home
***
CD-ROM
|
disk
|
FTP
|
other
***
search
/
ShareWare OnLine 2
/
ShareWare OnLine Volume 2 (CMS Software)(1993).iso
/
finance
/
ttool92.zip
/
CHAPT21.DOC
< prev
next >
Wrap
Text File
|
1992-12-12
|
8KB
|
217 lines
Chapter 21. Limit on Itemized Deductions
Limit on itemized deductions. Some of your itemized deductions may be phased
out if your adjusted gross income is more than $105,250 ($52,625 if you are
married filing separately).
Introduction
This chapter discusses the limit on itemized deductions, including:
∙ Who is subject to the limit,
∙ Which itemized deductions are limited,
∙ How to figure the limit, and
∙ How to complete a worksheet on the limit using an illustrated example.
This limit does not apply to you if:
1) Your adjusted gross income (AGI) (line 32 of Form 1040) is $105,250 or
less ($52,625 or less if married filing separately), or
2) You are taking the standard deduction.
Related form.
This chapter refers to Schedule A (Form 1040), Itemized Deductions. You may
want to order it to complete your income tax return.
Are You Subject to the Limit?
You are subject to the phaseout of certain itemized deductions if your AGI
is more than $105,250 ($52,625 if you are married filing separately). Your
AGI is the amount on line 32 of your Form 1040.
This limit does not apply to estates or trusts.
Which Deductions Are Affected
You are subject to the limit on itemized deductions if you have any of the
following deductions on Schedule A of Form 1040.
∙ Taxes - line 8
∙ Home mortgage interest, including points - lines 9a, 9b, and 10
∙ Charitable contributions - line 16
∙ Moving expenses - line 18
∙ Unreimbursed employee expenses - line 19
∙ All other miscellaneous deductions that are subject to the 2% limit (see
Chapter 30)
∙ Federal estate tax on income in respect of a decedent - line 25
∙ Amortizable bond premium on bonds acquired before October 23, 1986 -
line 25
∙ Deduction for repayment of certain amounts - line 25
∙ Unrecovered investment in a pension - line 25
∙ Impairment-related work expenses - line 25
Check the index at the back of this publication to locate discussions of these
deductions.
Which Deductions Are Not Affected
The Schedule A (Form 1040) deductions listed next 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 11
∙ Nonbusiness casualty and theft losses - line 17
∙ Gambling losses - line 25
Check the index at the back of this publication to locate discussions of these
deductions.
How to Figure the Limit
If your itemized deductions are subject to the limit, they are reduced by the
smaller of:
1) 3% of the amount by which your AGI exceeds $105,250 ($52,625 if married
filing separately), or
2) 80% of your itemized deductions that are affected by the limit (listed
earlier).
Before you figure the overall limit on itemized deductions, you must
first complete lines 1 through 25 of Schedule A (Form 1040), including any
appropriate forms (such as Form 2106, Form 3903, etc.).
The overall limit on itemized deductions is figured after you have applied
all other limits. Other limits figured first include charitable contribution
limits (Chapter 25), limits on moving expenses (Chapter 27), the 80% limit on
certain meals and entertainment (Chapter 28), and the 2% of AGI limit on
certain miscellaneous deductions (Chapter 30).
Itemized Deductions Worksheet. After you have completed Schedule A through
line 25, you can use the worksheet in this chapter to figure your limit.
Keep the worksheet for your records.
Itemized Deductions Worksheet
(Keep for your records)
1. Add the amounts on Schedule A, lines 4, 8, 12,
16, 17, 18, 24, and 25. Enter the total ........ 1 __________
2. Add the amounts on Schedule A, lines 4, 11,
and 17, plus any gambling losses included on
line 25. Enter the total ....................... 2 __________
3. Subtract line 2 from line 1. (If the result
is zero, stop here; enter the amount from
line 1 above on Schedule A, line 26.) .......... 3 __________
4. Multiply the amount on line 3 by 80% (.80).
Enter the result ................. 4 __________
5. Enter the amount from Form 1040,
line 32 .......................... 5 __________
6. Enter $105,250 ($52,625 if
married filing separately) ....... 6 __________
7. Subtract line 6 from line 5.
(If the result is zero or less,
stop here; enter the amount
from line 1 above on Schedule A,
line 26.) ....................... 7 __________
8. Multiply the amount on line 7
by 3% (.03). Enter the result .... 8 __________
9. Compare the amounts on lines 4 and 8 above.
Enter the smaller of the two amounts here ...... 9 __________
10. Subtract line 9 from line 1. Enter the
result here and on Schedule A, line 26 ......... 10 __________
Example
For tax year 1992, Bill and Terry Willow are filing a joint return and have
adjusted gross income of $250,000. Their Schedule A itemized deductions
consist of the following.
State income and real estate taxes ............ $17,900
Home mortgage interest ........................ 45,000
Charitable contributions ...................... 21,000
Investment interest expense ................... 41,000
Miscellaneous deductions ...................... 17,240
Total ......................................... $142,140
The Willows' investment interest expense is not subject to the overall limit
on itemized deductions. Their deduction for miscellaneous deductions is the
total after applying the 2% of AGI limit and does not include any gambling
losses.
The Willows figure their overall limit as follows:
Itemized Deductions Worksheet
(Keep for your records)
1. Add the amounts on Schedule A,
lines 4, 8, 12, 16, 17, 18, 24,
and 25. Enter the total .................... 142,140
__________
2. Add the amounts on Schedule A, lines 4,
11, and 17, plus any gambling losses
included on line 25. Enter the total ....... 41,000
__________
3. Subtract line 2 from line 1. (If the result
is zero, stop here; enter the amount from
line 1 above on Schedule A, line 26.) ...... 101,140
__________
4. Multiply the amount on line 3 by 80% (.80).
Enter the result .................. 80,912
__________
5. Enter the amount from Form 1040,
line 32 ........................... 250,000
__________
6. Enter $105,250 ($52,625 if
married filing separately) ........ 105,250
__________
7. Subtract line 6 from line 5. (If
the result is zero or less, stop
here; enter the amount from line
1 above on Schedule A, line 26.) .. 144,750
__________
8. Multiply the amount on line
7 by 3% (.03). Enter the
result ............................ 4,343
__________
9. Compare the amounts on lines 4 and
8 above. Enter the smaller of the
two amounts here ........................... 4,343
__________
10.Subtract line 9 from line 1. Enter
the result here and on Schedule A,
line 26 .................................... 137,797
__________
Of their $142,140 total itemized deductions, the Willows can deduct only
$137,797.