| ITEMIZED DEDUCTIONS | |
|---|---|
| Medical and Dental Expenses (AGI Threshold) | 7.50% |
| State and Local Taxes (Limit) | |
| Married Filing Jointly, Single, and Head of Household | $10,000 |
| Married Filing Separately | $5,000 |
| Casualty and Theft Losses | |
| Federal Disaster Losses | Allowed |
| Other Losses | Not Allowed |
| Misc. Itemized Deductions | |
| Not Subject to 2% of AGI Limit | Allowed |
| Subject to 2% of AGI Limit | Not Allowed |
So What Do These Limits mean?
MEDICAL AND DENTAL EXPENSE
Medical and dental expenses 7.5% means you can’t itemize the medical or dental expenses until it has cost more than 7.5% of your agi.
For Example:
Your AGI is $100,000. Your medical expenses are $2,000. Your dental expenses are $6,000.
Add medical and dental expenses together and the total is $8,000.
Since you can’t take any deduction until your expenses have cost more than $7,500: You are only allowed to take an itemized deduction of $500.
STATE AND LOCAL TAXES
Most states charge income taxes or sales taxes. You are allowed to take an itemized deduction of only $10,000 on your federal 1040 tax return for state income tax or sales tax: $5,000 if married filing separately.
For example:
You live in California and you had to pay $20,000 state income tax to California. You also had paid sales tax of $15,000. You can only deduct one of these two. Let’s say you chose to itemize the $20,000 income tax. You are limited to only $10,000 that you are able to take as an itemized deduction. Keep in mind that if you itemize state and local taxes and you get a state refund, the state refund might be taxable and you will have to report it as income on your Federal 1040 tax return next year.
Casualty and Theft Losses
No losses from theft are allowed to be itemized. Only losses from Federally Declared Disasters can be itemized. Federally Declared Disasters are hurricanes, earthquakes, forest fires, tornadoes, floods, etc. that the Federal Government has called in FEMA for.
Miscellaneous Itemized Deductions
You are not allowed to take an Itemized Deduction for items that are subject to the 2% AGI limit. Which Itemized Deductions are subject to the 2% AGI Threshold?
- NOT ALLOWED TO TAKE ITEMIZED DEDUCTIONS FOR:
- Appraisal fees for a casualty loss or charitable contribution.
- Casualty and theft losses from property used in performing services as an employee.
- Clerical help and office rent in caring for investments.
- Credit or debit card convenience fees.
- Depreciation on home computers used for investments.
- Excess deductions (including administrative expenses) allowed a beneficiary on termination of an estate or trust.
- Fees to collect interest and dividends.
- Hobby expenses, but generally not more than hobby income.
- Indirect miscellaneous deductions from pass-through entities.
- Investment fees and expenses.
- Legal fees related to producing or collecting taxable income or getting tax advice.
- Loss on deposits in an insolvent or bankrupt financial institution.
- Loss on traditional IRAs or Roth IRAs, when all amounts have been distributed to you.
- Repayments of income.
- Repayments of social security benefits.
- Safe deposit box rental, except for storing jewelry and other personal effects.
- Service charges on dividend reinvestment plans.
- Tax advice fees.
- Trustee’s fees for your IRA, if separately billed and paid.
- Job Search Expenses
- Uniforms and Work-Clothes
- Union Dues and Expenses
WHICH ITEMIZED DEDUCTIONS ARE NOT SUBJECT TO 2% AGI LIMIT?
- ALLOWED TO TAKE ITEMIZED DEDUCTIONS FOR:
- Amortizable premium on taxable bonds.
- Casualty and theft losses from income-producing property.
- Federal estate tax on income in respect of a decedent.
- Fines or penalties.
- Gambling losses up to the amount of gambling winnings.
- Impairment-related work expenses of persons with disabilities.
- Losses from Ponzi-type investment schemes.
- Repayments of more than $3,000 under a claim of right.
- Unlawful discrimination claims.
- Unrecovered investment in an annuity.
- An ordinary loss attributable to a contingent payment debt instrument or an inflation-indexed debt instrument (for example, a Treasury Inflation-Protected Security).
