Below-the-line deductions

Question 1

What itemized dedcutions are there?

Answer 1

• State and local taxes, including property and income tax (limited to 10k for nonbusiness filers)
• Medical expenses that are more than 7.5% of taxpayer’s AGI
• Interet paid on mortgage debt associated with a taxpayer’s primary home
• Qualifying charitable contributions
• Casualty and theft losses for federally declared disaster areas
• Gambling losses (to the extent of gambling winnings)

Question 2

Medical Expenses itemized deduction

Answer 2

• Can deduct expenses that are IN EXCESS of 7.5% of AGI
• Includes for yourself or their DEPENDENTS claimed on tax return
• Also includes insurance premiums for health, dental and qualifying LTC policies (unless it is already through a cafeteria at employer)
• Transportation (mileage and lodging) can also be claimed
• Cosmetic surgey is not deductible unless it is to treat, mitigate, or cure a physical condition.

Question 3

Taxes Paid (state, local)

Answer 3

• State and local taxes paid can be deducted up to 10k.
• Real estate property taxes, state and local income taxes, and personal property taxes based on the value of the personal property and assessed on a yearly basis (ad valorem tax on autos) are all deductible expenses.
• Taxpayer has option of deducting EITHER
  
  • state income taxes OR
  • sales tax paid
• State and local taxes based on property assessments and improvements are not deductible but rather increase the basis of the property.

Question 4

Interets paid on mortgage debt

Answer 4

• For taxpayer’s main or second home and INVESTMENT-RELATED interest (margin)
• Up to 750k and 100k for home equity (for improvements to home)
• Points paid (orginiation fees) are deductible in the first year of mortgage loan.

Question 5

Gifts to Charity

Answer 5

• In general, deduction cannot exceed 50% of AGI
• Only eligible for not-for-profit charitable organizations and are registered in the US.
• More on exact numbers in another section

Question 6

Personal Casualty and Theft Losses (Federally Declared Disasters Only)

Answer 6

• Can take deduction after nettting any loss against any insurance claim proceeds.
• Can be deducted as an itemized deduction OR if someone picks the standard deduction, then it would actually be added in addition to that deduction (over the max)

Question 7

MISC Itemized Deductions

Answer 7

• Two categories
  
  • MISC deduction that are subject to the 2% AGI floor
  • MISC deduction that are NOT subject to 2% AGI floor

Question 8

MISC Itemized Deductions - are subject to 2% AGI Floor

Answer 8

NO LONGER VALID UNDER CURRENT LAW

• unreimbursed employee expenses
• tax preparation fees
• other expenses such as investment management fees, hobby-related expenses, etc.)

Question 9

MISC Itemized Deductions - are NOT subject to 2% AGI Floor

Answer 9

STILL VALID

• Gambling losses to the extent of winnings
• Casualty and theft losses for income-producing assets
• Estate tax paid on income received in respect of decedent
• Unrecovered investment in annuity or pension (claimed in year of death of taxpayer)
• Impairment-related work expenses for those with disabilities

Question 10

Gambling deduction example

Answer 10

• If I were to win $8k in gambling, I have to report that as income for gross income
• If I were to also lose $10k during the year, I can ONLY DEDUCT $8k because that is how much I had won during the year.