29.   Limit on Itemized Deductions

What's New

Expired tax benefits. At the time this publication was prepared for printing, Congress was considering legislation that would extend certain tax benefits that had expired at the end of 2013. These included the deductions for state and local general sales tax in lieu of local income taxes, mortgage insurance premiums, educator expenses, and tuition and fees. To see whether the legislation was enacted, go to www.irs.gov/pub17.

Introduction

This chapter discusses the overall limit on itemized deductions on Schedule A (Form 1040). The following topics are included.

  • Who is subject to the limit.

  • Which itemized deductions are limited.

  • How to figure the limit.

Useful Items - You may want to see:

Forms (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 $305,050 if married filing jointly or qualifying widow(er), $279,650 if head of household, $254,200 if single, or $152,525 if 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, and 12

  • Gifts to charity—line 19

  • Job expenses and certain miscellaneous deductions—line 27

  • Other miscellaneous deductions—line 28, excluding gambling and casualty or theft losses.

*If Congress extends the deduction for mortgage insurance premiums, any amount included on line 13 will be included in this list of amounts subject to the overall limit on itemized deductions.

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

  • Casualty and theft losses of personal use property—line 20

  • 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:

  • 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 $305,050 if married filing jointly or qualifying widow(er), $279,650 if head of household, $254,200 if single, or $152,525 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.

Example

For tax year 2014 Bill and Terry Willow are filing a joint return on Form 1040. Their adjusted gross income on line 38 is $325,500. Their Schedule A itemized deductions are as follows:

Taxes paid—line 9 $17,900
Interest paid*—lines 10, 11, and 12 45,000
Investment interest expense—line 14 41,000
Gifts to charity—line 19 21,000
Job expenses—line 27 17,240
Total $142,140
* If Congress extends the deduction for mortgage insurance premiums, any amount included on line 13 will be included in the total amount of interest paid.

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. Of their $142,140 total itemized deductions, the Willows can deduct only $141,526 ($142,140 - $614). They enter $141,526 on Schedule A (Form 1040), line 29.


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