Chance and Lindsay, both 37, are married and file a joint return in 2017. Their

Question

Chance and Lindsay, both 37, are married and file a joint return in 2017. Their AGI is $580,000. They report $39,000 of itemized deductions, consisting of the following amounts.

Home mortgage interest $25,000 Charitable contributions 14,000 Given that the couple's AGI exceeds the applicable amount ($313,800 in 2017), their itemized deductions are subject to a potential 396/80% cutback. a. What is the amount of Chance and Lindsay's itemized deductions for regular tax purposes for 2017? b. What is the couple's AMT adjustment for itemized deductions and/or the cutback in 2017?

Explanation / Answer

a. The amount of Chance and Lindsay's itemized deductions for regular tax purposes for 2017 is

Home mortgage interest $ 25,000

Charitable contributions $ 14,000

Total $ 39,000

Either 3% of excess of AGI over applicable income or 80% of itemized deduction

3% of excess of AGI over applicable amount

0.03 x (580000 - 313800)

0.03 x 266200

= $7,986

Now calculate, 80% of the total deduction

0.80 x 39000

= $31,200

Now reduce the amount of itemized deduction by lesser of the above amount. $ 7,986 is lesser so the couple will cutback the itemized deduction by $7,986

Amount of Itemized deduction = $ 39,000 - $ 7,986 = $31,014

b. AMT adjustment for itemized deduction

Home mortgage interest is not deductable under AMT adjustment

Charitable contribution is allowed, Thus Itemized deduction amount is $ 14,000

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