixed rate of 1%, for a combined fixed sales tax rate of 6%. The amount of sales tax you can include on line 9 is $2,970 ($49,500 × 6% (.06)).

You can deduct state and local income taxes you paid on income that is effectively connected with a trade or business in the United States. If you received a refund or rebate in 2010 of taxes you paid in an earlier year, do not reduce your deduction by that amount. Instead, you must include the refund or rebate in income if you deducted the taxes in the earlier year and the deduction reduced your tax. See Recoveries in Publication 525 for details on how to figure the amount to include in income.

You can deduct your charitable contributions or gifts to qualified organizations subject to certain limits. Qualified organizations include organizations that are religious, charitable, educational, scientific, or literary in nature, or that work to prevent cruelty to children or animals. Certain organizations that promote national or international amateur sports competition are also qualified organizations.

Contributions made directly to a foreign organization are not deductible. However, you can deduct contributions to a U.S. organization that transfers funds to a charitable foreign organization if the U.S. organization controls the use of the funds or if the foreign organization is only an administrative arm of the U.S. organization.

For more information about organizations that qualify to receive charitable contributions, see Publication 526, Charitable Contributions.

If you receive a benefit as a result of making a contribution to a qualified organization, you can deduct only the amount of your contribution that is more than the value of the benefit you receive.

If you pay more than the fair market value to a qualified organization for merchandise, goods, or services, the amount you pay that is more than the value of the item can be a charitable contribution. For the excess amount to qualify, you must pay it with the intent to make a charitable contribution.

You cannot deduct a cash contribution, regardless of the amount, unless you keep as a record of the contribution a bank record (such as a canceled check, a bank copy of a canceled check, or a bank statement containing the name of the charity, the date, and the amount) or a written record from the charity. The written record must include the name of the charity, date of the contribution, and the amount of the contribution.

You may deduct a cash contribution of $250 or more only if you have a written statement from the charitable organization showing:

1. The amount of any money contributed,
2. Whether the organization gave you any goods or services in return for your contribution, and
3. A description and estimate of the value of any goods or services described in (2).

If you received only intangible religious benefits, the organization must state this, but it does not have to describe or value the benefit.

For contributions not made in cash, the records you must keep depend on the amount of your deduction. See Publication 526 for details. For example, if you make a noncash contribution and the amount of your deduction is more than $500, you must complete and attach to your tax return Form 8283, Noncash Charitable Contributions. If you deduct more than $500 for a contribution of a motor vehicle, boat, or airplane, you must also attach a statement from the charitable organization to your return. If your total deduction is over $5,000, you also may have to get appraisals of the values of the property. If the donated property is valued at more than $5,000, you must obtain a qualified appraisal. You generally must attach to your tax return an appraisal of any property if your deduction for the property is more than $500,000. See Form 8283 and its instructions for details.

If you contribute property to a qualified organization, the amount of your charitable contribution is generally the fair market value of the property at the time of the contribution. However, if you contribute property with a fair market value that is more than your basis in it, you may have to reduce the fair market value by the amount of appreciation (increase in value) when you figure your deduction. Your basis in the property is generally what you paid for it. If you need more information about basis, get Publication 551, Basis of Assets.

Different rules apply to figuring your deduction, depending on whether the property is:

• Ordinary income property, or
• Capital gain property.

For information about these rules, see Publication 526.

The amount you can deduct in a tax year is limited in the same way it is for a citizen or resident of the United States. For a discussion of limits on charitable contributions and other information, get Publication 526.

You can deduct your loss from fire, storm, shipwreck, or other casualty, or theft of property even though your property is not connected with a U.S. trade or business. The property can be personal use property or income-producing property not connected with a U.S. trade or business. The property must be located in the United States at the time of the casualty or theft. You can deduct theft losses only in the year in which you discover the loss.

The amount of the loss is the fair market value of the property immediately before the casualty or theft less its fair market value immediately after the casualty or theft (but not more than its cost or adjusted basis) less any insurance or other reimbursement. The fair market value of property immediately after a theft is considered zero, because you no longer have the property.

If your property is covered by insurance, you should file a timely insurance claim for reimbursement. If you do not, you cannot deduct this loss as a casualty or theft loss.

Figure your deductible casualty and theft losses on Form 4684, Casualties and Thefts.

You cannot deduct the first $100 of each casualty or theft loss to property held for personal use. You can deduct only the total of these losses for the year (reduced by the $100 limit) that is more than 10% of your adjusted gross income (line 36, Form 1040NR) for the year. The 10% limit does not apply to certain disaster losses as discussed in the Instructions for Form 4684.

These losses are not subject to the limitations that apply to personal use property. Use Section B of Form 4684 to figure your deduction for these losses.

You can deduct job expenses, such as allowable unreimbursed travel expenses (discussed next), and other miscellaneous deductions. Generally, the allowable deductions must be related to effectively connected income. Deductible expenses include:

• Union dues,
• Safety equipment and small tools needed for your job,
• Dues to professional organizations,
• Subscriptions to professional journals,
• Tax return preparation fees, and
• Casualty and theft losses of property used in performing services as an employee (employee property).

Most miscellaneous itemized deductions are deductible only if they are more than 2% of your adjusted gross income (line 37, Form 1040NR). For more information on miscellaneous deductions, see the instructions for Form 1040NR.

You may be able to deduct your ordinary and necessary travel expenses while you are temporarily performing personal services in the United States. Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for one year or less. You must be able to show you were present in the United States on an activity that required your temporary absence from your regular place of work.

For example, if you have established a "tax home" through regular employment in a foreign country, and intend to return to similar employment in the same country at the end of your temporary stay in the United States, you can deduct reasonable travel expenses you paid. You cannot deduct travel expenses for other members of your family or party.

If you qualify, you can deduct your expenses for:

• Transportation—airfare, local transportation, including train, bus, etc.,
• Lodging—rent paid, utilities (do not include telephone), hotel or motel room expenses, and
• Meal expenses—actual expenses allowed if you keep records of the amounts, or, if you do not wish to keep detailed records, you are generally allowed a standard meal allowance amount depending on the date and area of your travel. You generally can deduct only 50% of unreimbursed meal expenses. The standard meal allowance rates for high-cost areas are in Publication 1542, Per Diem Rates (For Travel Within the Continental United States), which is available only on the Internet at www.irs.gov/pub/irs-pdf/p1542.pdf. The rates for other areas are in Publication 463.

Use Form 2106 or 2106-EZ to figure your allowable expenses that you claim on line 9 of Schedule A (Form 1040NR).

You cannot deduct an expense, or part of an expense, that is allocable to U.S. tax-exempt income, including income exempt by tax treaty.

Irina Oak, a citizen of Poland, resided in the United States for part of the year to acquire business experience from a U.S. company. During her stay in the United States, she received a salary of $8,000 from her Polish employer. She received no other U.S. source income. She spent $3,000 on travel expenses, of which $1,000 were for meals. None of these expenses were reimbursed. Under the tax treaty with Poland, $5,000 of her salary is exempt from U.S. income tax. In filling out Form 2106-EZ, she must reduce her deductible meal expenses by half ($500). She must reduce the remaining $2,500 of travel expenses by 62.5% ($1,563) because 62.5% ($5,000 ÷ $8,000) of her salary is exempt from tax. She enters the remaining total of $937 on line 9 of Schedule A (Form 1040NR). She completes the remaining lines according to the instructions for Schedule A.

For more information about deductible expenses, reimbursements, and recordkeeping, get Publication 463.