Alabama Tax Form 40 Schedule A - Itemized Deductions Instructions

Changes You Should Note

The itemized deductions you may claim on your 2009 Alabama return are similar to the deductions allowed for Federal purposes; however, certain items may be treated differently. Please see the line by line instructions which follow for an explanation of these differences.

Purpose of Schedule

Some taxpayers should itemize their deductions because they will save money. See Itemized or Standard Deduction on page 8.

Schedule Amust be completed in detail if you elect to itemize your deductions instead of claiming the standard deduction.

If you itemize, you can deduct part of your medical and dental expenses, part of your unreimbursed employee business expenses, amounts you paid for certain taxes, interest, contributions, and other miscellaneous expenses. You may also deduct certain casualty and theft losses.

Married, Filing Separate Returns. If you are married and filing separate Alabama returns, both spouses may itemize their deductions or both may claim the standard deduction. One spouse cannot itemize and the other claim the standard deduction. Each spouse may claim only the itemized deductions he/she actually paid.

 Part-year Residents. Individuals becoming or ceasing to be residents during the year are entitled to claim ONLY the itemized deductions that were actually paid while a resident of Alabama. The Department will permit you to prorate a deduction (such as interest or taxes) based on the number of months you were a resident if the deduction was paid during the entire year and the amount actually paid while a resident cannot be determined.

Lines 1 through 4 - Medical and Dental Expenses

Before you can figure your total medical and dental expenses, you must complete your Form 40, page 1, through line 10.

Medical and dental expenses are allowed as itemized deductions to the same extent as allowed for federal purposes with the following exceptions:

  • You may deduct only that part of your medical and dental expenses that is more than 4% of the amount on Form 40, page 1, line 10.
  • Qualified long term care premiums are not included in medical and dental expenses. They are deductible in full on Line 26.

Do not include in medical and dental expenses insurance premiums paid by an employer-sponsored health insurance plan (cafeteria plan).

Line 1

Enter the total of your medical and dental expenses after reducing these expenses by any payments received from insurance or other sources. Include amounts you paid for doctors, dentists, nurses, hospitals, prescription medicine and drugs, or insulin. Also include the total amount you paid for insurance premiums for medical and dental care, amounts paid for transportation and lodging, and other expenses such as hearing aids, dentures, eyeglasses, and contact lenses.

If your insurance company paid your doctor or dentist directly for part of your medical expenses and you paid only the amount that remained, include in your medical expenses ONLY the amount you paid.

If you received a reimbursement in 2009 of prior year medical or dental expenses, do not reduce your 2009 expenses by this amount. You must include the reimbursement in income on Form 40, Part 1, line 7, if you deducted the medical expenses in the earlier year and the deduction reduced your tax. Federal Pub. 502 tells you how to figure the amount to include in income.

When figuring the deduction, you may include medical and dental bills you paid for:

  • Yourself.
  • Your spouse.
  • All dependents claimed on your return.
  • Your child whom you do not claim as a dependent because of the federal rules explained for Children of Divorced or Separated Parents.

Examples of Medical and Dental Payments You CAN Deduct

To the extent you were not reimbursed, you can deduct what you paid for:

  • Medicare Part B insurance.
  • Prescription medicines and drugs, or insulin.
  • Premiums paid to private insurers for additional Medicare coverage.
  • Medical doctors, dentists, eye doctors, chiropractors, osteopaths, podiatrists, psychiatrists, psychologists, physical therapists, acupuncturists, and psychoanalysts (medical care only).
  • Medical examinations, X-ray and laboratory services, insulin treatment, and whirlpool baths the doctor ordered.
  • Nursing help. If you pay someone to do both nursing and housework, you can deduct only the cost of the nursing help.
  • Hospital care (including meals and lodging), clinic costs, and lab fees.
  • Medical treatment at a center for drug addicts or alcoholics.
  • Cost of a weight-loss program for the purpose of treating diagnosed obesity or another recognized disease. Cost must be out-of-pocket and uncompensated.
  • Medical aids such as hearing aid batteries, braces, crutches, wheelchairs, guide dogs, and the cost of maintaining them.
  • Lodging expenses (but not meals) paid while away from home to receive medical care in a hospital or a medical care facility that is related to a hospital. Do not include more than $50 a night for each eligible person.
  • Ambulance service and other travel costs to get medical care. If you used your own car, you can claim what you spent for gas and oil to travel to and from the place you received medical care, or you can claim the federal mileage rate. Add parking and tolls to the amount you claim under either method.

