Investment Basics: Above-the-Line Deductions: Can You Benefit?

February 26, 2018

By Colin OShea 
Securities Analyst  

Any deductible expense is useful because it reduces the amount of income subject to tax. But for individual taxpayers, deductions that can be claimed in arriving at adjusted gross income (AGI) -- referred to as "above-the-line" deductions -- are especially significant. By lowering AGI, above-the-line deductions increase your chances of qualifying for various other deductions and credits.

Here are some of the above-the-line deductions available for the 2017 tax year.

Alimony. Generally, payments are deductible if they were made in cash pursuant to a divorce or separation instrument. Other requirements may apply.

Traditional IRA contributions. Contributions of up to $5,500 ($6,500 for individuals age 50 or older) to a traditional individual retirement account (IRA) are potentially deductible on your 2017 return. AGI-based limitations apply if you (or your spouse) are an active participant in an employer-sponsored retirement plan.

Rental property/trade or business expenses. Expenses associated with property held for the production of rents are deductible above the line on Schedule E, whereas sole proprietors deduct their trade or business expenses above the line on Schedule C.

Student loan interest. Taxpayers may deduct up to $2,500 of interest expense on qualified higher education loans, though phase-outs apply to those at higher levels of modified AGI.

Moving expenses. Subject to certain requirements, a taxpayer who moves as a result of a change in his or her principal place of work may deduct certain costs of moving and traveling to the new residence.

Health savings account (HSA) contributions. The 2017 deduction limits are $3,400 for those with self-only coverage under an eligible high-deductible health plan and $6,750 for those with family coverage. An additional $1,000 deduction is available to those 55 and older who are not enrolled in Medicare.

Self-employed taxpayers. The self-employed also may be able to deduct retirement plan contributions, qualified health insurance premiums, and a portion of their self-employment taxes.