Question

Mr. and Mrs. Hunt, ages 38 and 33, have the following allowable itemized deductions this year....

Mr. and Mrs. Hunt, ages 38 and 33, have the following allowable itemized deductions this year.

1. Medical expenses $3,200
2. State and local taxes $7,000
3. Casualty loss $4,000
4. Charitable contributions $3,500
5. Miscellaneous itemized deductions $225

Determine the effect on the amount of each deduction if the Hunts engage in a transaction generating $10,000 additional AGI this year.
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Answer #1

Calculation of total itemized deductions:

1. Medical Expenses = $3,200 - 7.5% of AGI = $3,200 - $750 = $2,450

2. State and local taxes = $7,000

3. Casualty Loss = For tax years 2018 through 2025, you can no longer claim casualty and theft losses on personal property as itemized deductions, unless your claim is caused by a federally declared disaster.

4. Charitable Contributions = $3,500

5. Miscellaneous itemized deductions = $225

Total Itemized Deductions = $2,450 + $7,000 + $3,500 + $225 = $13,175.

Calculation of Taxable Income:

Adjusted Gross Income (AGI) = $10,000

Itemized Deductions = $13,175

Since, itemized deductions are higher than AGI, itemized deductions are limited to AGI. Hence, taxable income is zero. And the balance of itemized deductions cannot be carried to next year.

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