Preliminary Work and Taxpayer Data · Preliminary work to prepare tax returns

Sources of applicable deductions

Verification 2026 Verified
tax year · reviewed 2026-08-19 · Draft for I. Ohu review

Almost every individual return reduces adjusted gross income by one of two competing amounts, and the interview has to gather enough to know which. What is no longer true is that the choice ends the inquiry: for 2026 a taxpayer who takes the standard deduction still has a stack of further deductions available, and one who itemizes faces two haircuts that did not exist on the 2025 return.

The rule

The two computations. For an individual who does not elect to itemize, taxable income is adjusted gross income minus the standard deduction, the § 151 personal exemption deduction, the § 199A qualified business income deduction, the § 170(p) charitable deduction, the § 224 deduction for tips, the § 225 deduction for overtime, and the interest attributable to the passenger-vehicle-loan exception (IRC § 63(b)(1)–(7)). For one who does elect, taxable income is adjusted gross income minus the itemized deductions and the same § 151 deduction (IRC § 63(a)). Itemized deductions are all deductions allowable under chapter 1 other than those taken in arriving at adjusted gross income and those listed in § 63(b) (IRC § 63(d)) — a residual definition, which is why the § 63(b) list matters: everything named there survives the election either way.

The standard deduction has moving parts. It is the sum of the basic and the additional standard deduction (IRC § 63(c)(1)). The basic amount is twice the single figure for a joint return or surviving spouse, with separately stated figures for head of household and everyone else (IRC § 63(c)(2), (7)). The additional amount totals the aged and blind increments: one for the taxpayer at 65 and one for a spouse at 65 on a joint return, one for the taxpayer’s blindness and one for a spouse’s, each larger for an unmarried individual who is not a surviving spouse (IRC § 63(f)(1)–(3)). Blindness is defined by acuity, not self-description (IRC § 63(f)(4)).

Four categories get no standard deduction at all — zero, not reduced: a married individual filing separately where either spouse itemizes, a nonresident alien, a short-period filer under § 443(a)(1) on a change of accounting period, and an estate, trust, common trust fund or partnership (IRC § 63(c)(6)).

A dependent’s basic standard deduction is capped at the greater of a floor amount or the sum of a small allowance and the dependent’s earned income (IRC § 63(c)(5)). It limits the basic amount only, so a blind dependent still adds the § 63(f) increment on top.

Itemizing is an election, and it is revocable. No itemized deduction is allowed unless the individual elects on the return (IRC § 63(e)(1), (2)). The election may be changed after filing, but where a spouse filed separately for the corresponding year the change requires that spouse’s consistent change and both written consents to assessment (IRC § 63(e)(3)).

Miscellaneous itemized deductions are gone, and now permanently. None is allowed for any taxable year beginning after 31 December 2017 (IRC § 67(h)). That category is itself residual — the itemized deductions other than the thirteen kinds § 67(b) lists — so what survives is the § 67(b) list plus the named categories below.

Two limits now sit on top of the itemized total. The overall limitation reduces itemized deductions by two thirty-sevenths of the lesser of those deductions or the taxable income above the point where the top bracket begins, applied after every other limitation (IRC § 68(a), (b)). The second is specific to charity: only contributions above a percentage of the contribution base are allowed, absorbed against the most restrictive percentage limitation first (IRC § 170(b)(1)(I)).

The named categories and their gates. Medical expenses of the taxpayer, spouse and dependents deduct only above a floor set as a percentage of adjusted gross income (IRC § 213(a)). State and local taxes and foreign real property taxes are capped in the aggregate, and the cap phases down with income (IRC § 164(b)(6), (7)). Qualified residence interest is limited by an acquisition-indebtedness ceiling with home equity interest disallowed outright, while mortgage insurance premiums count as interest (IRC § 163(h)(3)(F)(i)). Charity runs the § 170(b) percentage ladder and then the floor. Nonbusiness casualty and theft losses survive only in the disaster cases.

