3 Percent Itemized Deduction Phaseout Rule

No.1 Article of Irs 1040 Es

Taxpayers with adjusted gross wage (Agi) above a inevitable whole may lose part of their deduction for personal exemptions and itemized deductions. The provision began in the early 1990's and is set to be repealed in 2010. The itemized deduction reduction originally called for reducing your deductions by 3% of the whole that your Agi exceeds the threshold amount.

Beginning in 2006, the overall limit on inevitable deductions was gradually eliminated. Under this phaseout rule, the limit was reduced by one-third in 2006 and will be reduced by one-third in 2007 so that the 3% phaseout is reduced to 2%. In 2008 and 2009, the 3% phaseout will be reduced to 1%. The reduction will be eliminated in 2010.

Irs 1040 Es

For 2007, the whole you can claim as a deduction for exemptions is reduced once your Agi goes above a inevitable level for your filing status. The threshold is indexed annually for inflation.

3 Percent Itemized Deduction Phaseout Rule

These levels are as follows:

Married filing separately - 7,300.

Single - 6,400.

Head of household -5,500.

Married filing jointly - 4,600.

Qualifying widow(er) - 4,600

You must sacrifice the dollar whole of your exemptions by 2% for each ,500, or part of ,500 (,250 if you are married filing separately), that your Agi exceeds the whole shown above your filing status. However, you can lose no more than 2/3 of the dollar whole of your exceptions. In other words, each exemption cannot be reduced to less than ,133.

You may ask, "Am I branch to this limit?" The Irs deems you branch to the limit on inevitable itemized deductions if your Agi is more than 6,400 (,200 if you are married filing separately). Your Agi is the whole on Form 1040, line 38.

The following deductions are branch to the overall limit on itemized deductions:

1) Taxes

2) Interest paid

3) Gifts to charity

4) Job expenses and inevitable miscellaneous deductions

5) Other miscellaneous deductions (excluding gambling and casualty or theft losses)

The following deductions are Not branch to the overall limit:

1) healing and dental expenses

2) speculation interest expense

3) Casualty and theft losses from personal use property

4) Casualty and theft losses from income-producing property

5) Gambling losses

You can use the Itemized Deduction Worksheet in the instructions for schedule A (Form 1040) to figure your limit. You will enter the consequent on schedule A (Form 1040).

You should correlate the whole of your suitable deduction to the whole of your itemized deductions after applying the limit. Use the greater whole when completing Form 1040, line 40.

To resolve how to figure your limit and see examples visit www.real-estate-owner.com/itemized-deduction-reduction.html.

Also, to see an example of a worksheet used to resolve what you can deduct, visit www.real-estate-owner.com/itemized-deduction-reduction-worksheet.html.

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