Limit on Itemized Deductions

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Limit on Itemized Deductions

Congress placed an additional "overall" limitation on the deductibility of a certain group of itemized deductions. In 2008, this limitation applies only if your adjusted gross income is greater than $159,950 ($79,975 if married filing separately). Itemized deductions that are subject to this limitation include taxes, home mortgage interest, charitable contributions, and miscellaneous itemized deductions. The total of this group of deductions must be reduced by 3% of the amount of your adjusted gross income in excess of $159,950 ($79,975 if married filing separately). This limitation is applied after you have used any other limitations that exist in the law, such as the adjusted gross income limitation for charitable contributions and the mortgage interest expense limitations. Keep in mind that medical expenses, casualty and theft losses, investment interest expense, and gambling losses are not subject to this rule. The Economic Growth and Tax Relief Act of 2001 gradually eliminates this limitation beginning 2006. The limitation is:

• Reduced by one-third for 2006-2007 (i.e. itemized deductions will be reduced by 2% of the excess of AGI over the threshold amount). Reduced by two-thirds for 2008-2009 (i.e., itemized deductions will be reduced by 1% of the excess of AGI over the threshold amount).
• Repealed for 2010.

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