Itemized Deductions

Question 1

Medial and dental expenses

Answer 1

for taxpayer, spouse, and dependents

Dental, medical, hostpital care, equipment, drugs, premiums, long-term care expenses, rehab, weight reduction programs

NOT DEDUCTIBLE:
Funeral expenses, nonprescription drugs, bottled water, toiletries, cosmetics, health spas, unecessary cosmetic surgery

FORMULA: 
Medical expenses
- reimbursements from insurance
- 10% of AGI
= deductible

floor is 7.5% of AGI for 65 and over before the end of the tax year

Question 2

Taxes you paid

Answer 2

1. Real estate taxes on property used for personal purposes are it. ded.
   * *State, local, and foreign taxes on real property are deductible, BUT only by the person legally liable for the tax
2. Income taxes - foreign, state, or lacal gov’t; NEVER FEDERAL
   * *An individual CAN elect to deduct sales taxes INSTEAD of state income taxes
3. Personal Property - taxes based on the value of the propert “ad valorem” ….other property taxes are NOT deductible

Question 3

Interest you paid

Answer 3

1. Personal interest (credit card, car loan, etc) NOT deductible
2. Investment interest - limited to NET INVESTMENT INCOME (investment income less investment expenses)
   * *CAN include LTCG and qualified dividend income(forgoing preferrential rates) in investment income; IF so, these items are taxed as ordinary income

Only include investment expenses after calculating the 2% threshold for misc. ded.

3. Mortgage Interest -
   principal residence plus one other resident (interest on debt of 1 million of the two homes combined limit)
   and home equity loan (to the extent it does not exceed the lower of the FMV of the home minus debt left OR 100,000

Question 4

Gifts to charity

Answer 4

• Must be made to a qualified charity
• No deduction allowed for services
• OVERALL limit is 50% of AGI
• Can carryover for 5 year, NO carryback

Property given:
If sold, LTCG then… FMV is deductible (limited to 30% AGI)

all other property deduction = fmv less any stcg or ordinary income recognized if had been sold

DEDUCT current cont before carryover

Question 5

Casualty and theft losses

Answer 5

MUST be sudden and unexpected
Typically, natural disasters, thefts, car accidents
Damage caused from erosion/termite damage does NOT qualify

DEDUCTION = lesser of 
1. decline in FMV
2. Adjusted Basis
THEN subtract out the following:
- insurance reimburements
- 100$ casualty floor
- 10% AGI

Question 6

Misc. 2%

Answer 6

Allowed only to the extent thye exceed 2% of AGI

MOST COMMON:

• unreimbursed employee expenses & expenses reimbursed but NOT under accountable plan
• tax planning and preparation fees
• investment expenses (fees paid for investment advice, etc)

Question 7

Other Misc. Ded

Answer 7

NOT subject to 2%

MOST COMMON:
Gambling winnings (front page of 1040)
Gambling losses (deductible only to extent of winnings)
Certain short sales expenses
Unrecovered annuity costs