Pedro, who is a single taxpayer, had AGI of $328,000 for 2018. He incurred the f

ID: 341702 • Letter: P

Question

Pedro, who is a single taxpayer, had AGI of $328,000 for 2018. He incurred the following expenses during the year: Medical expenses before 10%-of-AGI limitation $12,000 State and local income taxes 8,900 Real estate taxes 1,600 Home mortgage interest 16,000 Charitable contributions 2,200 Deductible investment interest expense 1,700 Compute the amount of Pedro’s itemized deductions after any applicable reductions. Pedro, who is a single taxpayer, had AGI of $328,000 for 2018. He incurred the following expenses during the year: Medical expenses before 10%-of-AGI limitation $12,000 State and local income taxes 8,900 Real estate taxes 1,600 Home mortgage interest 16,000 Charitable contributions 2,200 Deductible investment interest expense 1,700 Compute the amount of Pedro’s itemized deductions after any applicable reductions. Medical expenses before 10%-of-AGI limitation $12,000 State and local income taxes 8,900 Real estate taxes 1,600 Home mortgage interest 16,000 Charitable contributions 2,200 Deductible investment interest expense 1,700 Compute the amount of Pedro’s itemized deductions after any applicable reductions.

Explanation / Answer

ANSWER:

Calculation of total itemized deductions before phase-out: $0 medical ($12,000 - $328,000 10%-of-AGI) + home mortgage interest $16,000 + state and local income taxes $8,900 + real estate taxes $1,600 + charitable contributions $2,200 + investment interest expense $1,700 = $30,400.

Calculation of Itemized deductions subject to the overall limitation are as below:

State and local income taxes $8,900 + real estate taxes $1,600 + home mortgage interest $16,000 + charitable contributions $2,200 = $28,700

Thus, Pedro must reduce the amount by the smaller of the below:

In 2018, 3 percent of the amount by which AGI exceeds $313,800 ($261,500 if single).

-- 3% x ($328,000 AGI - $261,500) = $1,995

-- 80 percent of itemized deductions that are affected by the limit ($28,700 x 80%) $22,960

Therefore, the amount of the reduction is $1995. Pedro has $28,405 deductible itemized deductions ($30,400 - $1,995)

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Pedro, who is a single taxpayer, had AGI of $328,000 for 2018. He incurred the f

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