| Pub. 17, Your Federal Income Tax |
2004 Tax Year |
Chapter 31 - Limit on Itemized Deductions
This is archived information that pertains only to the 2004 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
Introduction
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:
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—line 9.
-
Interest—lines 10, 11, and 12.
-
Gifts to charity—line 18.
-
Job expenses and most other miscellaneous deductions—line 26.
-
Other miscellaneous deductions—line 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—line 4.
-
Investment interest expense—line 13.
-
Casualty and theft losses from personal use property—line 19.
-
Casualty and theft losses from income-producing property—line 27.
-
Gambling losses—line 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.
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—line 9
|
|
$17,900
|
|
Interest—lines 10, 11, and 12
|
|
45,000
|
Investment interest expense
—line 13
|
|
41,000
|
|
Gifts to charity—line 18
|
|
21,000
|
|
Job expenses—line 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—Line 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
|
10.
|
138,633 |
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