ACC 3410 Chapter 7 Study Guide

Itemized Deductions

Generally personal expenses designed to subsidize desirable activities or provide relief when ability to pay is involuntarily reduced.

Medical Expenses (Purpose)

Designed to provide relief when ability to pay is seriously hindered by health-related circumstances; not for general health items like vitamins.

Qualified Medical Expenses (Definition)

Unreimbursed payments for care, prevention, diagnosis, or cure of injury, disease, or bodily function.

Medical Expense Exclusions

Expenses reimbursed by insurance or paid through an FSA or HSA are not eligible.

Medical Expenses (Covered Individuals)

Expenses paid for the taxpayer, their spouse, and their dependents.

Common Medical Expenses

Prescription meds, medical aids (glasses/wheelchairs), doctor/hospital payments, and medical transportation.

Health Insurance Premiums (Deductibility)

Deductible if not deducted "for AGI" by self-employed, not paid pre-tax, and not paid through an exchange.

Medical Mileage Rate (2025)

Taxpayers may deduct a standard mileage allowance of 21 cents per mile for medical travel.

Hospitals vs. Nursing Homes

Hospital meals/lodging are deductible; nursing home costs are only deductible if the principal purpose of stay is medical care.

Medical Expense Deduction Floor

Deduction is limited to unreimbursed qualifying expenses that exceed 7.5% of the taxpayer’s AGI.

Deductible State/Local Taxes

Includes state, local, and foreign income taxes, employer withholdings, and estimated tax payments.

Sales Tax Election

Taxpayers can choose to deduct state/local sales taxes instead of state/local income taxes.

Property Tax Deductibility

Includes real estate taxes (personal/investment) and personal property taxes assessed on value.

SALT Limitation (2025)

State and local tax deduction is limited to $40,000 ($20,000 for MFS) under the One Big Beautiful Bill Act.

SALT Phase-out (2025)

SALT cap is reduced by 30% of excess modified AGI over $500,000 ($250,000 for MFS).

SALT Minimum Cap

The SALT deduction cap is never reduced below $10,000 ($5,000 for MFS).

Acquisition Indebtedness

Debt used to acquire, construct, or substantially improve a first or second home.

Interest Cap (Pre-Dec 16, 2017)

Interest is deductible on up to $1,000,000 of acquisition indebtedness.

Interest Cap (Post-Dec 15, 2017)

Interest is deductible on up to $750,000 of acquisition indebtedness.

Home Equity Interest Rule

Interest is nondeductible personal interest if used for purposes other than home acquisition or improvement.

Investment Interest

Interest paid on loans to purchase investment assets (stocks, bonds, land); deductible up to net investment income.

Personal Interest

Interest on personal debt, such as credit cards, which is strictly nondeductible.

Investment Interest Limitation

Limited to net investment income; any excess can be carried forward to the following year.

Charitable Contribution Purpose

Donations of money/property to domestic qualified organizations; encouraged by Congress.

Qualified Charitable Organizations

Includes educational, religious, scientific, and governmental bodies; excludes political contributions.

Cash Donation Deduction Limit

Deductions for cash to public charities are limited to 60% of the taxpayer’s AGI.

Charitable Contribution Floor (OBBBA)

Starting in 2026, itemizers can only deduct charitable contributions that exceed 0.5% of their AGI.

Non-Itemizer Charitable Deduction

Starting in 2026, those taking the standard deduction can claim up to $1,000 ($2,000 MFJ) for charitable gifts.

Capital Gain Property (Charity)

Appreciated assets that would have been long-term gains if sold; deducted at Fair Market Value (FMV).

Intangible Capital Gain Property Limit

Stock donations are generally limited to 30% of AGI for public charities.

Tangible Personal Property (Related Use)

Deductible at FMV if the charity uses the item for its specific mission (e.g., art for a museum).

Ordinary Income Property (Charity)

Deduction is the lesser of FMV or adjusted basis; limited to 50% of AGI.

Charitable Carryforward Rule

Contributions exceeding AGI limits can be carried forward for up to five years.

Nondeductible Miscellaneous Items

Employee business expenses, tax prep fees, and hobby expenses are no longer deductible.

Gambling Loss Deduction

Deductible only to the extent of the gambling winnings reported for the year.

Casualty and Theft Losses

Only deductible for investment property; personal-use property losses are generally nondeductible.

Standard Deduction Selection

Taxpayers typically claim the greater of their total itemized deductions or the flat standard deduction.

Standard Deduction 2025 (Single/MFS)

$15,750

Standard Deduction 2025 (MFJ/SS)

$31,500

Standard Deduction 2025 (HOH)

$23,625

Additional Standard Deduction

Available for taxpayers who are blind or at least 65 years old by year-end.

QBI Deduction Eligibility

Available for qualified trades or businesses; excludes Specified Service Trades or Businesses (SSTB).

SSTB Income Exception (2025)

Full QBI deduction allowed if taxable income is below $247,300 ($494,600 for joint returns).

QBI Wage/Income Limitations

For higher-income earners, the 20% deduction is restricted by wages paid and total taxable income.

QBI Deduction Permanency

The 20% Qualified Business Income deduction was made permanent by the One Big Beautiful Bill Act of 2025.

Qualified Business Income (Definition)

The net business income from a qualified trade or business conducted within the United States.

"Other From AGI" Deductions

Deductions available to qualifying taxpayers whether they itemize or claim the standard deduction.

Qualified Tip Income Deduction Limit

Taxpayers may deduct up to $25,000 of qualified tips annually (2025–2028).

Qualified Tip Definition

Cash tips received in occupations where tipping was customary prior to Jan 1, 2025.

Tip Deduction Filing Requirement

Married taxpayers must file a joint return to claim the qualified tip deduction.

Tip Deduction Phase-out (2026)

Reduced by $100 for every $1,000 modified AGI exceeds $150,000 ($300,000 for MFJ).

Qualified Overtime Deduction Limit

Taxpayers can deduct up to $12,500 ($25,000 for MFJ) of qualified overtime compensation.

Qualified Overtime Definition

Compensation required under the Fair Labor Standards Act for hours worked beyond 40 in a work week.

Overtime Deduction Exclusions

Qualified overtime compensation does not include any amount claimed as qualified tip income.

Overtime Deduction Phase-out

Reduced by $100 for each $1,000 modified AGI exceeds $150,000 ($300,000 for MFJ).

Qualified Car Loan Interest Limit

Annual deduction of up to $10,000 for interest on debt incurred after Dec 31, 2024.

Car Loan Vehicle Requirements

Must be a new personal-use vehicle with final assembly in the United States.

Eligible Car Loan Vehicles

Cars, minivans, SUVs, pickups, or motorcycles with a GVWR under 14,000 lbs.

Car Loan Deduction Reporting

Taxpayers must report the Vehicle Identification Number (VIN) on their tax return.

Car Loan Interest Phase-out

Reduced by $200 for each $1,000 modified AGI exceeds $100,000 ($200,000 for MFJ).

Deduction for Seniors (Amount)

A $6,000 deduction for taxpayers aged 65 or older (available 2025–2028).

Senior Deduction Spousal Rule

If both spouses are 65+, the total deduction is $12,000 on a joint return.

Senior Deduction Filing Status

Available only to Single, HOH, or MFJ; not available for Married Filing Separately.

Senior Deduction Phase-out Rate

Reduced by 6% of the amount modified AGI exceeds $75,000 ($150,000 for MFJ).

Senior Deduction Full Phase-out

Eliminated once modified AGI exceeds $175,000 (Single) or $350,000 (MFJ with two seniors).