Current figures

Item	2026
Basic standard deduction, joint and surviving spouse	$32,200 for married individuals filing joint returns and surviving spouses^TY2026
Basic, head of household	$24,150 for heads of household^TY2026
Basic, single	$16,100 for unmarried individuals other than surviving spouses and heads of household^TY2026
Basic, married filing separately	$16,100 for married individuals filing separate returns^TY2026
Dependent’s basic amount	the greater of $1,350, or the sum of $450 and the individual's earned income^TY2026
Additional amount, aged or blind	an additional $1,650, increased to $2,050 where the individual is also unmarried and not a surviving spouse^TY2026
Seniors deduction	$6,000 for each qualified individual who has attained age 65 before the close of the taxable year, for taxable years beginning before 1 January 2029^TY2026
Personal exemption	zero — and permanently so for taxable years beginning after 2017, following Pub. L. 119-21 § 70103(a)^TY2026
State and local tax cap	$40,400 for taxable years beginning in calendar year 2026 (half that on a married filing separate return), rising 1 percent a year through 2029 and reverting to $10,000 for years beginning after 2029^TY2026
Cap phase-down	$505,000 of modified adjusted gross income for 2026 (half that on a married filing separate return), above which the cap falls by 30 cents on the dollar but never below $10,000^TY2026
Acquisition indebtedness ceiling	$750,000 of acquisition indebtedness ($375,000 on a married filing separate return), with debt incurred on or before 15 December 2017 still measured against the older $1,000,000 limit^TY2026
Medical floor	expenses above 7.5 percent of adjusted gross income^TY2026
Charitable floor, itemizers	only contributions above 0.5 percent of the taxpayer's contribution base, applied for taxable years beginning after 31 December 2025^TY2026
Charitable deduction, non-itemizers	up to $1,000 ($2,000 on a joint return) of cash contributions to a § 170(b)(1)(A) organization other than a supporting organization or donor advised fund^TY2026
Overall limitation	itemized deductions reduced by 2/37 of the lesser of those deductions or the taxable income above the point where the 37 percent bracket begins, first applying to taxable years beginning after 31 December 2025^TY2026
Qualified tips	$25,000 of qualified tips, reduced by $100 for each $1,000 of modified adjusted gross income above $150,000 ($300,000 on a joint return)^TY2026
Qualified overtime	$12,500 of qualified overtime compensation ($25,000 on a joint return), reduced by $100 for each $1,000 of modified adjusted gross income above $150,000 ($300,000 on a joint return)^TY2026
Vehicle loan interest	$10,000 of interest on a first-lien loan for a personal-use passenger vehicle bought after 31 December 2024, reduced by $200 for each $1,000 of modified adjusted gross income above $100,000 ($200,000 on a joint return), for years before 2029^TY2026

How it works in practice

The intake question is not “does this taxpayer itemize” but “what would each side total”, which means collecting itemized substantiation even from a taxpayer you expect to take the standard deduction. The client who volunteers nothing about property tax is often the one whose property tax alone approaches the standard amount.

Work the standard side first, since it is arithmetic: filing status gives the basic amount, birth dates and any blindness statement give the increments, and being someone else’s dependent caps the basic amount. Then work the itemized side as a ladder rather than a sum. Each category has its own gate, so a large gross figure can produce a small deductible one.

The § 68 reduction attacks the itemized side only. A taxpayer whose itemized total exceeds the standard amount by a modest margin can find the margin eaten by the haircut, and the standard deduction wins on a return where the raw totals said otherwise. Run the comparison after § 68.

The standard-deduction return is also no longer a short one. The § 63(b) stack — the seniors deduction inside § 151, § 199A, cash charity under § 170(p), tips under § 224, overtime under § 225 and passenger-vehicle loan interest under § 163(h)(4) — is available to a non-itemizer, and four of the six did not exist in that form on the 2024 return. The questions that reach them are ordinary: age, occupation, whether any wages were overtime or tips, whether there is a car loan, whether anything was given to charity in cash.

