How Do You Figure  
the Limit?(p207)

If your itemized deductions are subject to the limit, the total of all your itemized deductions is reduced by the smaller of the following reduced by two-thirds:

• 80% of your itemized deductions that are affected by the limit. See Which Itemized Deductions Are Limited, earlier, or
• 3% of the amount by which your AGI exceeds $166,800 ($83,400 if married filing separately).

Before you figure the overall limit on itemized deductions, you first must complete Schedule A (Form 1040), lines 1 through 28, including any related forms (such as Form 2106, Form 4684, etc.).

The overall limit on itemized deductions is figured after you have applied any other limit on the allowance of any itemized deduction. These other limits include charitable contribution limits (chapter 24), the limit on certain meal and entertainment expenses (chapter 26), and the 2%-of- adjusted-gross-income limit on certain miscellaneous deductions (chapter 28).

After you have completed Schedule A (Form 1040) through line 28, you can use the Itemized Deductions Worksheet in the Instructions for Schedule A (Form 1040) to figure your limit. Enter the result on Schedule A (Form 1040), line 29. Keep the worksheet for your records.

For tax year 2009, Bill and Terry Willow are filing a joint return on Form 1040. Their adjusted gross income on line 38 is $259,600. Their Schedule A itemized deductions are as follows:

Taxes paid—line 9		$ 17,900
Interest paid—lines 10, 11, 12, and 13		45,000
Investment interest expense —line 14		41,000
Gifts to charity—line 19		21,000
Job expenses—line 27		17,240
Total		$142,140

The Willows' investment interest expense deduction ($41,000 from Schedule A (Form 1040), line 14) is not subject to the overall limit on itemized deductions.

The Willows use the Itemized Deductions Worksheet in the Schedule A (Form 1040) instructions to figure their overall limit. Their completed worksheet is shown as Table 29-1.

Of their $142,140 total itemized deductions, the Willows can deduct only $141,212 ($142,140 − $928). They enter $141,212 on Schedule A (Form 1040), line 29. taxmap/pub17/p17-162.htm#en_us_publink1000174202

Table 29-1.  Itemized Deductions Worksheet—Line 29 1. Enter the total of the amounts from Schedule A, lines 4, 9, 15, 19, 20, 27, and 28. 1. 142,140 2. Enter the total of the amounts from Schedule A, lines 4, 14, and 20, plus any gambling and casualty or theft losses included on line 28 2. 41,000   Be sure your total gambling and casualty or theft losses are clearly identified on the dotted lines next to line 28.     3. Is the amount on line 2 less than the amount on line 1?           No. Your deduction is not limited. Enter the amount from line 1 above on Schedule A, line 29.       Yes. Subtract line 2 from line 1 3. 101,140 4. Multiply line 3 by 80% (.80) 4. 80,912     5. Enter the amount from Form 1040, line 38 5. 259,600     6. Enter: $166,800 ($83,400 if married filing separately) 6. 166,800     7. Is the amount on line 6 less than the amount on line 5?           No. Your deduction is not limited. Enter the amount from line 1 above on Schedule A, line 29.           Yes. Subtract line 6 from line 5 7. 92,800     8. Multiply line 7 by 3% (.03) 8. 2,784     9. Enter the smaller of line 4 or line 8 9. 2,784 10. Divide line 9 by 1.5 10. 1,856 11. Subtract line 10 from line 9 11.  928 12. Total itemized deductions. Subtract line 11 from line 1. Enter the result here and on Schedule A, line 29 12. 141,212