Examples of Medical and Dental Payments You CANNOT Deduct

  • Premiums paid by an employer-sponsored health insurance plan (cafeteria plan).
  • The basic cost of Medicare insurance (Medicare A).

Note: If you were 65 or older but not entitled to social security benefits, you may deduct premiums you voluntarily paid for Medicare A coverage.

  • Life insurance or income protection policies.
  • The 1.45% Medicare (hospital insurance benefits) tax withheld from your pay as part of the social security tax or the Medicare tax paid as part of social security self-employment tax.
  • Nursing care for a healthy baby.
  • Illegal operations or drugs.
  • Nonprescription medicines or drugs.
  • Travel your doctor ordered for rest or change.
  • Funeral, burial, or cremation costs. Federal Pub. 502 has a discussion of expenses that may and may not be deducted. It also explains when you may deduct capital expenditures and special care for handicapped persons.

Lines 5 through 9 - Taxes (Other than Federal Income Tax) You CAN Deduct

If deductions are itemized, you CAN DEDUCT the following taxes:

  • Real estate taxes (line 5). Include taxes you paid on property you own in any state that was not used for business. If you pay real estate taxes as part of your mortgage payments, do not take a deduction for that amount. Deduct the taxes in the year the mortgage company actually paid them to the taxing authority.
  •  FICA tax (Social Security and Medicare) (line 6). You can deduct the FICA tax (Social Security and Medicare) withheld on your income by your employer. If you worked for more than one employer which resulted in more than the maximum FICA tax being withheld, the excess amount claimed as Federal Income Tax Withheld on your Federal return cannot be claimed as an itemized deduction on your Alabama return.
  •  Federal Self-Employment taxes (line 6). You can deduct the Federal self-employment tax you paid during the year 2009 for the tax year 2008 and/or prior years.
  •  Railroad Retirement tax (line 7). You can deduct the railroad retirement tax you paid in 2009. Only your contribution to tier one railroad retirement is deductible as an itemized deduction.
  • Other taxes (line 8). In addition to the above taxes, you can also deduct:
    1. City, County, and Occupational Tax as reported on your W-2.
    2.  State Unemployment Insurance Tax (S.U.I.). Employees were not required to pay S.U.I. Tax in 2009 since the full amount was paid by their employer. However, if S.U.I. Tax was paid to a state other than Alabama, it may be deducted.
    3.   Federal gift taxes. Federal gift taxes are deductible only if you are the person making the gift and you paid the tax. (The person receiving the gift cannot claim this deduction even though he paid the tax.)
    4.  Personal property taxes. This tax must be based on the value alone. For example, if part of the fee you paid for the registration of your car was based on the car’s value and part was based on its weight, you can deduct only the part based on value.
    5.  Generation-Skipping Transfer (GST) taxes. Generation-Skipping transfer taxes imposed on income distributions by 26 U.S.C. 2601 are deductible if you paid or accrued the taxes within the taxable year.

Taxes You CANNOT Deduct include but are not limited to

  • State income taxes. (If you paid state income taxes to another state, you may be entitled to a tax credit. See instructions for Schedule CR for further information.)
  • State and local sales taxes.
  • Income tax you paid to a foreign country.
  • Taxes you paid for another person.
  • License fees (marriage, driver’s, dog, hunting, pistol, etc.).
  • Civil Service Retirement contributions (State or Federal).
  • Federal excise tax on personal property, transportation, telephone, and gasoline.
  • Customs duties.
  • Gasoline tax.
  • State utility taxes.
  • Tax on liquor, beer, wine, cigarettes, and tobacco.
  • Car inspection fees.
  • Taxes you paid for your business or profession. (Use Schedule C, C-EZ, E, or F to deduct these business expenses.)
  • Assessments for sidewalks or other improvements to your property.

