There are limits on some itemized deductions depending on type. In most cases, limits are calculated based on a percentage of the taxpayer’s adjusted gross income (AGI).
To figure out what you’re eligible to deduct within the limitations, you can subtract the corresponding percentage of your AGI from the total amount of your expense. Miscellaneous deductions, for example, have to be more than 2% of your AGI before you are able to claim a deduction. The percentage amount is considered the “floor”, because that’s the amount you have to reach before expenses can be deducted.
Deduction Types and Their Limits
Medical/Dental: expenses incurred or the prevention or diagnosis of illnesses or diseases as well as treatment for physical or mental illness are eligible for deduction. You can also deduct costs associated with medical transportation as well as insurance premiums and prescription costs. Non cosmetic modification or treatment expenses can also qualify for deduction. Medical and dental expenses have to exceed 10% of your AGI in order to receive a tax benefit.
Interest: mortgage loans for primary or secondary residences in which you’ve paid interest is deductible. If it’s your first mortgage it will fall under the category of acquisition debt, which allows you to deduct interest on loans up to $1,000,000. Home equity loan interest up to $100,000 can be deducted. Student loan interest is deductible regardless of whether or not you itemize. Personal debt which accrues interest is not deductible.
Charity: if you donate to a qualified organization you may be able to deduct your contributions in most cases, the deduction limit is 50% of your AGI in a single year. However, there are some donations that are limited at 20% or 30% of your AGI. While you can claim a carryover deduction if your current donation is over the allotted limitation, you’ll still lists the total amount of the contribution on your current tax return as proof.
Losses: losses due to casualty or theft are to be deducted during the year in which they occurred, unless the loss occurred in a Federal disaster zone, in which case it may be eligible for deduction in a different year. Losses must be over 10% of your AGI plus $100 in order to be deducted.
Cash: you aren’t able to deduct the amount of cash you contribute to a fund unless you are able to prove to a qualifying record the contribution. This record can be a canceled check, a bank statement, or a reinstatement from the charity. All records must include the date, the amount of contribution, and the charity.
Miscellaneous: these expenses can include unreimbursed employee expenses or business and investment expenses. Miscellaneous deductions have a floor of 2% of your AGI. As an example, a taxpayer with that AGI eye of $10,000 would be able to deduct miscellaneous expenses greater than $200. $500 in miscellaneous expenses for that taxpayer would make $300 of those deductible.
