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

Sources of applicable deductions

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

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.

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.