Lines 10a through 14 - Interest You Paid

The interest you paid that can be claimed as an itemized deduction is limited in most cases to the same amount as currently allowable for federal purposes.

You should show on Schedule A interest you paid on nonbusiness items only. Whether your interest expense is treated as investment interest, personal interest, or business interest depends on how and when you used the loan proceeds.

Note: Personal interest is no longer deductible. Complete and attach Alabama Form 4952A if you are claiming investment interest as an itemized deduction.

If you qualify for the Mortgage Interest Credit on your Federal return, the total interest you paid (before the credit) is deductible for Alabama purposes.

For further information describing the interest you may deduct, refer to federal instructions and publications.

Lines 15 through 18 - Gifts to Charity

Contributions are allowable as itemized deductions to the same extent as currently allowed for federal purposes. However, when determining the 50% and special 20% and 30% limitations, you must use Alabama (not Federal) adjusted gross income.

You can deduct what you gave to organizations that are religious, charitable, educational, scientific, or literary in purpose. You can also deduct what you gave to organizations that work to prevent cruelty to children or animals.

Examples of these organizations are:

  • Churches, temples, synagogues, Salvation Army, Red Cross, CARE, Goodwill Industries, UnitedWay, Boy Scouts, Girl Scouts, Boys and Girls Clubs of America, etc.
  • Fraternal orders if the gifts will be used for the purposes listed above.
  • Veteran’s and certain cultural groups.
  • Nonprofit schools, hospitals, and organizations whose purpose is to find a cure for, or help people who have arthritis, asthma, birth defects, cancer, cerebral palsy, cystic fibrosis, diabetes, heart disease, hemophilia, mental illness or retardation, multiple sclerosis, muscular dystrophy, tuberculosis, etc.
  • Federal, state, and local governments if the gifts are solely for public purposes.

If you contributed to a charitable organization and also received a benefit from it, you can deduct only the amount that is more than the benefit you received. If you do not know whether you can deduct what you gave to an organization, check with that organization or with the IRS.

Contributions You MAY Deduct

Contributions may be in cash (keep canceled checks, receipts, or other reliable written records showing the name of the organization and the date and amount given), property, or out-of-pocket expenses you paid to do volunteer work for the kinds of organizations described above. If you drove to and from the volunteer work, you may take 14 cents a mile or the actual cost of gas and oil. Add parking and tolls to the amount you claim under either method. (But don’t deduct any amounts that were repaid to you.)

Limit on the amount you may deduct

Get Federal Pub. 526 to figure the amount of your deduction if any of the following applies:

  • Your cash contributions or contributions of ordinary income property to certain organizations are more than 30% of Form 40, page 1, line 10.
  • Your gifts of capital gain property to certain organizations are more than 20% of Form 40, page 1, line 10.
  • You gave gifts of property that increased in value or gave the use of property as gifts.

You MAY NOT Deduct as Contributions

  • Travel expenses (including meals and lodging) while away from home unless there was no significant element of personal pleasure, recreation, or vacation in the travel.
  • Political contributions.
  • Dues, fees, or bills paid to country clubs, lodges, fraternal orders, or similar groups.
  • Value of any benefit such as food, entertainment, or merchandise that you received in connection with a contribution to a charitable organization.

Example. You paid $100 to a charitable organization to attend a fund-raising dinner. To figure the amount of your deductible charitable contribution, subtract the value of the dinner from the total amount you paid. If the value of the dinner was $40, your deductible contribution is $60.

  • Cost of raffle, bingo, or lottery tickets.
  • Cost of tuition.
  • Value of your time or services.
  • Value of blood given to a blood bank.
  • The transfer of a future interest in tangible personal property (generally, until the entire interest has been transferred).
  • Gifts to:
    1. Individuals.
    2. Foreign organizations.
    3. Groups that are run for personal profit.
    4. Groups whose purpose is to lobby for changes in the laws.
    5. Civic leagues, social and sports clubs, labor unions, and chambers of commerce.

