Arizona State Tax Deductions

Arizona taxpayers can claim the state standard deduction, which has been adjusted for inflation and now aligns with federal standard deduction amounts.

Taxpayers also have the option to itemize deductions if that results in a lower tax liability.

Standard Deduction Amounts

Arizona allows taxpayers to claim the standard deduction on their state return even if they itemize on their federal return. The standard deduction amounts are:

Key Arizona Deductions and Subtractions

In addition to the standard deduction, Arizona allows several specific subtractions from income to reduce taxable income:

• Age 65 or Older: Taxpayers 65+ may claim an additional standard deduction of $6,000, which phases out at higher income levels ($75,000 for single filers, $150,000 for joint filers). An additional personal exemption of $2,100 is also available for seniors.
• Retirement Income: Up to $2,500 may be subtracted for U.S. government civil service pensions and Arizona state or local government pensions.
• Tip Income: Eligible taxpayers can now deduct tip income from state taxes.
• Overtime Income: Certain overtime earnings may be subtracted.
• Auto Loan Interest: Interest paid on car loans for new, American-made vehicles may be deductible.
• Long-term Capital Gains: Taxpayers can deduct 25% of long-term capital gains from assets acquired after December 31, 2011.
• U.S. Government Bond Interest: Interest earned on U.S. government bonds is deductible.

Itemized Deductions

If itemizing, Arizona allows deductions for:

• Medical and dental expenses
• Mortgage interest
• Charitable contributions
• State and local taxes (SALT): The federal limit on SALT deductions has increased to $40,000 for most filers.

Arizona Tax Credits

Arizona offers several tax credits that directly reduce your tax liability dollar-for-dollar:

• Public School Tax Credit: Contributions to qualifying extracurricular activities or character education programs at public or charter schools (up to $200 for single filers, $400 for joint filers).
• Qualifying Charitable Organizations (QCOs): Contributions to QCOs (up to $495 single/$987 joint).
• Qualifying Foster Care Charitable Organizations (QFCOs): Contributions to QFCOs (up to $618 single/$1,234 joint).
• Private School Tuition Organizations (STOs): Credits for contributions to certified STOs.

Recommendation for Electronic Filing

Filing your Arizona tax return electronically is highly recommended. Benefits include:

• Faster processing and quicker refunds.
• Reduced errors with built-in calculations and guidance.
• Secure submission directly to the Arizona Department of Revenue.
• Many electronic filing platforms automatically apply credits, subtractions, and deductions to help maximize your tax savings.