Limitation on Itemized Deductions
The overall limitation on deductions is based on the taxpayer’s amount of AGI. If the taxpayer itemizes deductions rather than claiming the standard deduction amount, a reduction in the amount of otherwise allowable itemized deductions may be required.
A taxpayer whose AGI exceeds a threshold amount must reduce the amount of his or her total itemized deductions by 2% of the excess of AGI over the threshold amount. The threshold amounts for 2008 are found in Table 5.2, “Reduction of Itemized Deductions—Threshold Amounts”
Table 5.2. Reduction of Itemized Deductions—Threshold Amounts
| Filing status | AGI ($) |
|---|---|
| Single | 159,950 |
| Married filing jointly | 159,950 |
| Married filing separately | 79,975 |
| Qualifying widow(er) | 159,950 |
The reduction in the itemized deductions is limited to two-thirds of 80% of itemized deductions other than the deductions for medical expenses, investment interest expenses, casualty and theft losses, and wagering losses to the extent of wagering gains. Thus, medical expenses, investment interest expense, casualty and theft losses, and wagering losses are not subject to the overall limitation.
Example
Christel and Hans file a joint income tax return for 2008. They have AGI of $180,000 and itemized deductions of $24,000. The itemized deductions are from charitable contributions and state income taxes. Only $23,800 ($24,000 – 200.50) of the itemized deductions are allowed in calculating taxable income. The reduction in the amount of itemized deductions claimed by Christel and Hans is $401, which is the lesser of:
Example
Use the same facts as in the preceding example, but assume that gross income was $360,000, and the itemized deductions consist of $20,000 in casualty losses (after the $100 floor and after applying the 10% of AGI limitation) and $4,000 in state income taxes. Christel and Hans may deduct only $22,933 = ($24,000 – 1,066.67). The reduction in the otherwise allowable itemized deduction amount is equal to the lesser of:
The reduction in the amount of itemized deductions may also be calculated using the Itemized Deductions Worksheet in the Form 1040 Instructions.
Go to Publication 17 and read Chapter 29: Limit on Itemized Deductions.
