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In: Accounting

Contrast ceiling and floor limitations for itemized deductions. Provide an example of each.

Contrast ceiling and floor limitations for itemized deductions. Provide an example of each.

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Expert Solution

A ceiling is a maximum amount for an exclusion or deduction. In contrast to a ceiling, a floor limitation eliminates any deduction for amounts below the minimum amount (i.e., the floor). Ceiling limitations may provide that amounts above the ceiling limit are lost (disallowed) or could be used in other years (carryover). Like a ceiling, a floor can be structured as either a fixed amount or a floating constraint based upon some intermediate number. Unlike ceilings, floor limits eliminate any amounts below the minimum thereby limiting the number of taxpayers who qualify for any adjustment to income. While there are many examples of ceiling and floor limits, two common examples are the personal casualty loss deduction (which contains two floors) and the charitable contribution deduction (which contains several ceilings). The $100 per casualty limit on personal casualty loss deductions is a floor limit placed on each casualty, and the 10 percent of AGI limit is an aggregate floor limit placed on the sum of all casualty losses in a particular year. If the casualty loss does not exceed both floors, then no deduction can be claimed. In contrast, the charitable contribution deduction contains ceiling limits -such as, cash deductions cannot exceed 50 percent of AGI. To the extent that contributions exceed the ceiling, the deductions carryover into the subsequent year.


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