Record Keeping. If you gave property, you should keep a receipt or written statement from the organization you gave the property to, or a reliable written record that shows the organization’s name and address, the date and location of the gift, and a description of the property. You should also keep reliable written records for each gift of property that include the following information:

  1. How you figured the property’s value at the time it was given. (If the value was determined by an appraisal, you should also keep a signed copy of the appraisal.)
  2. The cost or other basis of the property if you must reduce it by any ordinary income or capital gain that would have resulted if the property had been sold at its fair market value.
  3. How you figured your deduction if you chose to reduce your deduction for gifts of capital gain property.
  4. Any conditions attached to the gift.

Note: If your total deduction for gifts of property is over $500, or if you gave less than your entire interest in the property, or you made a “qualified conservation contribution” under Federal Section 170(h), your records should contain additional information. See Federal Pub. 526 for details.

Line 15

Enter the total contributions you made in cash or by check (including out-of-pocket expenses).

Line 16

Enter the contributions of property. If you gave used items such as clothing or furniture, deduct their fair market value at the time you gave them. Fair market value is what a willing buyer would pay a willing seller when neither has to buy or sell and both are aware of the conditions of the sale. If the amount of your deduction is more than $500, you must complete and attach Federal Form 8283, Noncash Charitable Contributions. If your total deduction is over $5,000, you may also need appraisals of the values of the donated property. For this purpose, the “amount of your deduction” means your deduction BEFORE applying any income limitations that could result in a carryover of contributions. See Federal Form 8283 and its instructions for details.

Line 17

Enter on line 17 any carryover of contributions that you were unable to deduct in an earlier year because it exceeded your adjusted gross income limit.

Line 19a, b, and c - Casualty and Theft Losses

A casualty or theft loss is determined in the same manner as on your federal return with the following exceptions:

  • The loss may be claimed only in the year during which the loss occurred or the theft was discovered.
  • The loss on personal property must be reduced by 10% of the Alabama adjusted gross income as shown on Form 40, page 1, line 10.

Use lines 18a, b, and c to report casualty or theft losses of property that are not a trade or business, income- producing, or rent or royalty property. Complete and attach Federal Form 4684 to figure your loss. Enter on line 19a of Alabama Schedule A the amount of loss as shown on line 16 (Section A) of Form 4684.

Losses You MAY Deduct

You may be able to deduct all or part of each loss caused by theft, vandalism, fire, storm, and car, boat, and other accidents or similar causes. You may also be able to deduct money you had in a financial institution but lost because of the insolvency or bankruptcy of the institution.

You may deduct nonbusiness casualty or theft losses only to the extent that -

  1. the amount of EACH separate casualty or theft loss is more than $100, and
  2. the total amount of ALL losses during the year is more than 10% of your adjusted gross income on Form 40, page 1, line 10.

Special rules apply if you had both gains and losses from nonbusiness casualties or thefts. Get Federal Form 4684 for details.

Losses You MAY NOT Deduct

  • Money or property misplaced or lost.
  • Breakage of china, glassware, furniture, and similar items under normal conditions.
  • Progressive damage to property (buildings, clothes, trees, etc.) caused by termites, moths, other insects, or disease.

Use line 21 of Schedule A to deduct the costs of proving that you had a property loss. (Examples of these costs are appraisal fees and photographs used to establish the amount of your loss.)

For more details, refer to federal instructions and publications.

Lines 20 through 24 - Miscellaneous Deductions

Expenses Subject to the 2% Limit

Most miscellaneous deductions cannot be deducted in full. You must subtract 2% of your Alabama adjusted gross income from the total. You figure the 2% limit on line 23.

Generally, the 2% limit applies to job expenses you paid for which you were not reimbursed (line 20). The limit also applies to certain expenses you paid to produce or collect taxable income (line 21). See the instructions for lines 20 and 21 for examples of expenses to deduct on these lines.

The 2% limit does not apply to certain other miscellaneous expenses that you may deduct. See the instructions for line 24 for examples of these expenses.

