Above The Line Deduction

An above the line deduction is a tax deduction allowed by the IRS that is taken into account prior to the calculation of Adjusted Gross Income (AGI), and therefore occurs "above the line." Since AGI is used to determine a taxpayers overall tax liability, an above the line deduction can have more of an impact on a taxpayer's return than a deduction that occurs below the line. Some examples of an above the line deduction are certain business expenses, rental deductions, capital losses on property, job-related moving expenses, interest on student loans, and alimony payments.

A deduction that is not an above the line deduction can be impacted by one that is an above the line deduction. For example, in order to be allowed as a deduction, medical expenses (a below the line deduction) must exceed 7.5% of a taxpayer's adjusted gross income. Since AGI is reduced by an above the line deduction the result will be a lowered threshold for claiming medical expenses.

An above the line deduction is not subject to the income phase outs that occur with some below the line deductions. Therefore, an above the line deduction remains applicable to any taxpayer regardless of how much earned income they had. It isn't necessary to itemize deductions on Schedule A in order for a taxpayer to claim an above the line deduction.