| Publication 17 |
2008 Tax Year |
29.
Limit on Itemized Deductions
Heartland Disaster Tax Relief Act of 2008. This act provides tax relief for affected persons in the Midwestern disaster areas. Under the Act, you may be able to treat
certain gifts made by cash or check as qualified contributions not subject to the limit on itemized deductions. See Publication
4492-B.
This chapter discusses the overall limit on itemized deductions on Schedule A (Form 1040). The following topics are included.
Useful Items - You may want to see:
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 $159,950 ($79,975
if you are married filing separately). Your AGI is the amount on Form 1040, line 38.
Which Itemized Deductions Are Limited?
The following Schedule A (Form 1040) deductions are subject to the overall limit on itemized deductions.
-
Taxes paid—line 9.
-
Interest paid—lines 10, 11, 12, and 13.
-
Gifts to charity (other than qualified contributions)—line 19.
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Job expenses and certain miscellaneous deductions—line 27.
-
Other miscellaneous deductions—line 28, 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—line 4.
-
Investment interest expense—line 14.
-
Gifts by cash or check that you elect to treat as qualified contributions—line 16.
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Casualty and theft losses of personal use property—line 20.
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Casualty and theft losses of income-producing property—line 28.
-
Gambling losses—line 28.
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 the following reduced by two-thirds:
-
80% of your itemized deductions that are affected by the limit. See
Which Itemized Deductions Are Limited
, earlier, or
-
3% of the amount by which your AGI exceeds $159,950 ($79,975 if married filing separately).
Before you figure the overall limit on itemized deductions, you first must complete Schedule A (Form 1040), lines 1 through
28, 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 24), the limit on certain meal and entertainment
expenses (chapter 26), and the 2%-of- adjusted-gross-income limit on certain miscellaneous deductions (chapter 28).
Itemized Deductions Worksheet.
After you have completed Schedule A (Form 1040) through line 28, you can use the Itemized Deductions Worksheet in
the Instructions for Schedule A (Form 1040) to figure your limit. Enter the result on Schedule A (Form 1040), line 29. 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 40. See
chapter 20
for information on how to figure your standard deduction.
For tax year 2008, Bill and Terry Willow are filing a joint return on Form 1040. Their adjusted gross income on line 38 is
$259,600. Their Schedule A itemized deductions are as follows:
The Willows' investment interest expense deduction ($41,000 from Schedule A (Form 1040), line 14) 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 29-1.
Of their $142,140 total itemized deductions, the Willows can deduct only $141,143 ($142,140 − $997). They enter $141,143 on
Schedule A (Form 1040), line 29.
Table 29-1.Itemized Deductions Worksheet—Line 29
| 1. |
Enter the total of the amounts from Schedule A, lines 4, 9, 15, 19, 20, 27, and 28. |
1. |
142,140 |
| 2. |
Enter the total of the amounts from Schedule A, lines 4, 14, and 20, plus any gambling and casualty or theft losses included
on line 28. Also include in the total any amount included on Schedule A, line 16, that you elected to treat as a qualified
contribution for relief efforts in a Midwestern disaster area.
|
2. |
41,000 |
| |
|
Be sure your total gambling and casualty or theft losses are clearly identified on the dotted lines next to line 28. |
|
|
| 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 29. |
|
|
| |
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 38 |
5. |
259,600 |
|
|
| 6. |
Enter: $159,950 ($79,975 if married filing separately) |
6. |
159,950 |
|
|
| 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 29. |
|
|
|
|
| |
Yes.
|
Subtract line 6 from line 5 |
7. |
99,650 |
|
|
| 8. |
Multiply line 7 by 3% (.03) |
8. |
2,990 |
|
|
| 9. |
Enter the smaller of line 4 or line 8
|
9. |
2,990 |
| 10. |
Divide line 9 by 1.5 |
10. |
1,993 |
| 11. |
Subtract line 10 from line 9 |
11. |
997 |
| 12. |
Total itemized deductions. Subtract line 11 from line 1. Enter the result here and on Schedule A,
line 29
|
12. |
141,143 |
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