Itemized deduction

Under United States tax law, itemized deductions are eligible expenses that individual taxpayers can claim on federal income tax returns and which decrease their taxable income, and is claimable in place of a standard deduction, if available.

Most taxpayers are allowed a choice between the itemized deductions and the standard deduction. After computing their adjusted gross income (AGI), taxpayers can itemize deductions (from a list of allowable items) and subtract those itemized deductions (and any applicable personal exemption deductions) from their AGI amount to arrive at the taxable income. Alternatively, they can elect to subtract the standard deduction for their filing status (and any applicable personal exemption deduction) to arrive at the taxable income. In other words, the taxpayer may generally deduct the total itemized deduction amount, or the applicable standard deduction amount, whichever is greater.

The choice between the standard deduction and itemizing involves a number of considerations:

Deductions are reported in the tax year in which the eligible expenses were paid. For example, an annual membership fee for a professional association paid in December 2009 for year 2010 is deductible in year 2009.

Examples of allowable itemized deductions

There are a number of allowable deductions:

Miscellaneous itemized deductions

It is important to distinguish miscellaneous itemized deductions from other “normal” itemized deductions. The reason for this is because miscellaneous itemized deductions are subject to a 2% floor,[4] a.k.a. the "2% Haircut." A taxpayer can only deduct the amount of miscellaneous itemized deductions that exceed 2% of their adjusted gross income.[5] For example, if a taxpayer has adjusted gross income of $50,000 with $4,000 in miscellaneous itemized deductions, the taxpayer can only deduct $3,000, since the first $1,000 is below the 2% floor.

There are 12 deductions listed in 26 U.S.C. § 67(b). These are NOT miscellaneous itemized deductions, and thus not subject to the 2% floor (although they may have their own rules). Any deduction not found in section 67(b) is a miscellaneous itemized deduction.[6] Examples include:


If the taxpayer's adjusted gross income is above a threshold (or "applicable amount"), then the total allowable itemized deductions is reduced by the lesser of

The "applicable amount" varies according to filing status (see below).

As an example, if an individual filing as "head of household" has one's adjusted gross income is $500,000 and one has $20,000 in itemized deductions, first figure out 3% of the excess above the "applicable amount" (see below):

Then figure out 80% of the total deductions

Reduce the itemized deduction by the lesser of the above amounts. In this instance, the lesser value is $6,750. As such, the taxpayer's total itemized deductions shall be reduced by $6,750, leaving $13,250 of itemized deductions.

In addition, this limitation on itemized deductions is applied after any other limitation.[9] This means that you first need to figure out the total allowable miscellaneous itemized deductions, etc., before determining any limits on the total amount of deductions.

Applicable Amount. For 2013, the "applicable amount" under § 68(b) of the Tax Code were as follows:

Additionally, after 2013 the applicable threshold amounts are adjusted for inflation.[10]


This limitation of itemized deductions has been "phased out."[11] For taxable years 2006 and 2007, the amount was reduced to 2/3 of the limitation, and for taxable years 2008 and 2009, the amount was reduced to 1/3 of the limitation. This "phase out" was completed on January 1, 2010.[5] But in 2010, Congress extended repeal of the itemized deduction limitation through 2012 and in 2011 the repeal was again up for a vote in Congress. Many lawmakers wanted to extend repeal of the itemized deduction limitation for 1-2 more years (or make repeal permanent) but the American Taxpayer Relief Act instead reinstated the itemized deduction limitation for 2013 and subsequent years.[10]


  4. 26 U.S.C. § 67
  5. 1 2 26 U.S.C.
  6. 26 U.S.C. § 67(b)
  7. Chirelstein, Marvin A., Federal Income Taxation 198 (Foundation Press, 10th Ed., 2005)
  8. 26 U.S.C. § 68
  9. 26 U.S.C. § 68(d)
  10. 1 2 Presti&Naegele How do I calculate the reinstated Pease itemized deductions limitation under ATRA?
  11. 26 U.S.C. § 68(f)

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