An above-the-line deduction is an adjustment to income (deduction) that can be taken regardless of whether the individual taxpayer itemizes deductions. The adjustment reduces the taxpayer’s adjusted gross income (AGI). These adjustments are also sometimes called deductions from gross income, as opposed to itemized deductions that are deducted from AGI. An above-the-line deduction is taken out of income “above” the line on the tax form on which adjusted gross income is reported.
Above-the-line deductions are more desirable than itemized deductions because:
- they are more available (for example, they are not phased out or subject to a floor like many itemized deductions);
- they can be claimed even if the taxpayer does not itemize deductions; and
- they lower the taxpayer’s AGI, which can allow the taxpayer to qualify for more and/or larger deductions.
The above-the-line deductions include:
- Trade or business expenses
- Net operating loss deduction
- Loss from sales and exchanges
- Depreciation and depletion
- Deductions tied to rents and royalties
- Teacher’s classroom expenses
- Jury pay turned over to employer
- Overnight travel expenses of Reserve or National Guard
- Supplemental unemployment compensation repayments
- Business expenses of qualifying performing artists
- Contributions to individual retirement accounts
- Student loan interest deduction
- Tuition and fees deduction
- Health savings account deduction
- Moving expenses
- ½ of self-employment tax
- Health insurance costs of the self-employed
- Contributions to SIMPLE or SEP plans
- Penalty for early withdrawal of funds from a savings account
- Alimony payments
- Legal fees and costs paid in certain actions involving civil rights violations or whistleblower awards
- Domestic production activities deduction
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