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Case Study - Limit on Itemized Deductions

Boris and Natasha are married taxpayers who file jointly. In 2014, they had adjusted gross income (AGI) of $346,300 and itemized deductions of $23,700. Their only allowable deductions were for home mortgage interest, real estate taxes, and charitable contributions.

Boris and Natasha can deduct only $22,462, computed as follows:

AGI $346,300
Less: threshold amount -305,050
Excess over threshold: $41,250
Multiplier x .03
Reduction required $ 1,238
Unreduced deductions $ 23,700
Less: reduction required - 1,238
Deductions that may be claimed: $ 22,462

$1,238 is the less than $18,960 (80% of the affected itemized deductions). Therefore, $1,238 is the required reduction amount.


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