This chapter discusses the
overall limit on itemized
deductions on Schedule A (Form
1040). The topics include:
Who is subject to
the limit,
Which itemized
deductions are limited,
and
How to figure the
limit.
Useful Items - You
may want to see:
Form
(and Instructions)
Schedule A (Form 1040)
Itemized Deductions
Are You Subject to
the Limit?
You are subject to the limit
on certain itemized deductions
if your adjusted gross income (AGI)
is more than $142,700 ($71,350
if you are married filing
separately). Your AGI is the
amount on Form 1040, line 37.
Which Itemized
Deductions Are
Limited?
The following Schedule A
(Form 1040) deductions are
subject to the overall limit on
itemized deductions.
Taxes様ine 9.
Interest様ines 10,
11, and 12.
Gifts to
charity様ine 18.
Job expenses and
most other miscellaneous
deductions様ine 26.
Other miscellaneous
deductions様ine 27,
excluding gambling and
casualty or theft
losses.
Which Itemized
Deductions Are Not
Limited?
The following Schedule A
(Form 1040) deductions are not
subject to the overall limit on
itemized deductions. However,
they are still subject to other
applicable limits.
Medical and dental
expenses様ine 4.
Investment interest
expense様ine 13.
Casualty and theft
losses from personal use
property様ine 19.
Casualty and theft
losses from
income-producing
property様ine 27.
Gambling losses様ine
27.
How Do You Figure
the Limit?
If your itemized deductions
are subject to the limit, the
total of all your itemized
deductions is reduced by the
smaller of:
3% of the amount by
which your AGI exceeds
$142,700 ($71,350 if
married filing
separately), or
80% of your itemized
deductions that are
affected by the limit.
See
Which Itemized
Deductions Are Limited,
earlier.
Before you figure the overall
limit on itemized deductions,
you first must complete Schedule
A (Form 1040), lines 1 through
27, including any related forms
(such as Form 2106, Form 4684,
etc.).
The overall limit on itemized
deductions is figured after you
have applied any other limit on
the allowance of any itemized
deduction. These other limits
include charitable contribution
limits (chapter 26), the limit
on certain meals and
entertainment (chapter 28), and
the 2%-of- adjusted-gross-income
limit on certain miscellaneous
deductions (chapter 30).
Itemized
Deductions Worksheet.
After you have completed
Schedule A (Form 1040)
through line 27, you can use
the Itemized Deductions
Worksheet in the Form 1040
instructions for Schedule A
to figure your limit. Enter
the result on Schedule A
(Form 1040), line 28. Keep
the worksheet for your
records.
You should compare the
amount of your standard
deduction to the amount of your
itemized deductions after
applying the limit. Use the
greater amount when completing
Form 1040, line 39. See chapter
22 for information on how to
figure your standard deduction.
Example
For tax year 2004, Bill
and Terry Willow are filing
a joint return on Form 1040.
Their adjusted gross income
on line 37 is $259,600.
Their Schedule A itemized
deductions are as follows:
Taxes様ine 9
$17,900
Interest様ines
10, 11, and 12
45,000
Investment
interest expense
様ine 13
41,000
Gifts to
charity様ine 18
21,000
Job
expenses様ine 26
17,240
Total
$142,140
The Willows' investment
interest expense deduction
($41,000 from Schedule A
(Form 1040), line 13) is not
subject to the overall limit
on itemized deductions.
The Willows use the
Itemized Deductions
Worksheet in the Schedule A
(Form 1040) instructions to
figure their overall limit.
Their completed worksheet is
shown as Table 31-1.
Of their $142,140 total
itemized deductions, the
Willows can deduct only
$138,633 ($142,140 -
$3,507). They enter $138,633
on Schedule A (Form 1040),
line 28.
Table 31-1. Itemized
Deductions
Worksheet有ine 28Keep
for your records
1.
Enter the
total of the
amounts from
Schedule A,
lines 4, 9,
14, 18, 19,
26, and 27.
1.
142,140
2.
Enter the
total of the
amounts from
Schedule A,
lines 4, 13,
and 19, plus
any gambling
and casualty
or theft
losses
included on
line 27.
2.
41,000
Be sure your
total
gambling and
casualty or
theft losses
are clearly
identified
on the
dotted lines
next to line
27.
3.
Is the
amount on
line 2 less
than the
amount on
line 1?
No.
Your
deduction is
not limited.
Enter the
amount from
line 1 above
on Schedule
A, line 28.
Yes.
Subtract
line 2 from
line 1
3.
101,140
4.
Multiply
line 3 by
80% (.80)
4.
80,912
5.
Enter the
amount from
Form 1040,
line 37
5.
259,600
6.
Enter:
$142,700
($71,350 if
married
filing
separately)
6.
142,700
7.
Is the
amount on
line 6 less
than the
amount on
line 5?
No.
Your
deduction is
not limited.
Enter the
amount from
line 1 above
on Schedule
A, line 28.
Yes.
Subtract
line 6 from
line 5
7.
116,900
8.
Multiply
line 7 by 3%
(.03)
8.
3,507
9.
Enter the
smaller
of line 4 or
line 8
9.
3,507
10.
Total
itemized
deductions.
Subtract
line 9 from
line 1.
Enter the
result here
and on
Schedule A,
line 28