The margin the haircut eats

Priya files single with taxable income well inside the top bracket. After every category limit her itemized deductions total $48,000.

Applying § 68, her itemized deductions fall by 2/37 of the lesser of $48,000 or her taxable income above the point where the top bracket begins. That excess is $310,000, so the lesser figure is $48,000 and the reduction is $2,595, leaving $45,405.

The itemized side still wins, but by $2,595 less than the raw comparison suggested. Move her pre-haircut total closer to the standard amount and the answer flips. § 68 applies after all other limitations (IRC § 68(b)), so it is the last step and the comparison happens after it.

The separate return that costs both spouses

Daniel and Marcus file separately. Daniel has large medical expenses and itemizes, deducting $19,000. Marcus has nothing to itemize and expects the standard deduction.

Marcus gets nothing. Because his spouse itemizes on a separate return, his standard deduction is zero (IRC § 63(c)(6)(A)) — not reduced, zero. He deducts only what he can itemize himself, which is very little, so the pair traded his whole standard deduction for Daniel’s $19,000.

Two things follow. When a separate return is on the table, the itemize decision belongs to the couple jointly even though they file apart. And if Marcus already filed claiming the standard deduction, § 63(e)(3) is the route back.

The dependent student with a summer job

Amara is 19, a full-time student, and her parents claim her. She earned $4,200 at a summer job and had $600 of interest from a custodial account.

IRC § 63(c)(5) caps her basic standard deduction at the greater of the floor amount or the sum of the allowance and her earned income. Earned income of $4,200 plus the allowance exceeds the floor, so that sum is her basic standard deduction — well below the single amount she would otherwise get.

Two adjacent points. The interest is unearned income, so the kiddie tax under § 1(g) is in play and its threshold is built from the same § 63(c)(5) floor. And the cap limits the basic amount only: were Amara blind, the § 63(f) increment would sit on top of the capped figure.

Traps

“Standard deduction” is not one number. It is basic plus additional (IRC § 63(c)(1)). A return for a 68-year-old single taxpayer showing only the basic amount is wrong on its face.
The dependent cap does not touch the aged-or-blind increment (IRC § 63(c)(5)).
A separate-return spouse who itemizes zeroes the other spouse’s standard deduction (IRC § 63(c)(6)(A)). Nonresident aliens and short-period filers are zeroed too.
Miscellaneous itemized deductions are not floored, they are disallowed (IRC § 67(h)), with no end date. Unreimbursed employee expenses, investment advisory fees and preparation fees are gone.
Run § 68 last (IRC § 68(b)); comparing pre-limitation totals can pick the wrong side.
The charitable floor bites a modest gift. An itemizer’s small gift may deduct nothing (IRC § 170(b)(1)(I)), where the same cash gift would have been fully deductible under § 170(p).
Educator expenses are no longer miscellaneous (IRC § 67(b)(13)), so an educator may itemize them.

How this has changed

The 2026 return is the first to apply five changes made by Pub. L. 119-21, title VII, each effective for taxable years beginning after 31 December 2025.

The overall limitation returned in a new form. Old § 68 was a percentage-of-excess phase-out suspended for 2018 through 2025. Pub. L. 119-21 § 70111(a) replaced the section with the fractional reduction now in § 68(a), applying from 2026. Anything calling § 68 suspended, or reciting the old “Pease limitation” mechanics, is dated.

The miscellaneous suspension became permanent, with one carve-out. It had been in § 67(g) and ran only through 2025. Pub. L. 119-21 § 70110(a) struck the end date and moved the text to § 67(h); § 70110(b) added § 67(b)(13) and a new § 67(g) defining educator expenses — the § 62(a)(2)(D) description without its dollar limit, without the exclusion of non-athletic supplies for health and physical education courses, with “as part of instructional activity” for “in the classroom”, and with interscholastic sports administrators and coaches added. A citation to ”§ 67(g)” for the suspension now points at the wrong subsection.

