SEE-1 - Deductions and Credits (20% of the exam) - Section 3.1

Compare standard and itemised deductions, including medical expenses (7.5% AGI floor), SALT cap, mortgage interest, and charitable contributions.

Compare the standard deduction amounts by filing status with total allowable itemised deductions to determine which reduces taxable income further. Recognise the key Schedule A limitations: the 7.5% AGI floor on medical expenses, the $10,000 state and local tax (SALT) cap, and the rules governing mortgage interest and charitable contribution deductions.

Standard deductionItemised deductionsSALT capMedical expense floor

Practice question for this objective

Free sampleDeductions and Creditsmedium

Sofia Marchetti files as single for 2024 and her standard deduction is 14,600 dollars. Her itemised items are: 12,000 dollars in combined state income and property taxes, 4,000 dollars of qualified home mortgage interest, and 1,500 dollars of cash charitable gifts. Applying the relevant limits, which deduction gives her the lower taxable income and by how much does it exceed the alternative?

AItemising, which exceeds the standard deduction by 900 dollars Correct
BItemising, which exceeds the standard deduction by 2,900 dollars
CThe standard deduction, which exceeds itemising by 900 dollars
DItemising, which exceeds the standard deduction by 400 dollars

Cap state and local taxes at 10,000 dollars, then compare the itemised total to the standard deduction. After capping the 12,000 dollars of state and local taxes at 10,000, the itemised total is 15,500 dollars, which beats the 14,600 dollar standard deduction by 900 dollars, so she should itemise.

Why A is correct: State and local taxes cap at 10,000; itemised total is 10,000 plus 4,000 plus 1,500 equals 15,500, which exceeds the 14,600 standard deduction by 900 dollars.

Why B is wrong: This uses the uncapped 12,000 dollars of state and local taxes (12,000 plus 4,000 plus 1,500 equals 17,500), but those taxes are capped at 10,000 dollars before comparison.

Why C is wrong: This reverses the comparison; the capped itemised total of 15,500 is larger than the 14,600 standard deduction, so the standard deduction does not give the lower taxable income.

Why D is wrong: This caps the taxes correctly but counts only 1,000 of the 1,500 dollar charitable gift (10,000 plus 4,000 plus 1,000 equals 15,000), understating the itemised total of 15,500 dollars.

See more SEE-1 practice questions, answers explained.

Exam traps in Deductions and Credits

Answers that look right on this material and are not. Each one is a distractor from a different question in the SEE-1 bank for this domain.

5,000 dollars
Why it is wrong: This claims the full foreign tax paid, but the credit cannot exceed the limitation, which restricts the credit to the US tax attributable to the foreign-source income.
14,100 dollars, being the full total of the three taxes he paid during the year
Why it is wrong: This adds 8,200 plus 5,300 plus 600 and applies no limit, but the state and local tax deduction is capped, so the full sum is not deductible.
24,700 dollars
Why it is wrong: This adds the full 13,700 dollars of state and local taxes to the mortgage interest and charity, but state and local taxes are capped at 10,000 dollars for a single filer.

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