4. Charitable giving:
Under IRC Section 170, taxpayers are allowed to deduct charitable contributions made in the current tax year, whether donated in cash or as in-kind property. However, charitable deductions are subject to a number of limitations on the maximum amount that can be deducted relative to total AGI, depending on the type of receiving charity and the nature of the property being donated.
5. Casualty and theft losses:
Akin to allowing tax deductions for interest paid to generate income, IRC Section 165 also allows a tax deduction for losses incurred in income-producing activities — i.e., a trade or business. Personal losses are much more restricted, though they may still be available in the event of a loss due to “firm, storm, shipwreck, or other casualty, or from theft.”
Such personal casualty losses are subject to additional limitations though, including that only losses above $100 for each incident are deductible; total casualty and theft losses must exceed 10% of AGI; and, from 2018 through 2025, IRC Section 165(h)(5) limits such losses to only those that were attributable to a federally declared disaster.
6. Miscellaneous deductions:
While the tax legislation eliminated the category of “miscellaneous itemized deductions [subject to the 2%-of-AGI floor]” under IRC Section 67, there are still several other miscellaneous deductions that don’t fall into the preceding categories, but are still tax deductible because of their own separate standalone sections of the tax code to authorize them as deductions.
This includes gambling losses to the extent of gambling winnings; Ponzi scheme losses and other similar casualty/theft losses of income-producing property; income with respect to a decedent deduction for pre-tax assets inherited from someone who paid estate taxes; investment-related deductions for amortizable bond premiums and certain losses on contingent-payment or inflation-indexed debt instruments, e.g., TIPS; the unrecovered portion of basis in a pension or lifetime annuity that isn’t recovered when payments cease, e.g., due to death before life expectancy; and certain types of qualified disaster losses.
In our next blospost, we will discuss the significance of the big six itemized deductions that can actually sustain ongoing itemized deductions.