IRS Deduction Limits

The IRS limits many of the deductions available to individuals to discourage abuse of the system.

Individuals have many different tax deductions available to reduce their taxable income. To prevent abuse of the system, the Internal Revenue Service (IRS) limits many deductions. The IRS typically uses adjusted gross income (AGI) as the threshold for limiting certain deductions.

Adjusted Gross Income Limitations

The IRS uses AGI as a barometer to test whether or not something is deductible in two ways. It may limit a deduction to a certain percentage of AGI. For example, as of 2010, only medical expenses in excess of 7.5 percent may be deducted. The IRS may also prevent an individual from taking a certain deduction if her AGI exceeds a certain threshold.

Itemized Deduction Phase-out

Above a certain AGI level, the IRS disallows a percentage of an individual's itemized deductions. The threshold increases each year to offset inflation.

Expense Ceilings

Certain deductions are limited to a dollar amount or percentage of income. For example, as of 2010, no more than $2,500 may be deducted for student loan interest.

Carryovers

In some instances, the IRS allows deductions disallowed due to limits to be carried over to subsequent years. For example, charitable deductions in excess of 50 percent cannot be deducted. These excess deductions can be carried forward up to five years and deducted in one of those years, subject to the same limitations.

References

• IRS: Student Loan Interest Deduction
• IRS: Charitable Contributions
• IRS: Medical and Dental Expenses
• IRS: Schedule A Instructions

Resources

• IRS: Form 1040 Instructions