Itemized Deduction Limits

Some itemized deductions have different amount limitations, depending on the type of deduction. Generally, the limits are figured on a scale based off a percentage of the taxpayer’s adjusted gross income (AGI).

In order to determine what you can deduct, you will have to subtract the corresponding percentage of your AGI from the total amount of the expense based on the type of deduction. For example: miscellaneous deductions are required to be more than 2% of your AGI before you can claim a tax benefit for expenses. The percentage limit is referred to as the “floor” because you have to reach the floor before you can determine expenses eligible for deduction.

Deductions and Limits:

Medical/Dental: any costs you incur as a result of paying for preventative or diagnostic care, as well as treatment for a physical or mental illness can be deducted. Any health expenses related to treatment or modification of the body for necessary medical reasons (non-cosmetic) may be deducted. Additionally, you can deduct the amounts spent on transportation to and from the medical care site, as well as insurance premiums and prescription drug costs. These expenses must be equal to 10% or more of your AGI before a tax benefit applies.

Interest: Interest on mortgage loans for your primary and secondary residence is deductible. Generally, your first mortgage falls under the category of acquisition debt, in which you can deduct interest on loans up to $1,000,000. Interest on home equity loans up to $100,000 can be deducted. You can also deduct student loan interest, even if you chose not to itemize. Interest incurred on personal debt is not deductible.

Charity: You are able to deduct gifts given to charity in the year in which they were made. Typically, you are limited to deducting up to 50% of you AGI in one year. Be warned, though, some donations are limited at 20% or 30% of your AGI. You are able to claim a carryover deduction on the next years return if your donation are over the allowed limits, however, you still need to list your total amount of donation on the current year’s taxes, as proof.

Losses: You should deduct any losses due to casualty or theft in the year in which they occurred. If the loss occurred in a federal disaster zone, there’s a chance you can deduct the loss in a different year. The floor on loss deductions is over 10% of your AGI plus $100.

Cash: If you contribute cash to any fund, you can’t deduct the amount unless you have a qualifying record of the contribution. This record can include a canceled check, a bank statement listing the charity name and date, as well as amount donated, or a written statement from the charity. All statements must include the date and amount, as well as the receiving charity.

Miscellaneous: Unreimbursed employee expenses or business and investment expenses typically fall in this category. Miscellaneous deductions have a floor of 2% of your AGI before tax benefits kick in. For example, if your AGI is $10,000, then the floor on miscellaneous deductions is $200. You are able to deduct anything over $200 in expenses. So if you have $500 in miscellaneous expenses, $300 of those are deductible.