1.10 Below The Line Deductions

I. Standard Deduction

Single $12,200 / HoH $18,350 / MFJ $24,400 (2019)

(1) Additional standard deduction for elderly and/or blind: single $1,650 / MFJ $1,300 (2019)
(2) Dependent's standard deduction: (a) $1,100 or (b) earned income +$350 (2019)

II. Itemized Deduction

1. Medical Expenses

1) Qualified individuals: spouse and dependent (no limitation to GI)

2) Timing of deduction: paid or charged

3) Amount of deduction: 10% of AGI (2019)

4) Types of deductible medical expenses
- Doctors
- Required surgery (reconstructive cosmetic surgery)
- Prescribed (Prescription) medicine and drugs
- Medical insurance premium
- Certain capital expenditures (exceeds the increase in FMV)
- Transportation to a medical facility
- Physically handicapped costs

5) Nondeductible Medical Expenses
- Elective cosmetic surgery, hair transplant surgery
- Over-the-counter drugs
- Life insurance premium
- Disability insurance premium
- Loss earning policy premium
- Capital expenditures
- Health club membership
- Funeral expenses and cemetery lots

2. Taxes

1) Deductible taxes
(1) Real property taxes (state, local taxes)
(2) Personal property taxes (state and local taxes)
(3) Income taxes (state, local and foreign taxes)
(4) Sales taxes (state, local general sales taxes)

2) Nondeductible taxes
- Federal taxes
- Business taxes (Schedule C), Rental real property taxes (Schedule E)
- Inheritance and gift taxes for states

3) Timing of deduction: cash/accrual method

4) Deduction limit: $10,000

3. Interest Expenses

1) Classification of Interest expenses
(1) Business/Rental Interest (Schedule C/E)
(2) Personal Interest (Nondeductible)
(3) Home mortgage interest
a) Buying, constructing, or substantially improving and secured by home
b) Points related acquisition indebtedness: immediately
c) Refinancing points: amortized

(4) Investment interest: net (taxable) investment income
a) Include as (taxable) investment income
- Interest and dividends
- Rents
- Royalties
- Net capital gain
(b) Exclude as (taxable) income
- Interest on a municipal bond
(c) Investment interest expenses used to purchase tax-free bonds: nondeductible

(5) Education (student) loan interest expense (Above the line deduction)

2) Timing of deduction
- Prepaid interest expenses must be allocated over the period
- Prepaid interest income is fully taxable in the year received

4. Charitable contributions

1) Qualifying organization
- Nondeductible: Bingo, raffle, gifts (individuals), political contributions

2) Contributed property: lesser of basis/FMV
- Appreciated LT capital gain property: FMV

3) Maximum allowable deduction
(1) Cash 60% / LT capital gain property 30% of AGI
(2) Combination rules (overall limit): 60% of AGI

4) Carryover of excess charitable contributions: five years carryforward

5) Consideration for contribution

6) Contribution of services: not deduct

7) Students living: $50 per month

8) Timing of deduction: paid/charged

9) Substantiation requirement: Form 8283 (more than $5,000)

5. (Personal) Casualty and theft losses

- Federally declared disaster area

1) Casualty loss defined
2) Theft loss defined
3) Amount of casualty loss: reduction in FMV/basis
4) Amount of deduction: each exceeds $500 (2019)

6. Miscellaneous deductions

1) Gambling losses: only to the extent of gambling winning
2) Federal estate tax paid on income in respect of a decedent

III. Qualified Business Income Deduction

(Sec. 199A Deduction)

1) Qualified business income (QBI)

2) Limitations to the QBI deduction
(1) Qualified trade or business (QTB)
(2) Specified service trade or business (SSTB)

<Taxable income limitation>
Below $160,700 (2019): 20% of QBI
Above $210,700 (2019): QBT: w-2 wage and property limitation, SSTB: no deduction

<w-2 wage and property limitation>
a) 50% of W-2 wages for the business
b) 25% of W-2 wages for the business plus the unadjusted basis of qualified property

<overall limitation>
20% of the taxable income in excess of net capital gains