Itemized DeductionsPersonal expenses deductible as itemized deductions.A. Medical - For tlp, spouse, dependents as long as not reimbursed- Limited to excess over 7.5% AGI medical care- exp. Incurred for diagnosis care, mitigation, treatment or prevention of disease or affecting any body function - Unnecessary cosmetic surgery not deductible - nursing home costs are deductible if person is there for medial care.- Tuition expenses for dependent at special school is deductible (e.g. Mentally or physically handicap.)- Capital exp. for medical purposes upon advice of Dr. (e.g. swimming pools, alc (window only), dust elim, systems, elevators.) adj. Basis not deductible generally but for medial deduction =cost – increase in value of property dependency tests  gross income + joint return tests don’t apply for medical, so ½ support, household/ member of family and voyoxrm yrdys[[;u. non custodial parents may claim medical expenses.Transportation to and from a point of treatment are deductible (but not Meals). Included bus, taxi, train, plane, ambulance, out of pocket auto mileage allowed = 14 cents/mile, lodging away from home deductible if1 lodging is primarily for medial care2. Medical care provided by Dr. in hospital/clinic3. Lodging is not extravagant4. No significant element of personal pleasure Lodging limit = $50/night/person- Medical insurance premiums are deductible if paid by taxpayer. (if paid by employer, no income, no deduction). S/E individual  100% of medical insurance premiums are deductible as business expense for AGI unless medical insurance available an employer of either tlp or spouse.- Expense in year paid unless deceased taxpayer where expenses paid within 1 year of death are treated as paid when incurre- reimbursements reduce medical expense if they can reasonably be expected to be rec’d i.e. for tax benefit rule  expense in 1 year reimbursement in 2 year- income2. Taxes – deduction allowed for a. Real property tax  but not special assessments (e.g. New sidewalks) which increase property value.b. Personal property tax = ad valorem tax based on value of propertyc. State/local income tax paid includes WIH tax payments for estimates & prior year amount due.Note  R/E property tax must be allocated between buyer and seller in year of sale.3. Interest – deduction allowed for A. Qualified education/loans – deduction for AGI- Max deduction = $2500 and phased out for higher income taxpayers- deduction not available for taxpayers claimed as dependents or for MFS taxpayersB. Investment Interest – borrow money to purchase investments- Limit – net investment (interest dividends, annuities and royalties, not net capital gain)- Net investment income = investment income – investment expenses (excl int. exp.)- Disallowed investment interest expense is carried forward- Prepayment penalties = interest deduction year paid- Related party interest – deductible as long as real transaction - No deduction for interest on tax exempt securities loan- Prepaying interest is not allowed - Payments must be for taxpayer (not e.g. Related party)C. Qualified Residence Interest- Interest paid or accrued for year on loan secured by property that is a qualified residence = principal residence + one other residenceQualified residence interest - 2 categories1. Acquisition indebtedness – aggregate loans < $1 million  includes amounts incurred to acquire construct or substantially improve.2. Home equity loansa. Funds may be used for personal purposes but loan is secured by home limitation: amount may not exceed lesser of:i. ) FMV residence – acquisition debt, or ii. ) $100, 000Points - % of loan paid up front for favorable interest rate (not incl. Mortgage fees)- capitalize and amortize over life of loan - election to expense available for purchase of new residence - pts. Paid by seller may be deducted by buyer see Rev. Proc.. 94-27E. Passive activity Interest- deductible for AGI Subject to passive activity limitationsC. Charitable Contributions (see summary chart p. 10-27)- deduction for payments to qualified domestic organizationsa. criteria for gift- donation intent- absence of consideration but exception college sports events tickets –80% deduction - reduce deduction for any benefit received - must be accepted by done- No deduction for services rendered- Deduction permitted for transportation costs + auto costs out of pocket or 14 cents for travel if not personal b. Qualified organization (see p. 10-21)501(c) organizations are qualified and list published in IRS Pub. 78- Gifts to needy individuals do not qualifyc. Time of Deduction - When paid or when property is delivered or mailedd. Record keeping requirements- Donations > $250 must have a written substantiation from charity organization - Property donations – value > $500 must file Form 8283 abd > $5000 also needs appraisal- Property donation valued at fair market value at time of gifte. Limitations – no limit if contribution < 20% AGI1. Max contribution < 50% AGIFor gifts to public charities (see p. 10 –25)& Private foundations2. 30% ceiling – applies to contribution ofa. Cash & ordinary income property to private non operatingfoundations not included aboveb. Appreciated capital gains prop. to 50% organizations3. 20% limit applies to contributions of appreciated capital gain propertyTo private non operating foundations not included aboveContributions disallowed are carried over for 5 years –used on FIFO basisOrdinary income property :Donations = FMV prop. – Amount of ordinary income that would have been reported. (i.e. lesser of FMV or basis)e.g. Inventory, manuscript or work of art prepared by donorCapital gain property :Donation value = FMV property – LTCG that would have been recognized (i.e. lesser of FMV or bases) E.g. Stock, land, bldg.4. Misc. Itemized Deductions – see page 10-27 & 28 discussed in chapter 9Overall Itemized Deduction limit - for high income taxpayersfor AGI > $142,700 (71,350 for MFS)- Phase out taxes, mtg interest, and char. contrib., empl exp, and other misc expenses. (but not medical, investment interest expense, casualty, gambling) phase out =3% of amount which AGI exceeds $142,700 or 80% of affected itemized deduction whichever is lesser - Limit applied after all other