Line 20

Use this line to report Alabama job expenses you paid for which you were not reimbursed. In some cases you must first fill out Federal Form 2106, Employee Business Expenses. Fill out Form 2106 if:

  1. You claim any travel, transportation, meal, or entertainment expenses for your job; OR
  2. Your employer paid you for any of your job expenses reportable on line 20.

If 1 or 2 above applies, enter the net deductible amount from Federal Form 2106 on line 20 of Schedule A.

If you do not have to fill out Form 2106, list the type and amount of your expenses on the space provided on line 20. If you need more space, attach a statement showing the type and amount of the expense.

Examples of expenses to include on line 20 are:

  • Travel, transportation, meal, or entertainment expense. (Note: If you have any of these expenses, you must use Federal Form 2106 for all your job expenses.)
  • Union dues.
  • Safety equipment, small tools, and supplies you used in your job.
  • Uniforms your employer said you must have and which you may not usually wear away from work.
  • Protective clothing required in your work such as hard hats, safety shoes, and glasses.
  • Physical examinations your employer said you must have.
  • Dues to professional organizations and chambers of commerce.
  • Subscriptions to professional journals.
  • Fees to employment agencies and job search expenses in your present occupation.
  • Education expenses you paid that were required by your employer, or by law or regulations, to keep your salary or job. In general, you may include the cost of keeping or improving skills you must have in your job. Some educational expenses are not deductible. See Expenses You MAY NOT Deduct.
  • Business use of part of your home, but ONLY if you use that part exclusively and on a regular basis in your work and for the convenience of your employer. For details, including limits that apply, see Federal Pub. 587, Business Use of Your Home. Also see the instructions for Part I, line 2 on page 12.

Line 21

Use this line for amounts you paid for the production or collection of taxable income; for the management, conservation, or maintenance of property held for the production of taxable income; or in connection with the determination, collection, or refund of any tax. List the type and amount of each expense in the space provided on line 21. If you need more space, attach a statement showing the type and amount of each expense. Enter one total in the amount space for line 21. Examples of these expenses are:

  • Tax return preparation fee.
  • Safe deposit box rental.
  • Certain legal and accounting fees.
  • Clerical help and office rent.
  • Custodial (e.g., trust account) fees.
  • Your share of the investment expenses of a regulated investment company.
  • Certain losses on nonfederally insured deposits in an insolvent or bankrupt financial institution. For more information (including limits on the amount you can deduct), see Federal Pub. 529.

Line 25 - Miscellaneous Deductions

Expenses NOT Subject to the 2% Limit

Use this line to report miscellaneous deductions that are NOT subject to the 2%AGI limit. Only the expenses listed below can be deducted on line 25:

  • Gambling losses to the extent of gambling winnings. Report gambling winnings on Form 40, page 2, Part I, Line 8.
  • Amortizable bond premium on bonds acquired before October 23, 1986.
  • Deduction for repayment of amounts under a claim of right if $3,000 or more.
  • Unrecovered investment in a pension. See Federal Pub. 17.
  • Impairment-related work expenses of a disabled person.

List the type and amount of each expense. Enter the total on line 25.

Expenses You MAY NOT Deduct

Some expenses are not deductible at all. Examples are:

  • Political contributions.
  • Personal legal expenses.
  • Lost or misplaced cash or property (but see Casualty and Theft Losses).
  • Expenses for meals during regular or extra work hours.
  • The cost of entertaining friends.
  • Expenses of going to or from work.
  • Education that you need to meet minimum requirements for your job or that will qualify you for a new occupation.
  • Expenses of:
    1. Travel as a form of education.
    2. Attending a seminar, convention, or similar meeting unless it is related to your employment.
  • Fines and penalties.
  • Funeral expenses

Line 26 - Qualified Long-term Care Coverage

Premiums paid pursuant to a qualifying insurance contract for qualified long term care coverage paid by the taxpayer may be deducted on line 26. Qualified longterm care services include care for necessary diagnostic, preventive, therapeutic and rehabilitative services and maintenance or personal care services which are required by a chronically ill individual in a qualified facility or services which are provided pursuant to a place of care prescribed by a licensed health care practitioner.