When adding up deductions for your 2013 federal income tax return, be aware of two changes to Schedule A (Itemized Deductions).
- Medical expense floor. On this year’s return, you can deduct medical expenses once total out-of-pocket payments are greater than 10% of your adjusted gross income (AGI). That’s an increase from prior years, when the floor was 7.5% of AGI.
Exception. If you or your spouse was age 65 or over in 2013, you can continue to use the 7.5% floor through the year 2016.
- Overall limitation. The total of certain itemized deductions may be limited when your AGI exceeds an established “threshold.” For 2013, the threshold is $300,000 when you’re married filing a joint return ($250,000 when you’re single).
This reduction does not apply to your medical expenses, investment interest, casualty and theft losses, or gambling losses. However, it will reduce the total of your remaining, non-excluded deductions by three percent of the amount of your AGI over the threshold.
For example, say you’re married filing jointly and your AGI is $350,000. Since the threshold for your filing status is $300,000, your AGI exceeds the threshold by $50,000. Three percent of $50,000 is $1,500, which is the amount you would subtract from your total non-excluded itemized deductions.
The limitation is capped at 80% of total deductions, which means you can claim at least 20% of your itemized deductions no matter what your income is.
Other factors can affect your total itemized deductions, including your exposure to the alternative minimum tax. Please call us for details.