ACC403 Ch 6 Pt 1.

Deductions reduce

your taxable income

Form 1040

Deductions FOR AGI

Student loan interest expense, educator expenses, health insurance deduction by self-employed taxpayers, self-e,ployment tax deductions, traditional IRA, alimony payments, cash donations to qualified organizations

Student loan interest expense

up to 2500 of interest

phased out for AGI > 85000 (single) 175000 (filing jointly)

deduction eliminated for taxpayers with AGI exceeding 100,000 (205,000 filing jointly)

Educator Expenses

K-12 may deduct up to 350 of unimburesed expenses

Health Insurance Deduction by Self-Employed Taxpayers

Can claim personal health insurance premiums for taxpayer, spouse, dependents, and children under 27 but only to the extent of the self-employment income derived from the specific trade or business

Self-Employment Deductions

Half is deductible if over a certain threshold

Alimony Payments

Must say unable to live his normal life.

Only people affected, still making payments but divorced before 2019

Cash Donations to Qualified Organizations

Single: limited to 1000

Married filing jointly: limited to 2000

No carrying over amounts over the limits for deduction purposes

Can only be deducted if not itemizing

Limitations Applied to Itemized Deductions

Medical and Dental Expenses: unreimbursed

AGI: 100,000

Medical Expenses: 6000 unreimbursed

OR medical expenses: 8000

100,000x.075 = 7500 floor

Cannot deduct if spent 6000

If spent 8000, can deduct 8000-7500 = 500

Floor

every dollar above the floor is deductible

Taxes: (State and Local Income Tax OR general sales tax) AND Property Taxes

Deduct whichever is greater from the OR

Ceiling of 40,400 (10000 in 2030)

Mortgage Interest

Ceiling: for acquisition debt incurred before Dec 16, 2017 —> u[ tp 1,000,000 of debt principal; after that date — up to $750,000

Mortgage Interest Example Loan: 3,000,000. Interest Paid = 90,000

Can only deduct 1/3 of the loan (1,000,000/3,000,000) so 90,000 × 1/3 = 30,000

Investment Interest

Ceiling: limitied to the amount of net investment income

Any excess investment interest that is not deductible this year will be carried forward indefinitely

Charitable Cash Contribution

Floor: 0.5% of AGI
Ceiling: 60% of AGI

Non-cash charitable contributions

Floor: 0.5% of AGI
Ceiling: 50% of AGI

Casualty Loss From A Disaster

Must be from a federally declared disaster

 Floor #1: $100 per casualty (subtract $100) 

• Floor #2: 10% × AGI

Casualty Loss From A Disaster Example AGI = 100,000 Loss = 15,000

 Deductible loss = $15,000 − $100 − $10,000 = $4,900

Unreimbursed medical expenses

True

Home Mortgage Interest

True

Credit Card Interest Expense

False

Investment Interest Expense

True

Other Investment Expenses

False

State Income Taxes

True OR sales tax

Sales Tax

True or State Income Tax

Real Estate Property Taxes

True

Cash Contribution for preferred seating game tickets

False

Cash Contributed to State University to student scholarship fund

True

Unreimbursed Employee Business Expenses

False

Tax Return Preparation Fee

False

Medical Expenses: 26,000; AGI=385000

Floor: 7.5% x 385000 = 28, 875

Medical Expenses = 26000

$0 deductible

Taxes: State Income Tax (27400) > Sales Tax

Property Taxes= 151000

27400 + 15100 = 42,500

Limitied to ceiling of 40,400

Interest:

Mortgage: purchased in 2015 (ceiling $1 million)

Acquisition debt of 1.2M

Prorate Interest: 1,000,000/1,200,000 × 36000 paid = 30,000

Interest:

Investment income: 4700

Investment Interest: 5000

Limited to investment income (4700)

Excess of $300 that is NOT deductible now can be carried forward indefinitely

Charitable Contribution “cash” 2000

Floor: 0.5% x 385000 = 1925

Ceiling: 60% x 385000 = 231000

2000-1925 = 75 deductible

itemized deductions for 2026 after applying all limitations

add all of above together