Tax 2004: Itemizing

Special rules decrease the deduction amounts to as little as $750 for individuals (children and elderly parents, mostly) who can be claimed as dependents on the returns of other persons.

Standard or Itemize?

Whether to take the standard deduction or itemize might be a close call for many of you. Complications abound because of nondeductible floors for several categories of itemized deductibles. The floors are all pegged to AGI, short for adjusted gross income.

Itemizers get full deductions for real estate taxes, interest on most home mortgages, charitable contributions, and state and local income taxes. But they get only partial write-offs for three categories of expenses:

(1) Casualty and theft losses not covered by insurance or otherwise reimbursed are allowable only to the extent such losses exceed $100 (for each casualty or theft), plus 10 percent of AGI (2) Medical expenses not covered by insurance, reimbursed by an employer or otherwise reimbursed are deductible just for the amount above 7.5 percent of AGI (3) Most miscellaneous expenses (a grouping that includes write-offs like return-preparation charges) are allowable only for the portion in excess of 2 percent of AGI.

So an AGI of $100,000 means no deduction for the first: $10,000 of casualty losses; $7,500 of medical expenses; and $2,000 of miscellaneous expenses. But there is a reprieve for gambling losses, a miscellaneous expense allowable just to the extent of gambling winnings. Those losses are not subject to the 2 percent floor.