If your itemized deductions are subject to the limit, the total of all your itemized deductions is reduced by the smaller of:
- 3% of the amount by which your AGI exceeds $132,950 ($66,475 if married filing separately), or
- 80% of your itemized deductions that are affected by the limit. See Which Itemized Deductions Are Limited, earlier.
Before you figure the overall limit on itemized deductions, you must first complete lines 1 through 27 of Schedule A (Form 1040), including any
appropriate 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 26), the limit on certain meals and entertainment (chapter 28), and the
2%-of-adjusted-gross-income limit on certain miscellaneous deductions (chapter 30).
Itemized Deductions Worksheet.
After you have completed Schedule A (Form 1040) through line 27, you can use the Itemized Deductions Worksheet in the Form 1040
instructions for Schedule A to figure your limit. Enter the result on line 28 of Schedule A. Keep the worksheet for your records.
Table 22-1 Itemized Deductions Worksheet
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 line 36 of your Form 1040. See chapter 21 for information on how to figure your standard deduction.
Example
For tax year 2001, Bill and Terry Willow are filing a joint return on Form 1040. Their adjusted gross income is $255,250. Their Schedule A itemized
deductions are as follows:
| Taxes--line 9 ...................................... |
$17,900 |
| Interest--lines
10, 11, and 12 ............... |
45,000 |
| Investment interest expense--line
13 .... |
41,000 |
| Gifts to charity--line
18 ....................... |
21,000 |
| Job expenses--line 26 ........................ |
17,240
|
| Total ................................................ |
$142,140
|
The Willows' investment interest expense deduction ($41,000 from line 13 of Schedule A) is not subject to the overall limit on itemized deductions.
The Willows use the Itemized Deductions Worksheet in the Form 1040 instructions for Schedule A to figure their overall limit. Their
completed worksheet is shown in Table 22-1.
Of their $142,140 total itemized deductions, the Willows can deduct only $138,471 ($142,140 - $3,669). They enter $138,471 on Schedule A,
line 28.
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