Arizona gives taxpayers more flexibility than the federal government when it comes to itemized deductions. You can choose to itemize on your Arizona return even if you claimed the standard deduction on your federal return. Before doing so, you must complete a federal Schedule A, even if it isn't filed with your federal return.
If you entered itemized deductions in the federal section of the program, those amounts automatically transfer to your Arizona return. The software compares your Arizona standard deduction to your Arizona itemized deductions and applies the option that results in the lowest tax liability. You can also choose to force Arizona itemized deductions, but doing so may reduce your refund or increase the amount you owe.
Caution: Forcing itemized deductions may result in a lower refund or a higher balance due.
When Do You Need Arizona Itemized Deduction Adjustments?
Most taxpayers won't need to make adjustments. However, Arizona requires certain deductions to be reduced or adjusted in specific situations. You may need to enter amounts if any of the following apply:
- You're claiming an Arizona charitable tax credit.
- You're claiming an Arizona credit related to state and local taxes.
- You claimed a federal Mortgage Credit Certificate (MCC) credit on Form 8396.
- Your federal itemized deductions include expenses related to income that Arizona does not tax.
- You're claiming additional medical and dental expenses that may be deductible for Arizona purposes.
For full-year residents, these adjustments are made on Arizona Form 140 Schedule A. For nonresidents, adjustments are made on Arizona Form 140NR Schedule A(NR).
Charitable Contributions Claimed as Arizona Credits
Arizona does not allow you to claim both:
- An itemized deduction for a charitable contribution, and
- An Arizona tax credit for that same contribution.
Enter any charitable contributions included on your federal Schedule A that are also being used to claim an Arizona tax credit. Common Arizona charitable credit forms include Forms 321, 322, 323, 340, 348, and 352.
State and Local Taxes Claimed as Arizona Credits
Review the amount reported on your federal Schedule A for state and local taxes (SALT).
If any portion of those taxes is also being used to claim an Arizona tax credit, enter that amount as an adjustment. Arizona law requires taxpayers to reduce itemized deductions for amounts used to claim certain Arizona credits. If you deducted sales tax rather than state income tax on your federal Schedule A, no adjustment is generally required.
Mortgage Credit Certificate Adjustment
If you claimed the federal Mortgage Credit Certificate credit using federal Form 8396, enter the amount of mortgage interest paid that equals the federal credit claimed.
Arizona allows an adjustment so you can deduct mortgage interest that could not be deducted federally because it was used to calculate the federal credit.
Deductions Allowed Federally but Not Taxed by Arizona
Arizona does not allow itemized deductions tied to income that is exempt from Arizona income tax.
Examples may include:
- Interest expenses related to U.S. obligations not taxable by Arizona
- State taxes paid to another state for a year when you were not an Arizona resident
- Employee business expenses connected to income not subject to Arizona tax
If your federal Schedule A includes these types of expenses, enter the amount that must be removed from your Arizona itemized deductions.
How to Access the Arizona Itemized Deductions Section
Program Pathway
- Open the tax year you’re working on.
- From the left-side menu, select State.
- Click the three dots (⋯) next to the state name to Edit.
- Select Itemized Deductions from the options.
Additional Arizona Itemized Deduction Notes
- You may itemize on Arizona even if you claim the federal standard deduction.
- Married taxpayers filing separate Arizona returns must both either itemize or claim the standard deduction; one spouse cannot do one while the other does the other.
- If no Arizona-specific adjustments apply, simply use the amount from your federal Schedule A.
- Arizona itemized deductions cannot be less than zero. Entering a negative amount may delay processing of your return.
For most filers, the information transfers automatically from the federal return. You'll only need to make entries in this section if one of Arizona's adjustment rules applies to your situation.