Charity moved in both directions at once. Pub. L. 119-21 § 70424(a) added § 170(p), available only to non-itemizers; § 70425 added the § 170(b)(1)(I) floor for itemizers and made the enhanced cash percentage limitation permanent. The same statute made charity more attractive for the taxpayer who does not itemize and less attractive for the one who does.

Mortgage rules became permanent, and mortgage insurance premiums became deductible. Pub. L. 119-21 § 70108(a) struck the 2026 end date from § 163(h)(3)(F)(i), so the acquisition-indebtedness ceiling and the home equity disallowance no longer expire, and added subclause (III), which switches off the § 163(h)(3)(E)(iv) termination and restores qualified mortgage insurance premiums to qualified residence interest.

Exam focus

Expect the standard deduction as a construction problem rather than a lookup: a fact pattern gives filing status, two birth dates, a blindness statement and a dependency status, and the answer is the sum of the right pieces. Know which pieces the dependent cap reaches, and know the four zero cases in § 63(c)(6) cold — particularly that the separate-return rule turns on either spouse itemizing.

On the itemized side the reliable question is which gate applies to which category, not the arithmetic. Be able to say that medical has an AGI floor, that state and local taxes have a cap that phases down, that home equity interest is disallowed, that charity has both a percentage ceiling and a floor, and that the old miscellaneous category is disallowed outright rather than floored.

The likeliest place to be caught out is the § 63(b) list. A question asking what a standard-deduction taxpayer may still deduct is asking you to recite it.

Check yourself

1. A single taxpayer, age 67 and not blind, is not a dependent of anyone. Which components make up her standard deduction, and what limits could reduce it?

Answer: the basic amount for an unmarried individual under IRC § 63(c)(2) as modified by § 63(c)(7), plus one aged increment under § 63(f)(1)(A) at the higher § 63(f)(3) rate for an unmarried individual who is not a surviving spouse. Nothing reduces it: § 63(c)(5) does not apply because no one claims her, and neither § 67 nor § 68 touches the standard deduction.

2. Spouses file separately. One itemizes. The other has itemized deductions of $900 and would prefer the standard deduction. What is the second spouse’s standard deduction?

Answer: zero. IRC § 63(c)(6)(A) sets the standard deduction at zero for a married individual filing a separate return where either spouse itemizes. The second spouse deducts the $900 of itemized deductions, and nothing else.

3. A taxpayer who does not elect to itemize gives $1,500 in cash to her parish and $400 to a donor advised fund. What, if anything, can she deduct?

Answer: up to the § 170(p) limit for her filing status, counting only the parish gift. IRC § 170(p) reaches cash contributions to a § 170(b)(1)(A) organization and expressly excludes gifts for the establishment or maintenance of a donor advised fund and gifts to a § 509(a)(3) supporting organization. The donor advised fund gift is deductible nowhere, since she has not elected to itemize.

4. A taxpayer’s itemized deductions total $60,000 after each category limit. His taxable income, computed without § 68 and increased by that $60,000, exceeds the start of the top bracket by $40,000. What are his allowed itemized deductions?

Answer: $57,838. IRC § 68(a) reduces the total by 2/37 of the lesser of the itemized deductions ($60,000) or the taxable income above the top bracket threshold ($40,000) — so 2/37 of $40,000, or $2,162.

5. A high school swim coach spends her own money on team equipment, which before 2026 was a suspended miscellaneous itemized deduction. What changed?

Answer: IRC § 67(b)(13) now excludes educator expenses from miscellaneous itemized deductions, so the § 67(h) suspension does not reach them, and § 67(g) defines the term to include an interscholastic sports coach and to cover expenses incurred as part of instructional activity. She may claim them if she elects to itemize.

Change log

2026-08-19Initial draft. Records the 2026 arrival of the IRC § 68 itemized-deduction haircut, the IRC § 170(b)(1)(I) charitable floor, the IRC § 170(p) deduction for non-itemizers, and the permanent IRC § 67(h) suspension with its new educator carve-out.