It’s my annual “Taxes from A to Z” series! For the series, I’ll focus on terms that you might see on your tax forms and statements but not necessarily in the headlines. If you’re wondering whether you can claim wardrobe expenses or whether to deduct a capital loss, this is one series you won’t want to miss.
L is for Limits on Itemized Deductions.
Under current law, you are subject to the limit on certain itemized deductions if your adjusted gross income (AGI) exceeds amounts based on your filing status. These limits are sometimes referred to as the Pease limitations and are named after former Rep. Don Pease (D-OH). For 2015, you’re subject to the limits if your income exceeds:
If you’re subject to the limits, the following itemized deductions are affected:
- Taxes paid (line 9)
- Interest paid (lines 10, 11, and 12)
- Charitable contributions (line 19)
- Job expenses and certain miscellaneous deductions (line 27)
- Other miscellaneous deductions – but see below (line 28)
There is some good news. If you’re subject to the limits, the following itemized deductions are not affected:
- Medical and dental expenses (line 4)
- Investment interest expenses (line 14)
- Casualty and theft losses (lines 20 and 28)
- Gambling losses (line 28)
(Keep in mind that the normal limitations on losses, medical expenses, charitable deductions and the like still apply.)
If your itemized deductions are subject to the limits, here’s what happens. You must reduce the total of all your itemized deductions by the smaller of:
80% of your itemized deductions that are affected by the limit (those in bold above)
OR
3% of the amount by which your AGI exceeds the limits noted in the chart above.
The reduced amount is what you can deduct as your itemized deductions. If there’s a reduction in your deduction amount, sure to check the chart for itemized deductions to make sure that it still makes sense to itemize.
