3 Percent Itemized Deduction Phaseout Rule

 Taxpayers with adjusted gross revenue (AGI) above a specific amount could lose a part of their deduction for private exemptions and itemized deductions. The availability started within the early 1990's and is ready to be repealed in 2010. The itemized deduction discount initially referred to as for lowering your deductions by 3% of the quantity that your AGI exceeds the brink quantity.

Starting in 2006, the general restrict on sure deductions was progressively eradicated. Underneath this phaseout rule, the restrict was diminished by one-third in 2006 and shall be diminished by one-third in 2007 in order that the three% phaseout is diminished to 2%. In 2008 and 2009, the three% phaseout shall be diminished to 1%. The discount shall be eradicated in 2010.

For 2007, the quantity you may declare as a deduction for exemptions is diminished as soon as your AGI goes above a sure stage in your submitting standing. The brink is listed yearly for inflation.

These ranges are as follows:

Married submitting individually - $117,300.

Single - $156,400.

Head of family -$195,500.

Married submitting collectively - $234,600.

Qualifying widow(er) - $234,600

You could cut back the greenback quantity of your exemptions by 2% for every $2,500, or a part of $2,500 ($1,250 if you're married submitting individually), that your AGI exceeds the quantity proven above your submitting standing. Nevertheless, you may lose not more than 2/Three of the greenback quantity of your exceptions. In different phrases, every exemption can't be diminished to lower than $1,133.

You could ask, "Am I topic to this restrict?" The IRS deems you topic to the restrict on sure itemized deductions in case your AGI is greater than $156,400 ($78,200 if you're married submitting individually). Your AGI is the quantity on Type 1040, line 38.

The next deductions are topic to the general restrict on itemized deductions:

1) Taxes

2) Curiosity paid

3) Items to charity

4) Job bills and sure miscellaneous deductions

5) Different miscellaneous deductions (excluding playing and casualty or theft losses)

The next deductions are NOT topic to the general restrict:

1) Medical and dental bills

2) Funding curiosity expense

3) Casualty and theft losses from private use property

4) Casualty and theft losses from income-producing property

5) Playing losses

You should utilize the Itemized Deduction Worksheet within the directions for Schedule A (Type 1040) to determine your restrict. You'll enter the outcome on Schedule A (Type 1040).

You need to evaluate the quantity of your commonplace deduction to the quantity of your itemized deductions after making use of the restrict. Use the higher quantity when finishing Type 1040, line 40.