Legal Definitions - below-the-line

A "below-the-line" deduction refers to a type of tax deduction that is taken later in the calculation process. These deductions are subtracted from your adjusted gross income (AGI) to determine your taxable income.

The term below-the-line refers to specific tax deductions that are applied after a taxpayer's Adjusted Gross Income (AGI) has been calculated, but before their final taxable income is determined. These deductions reduce the amount of income subject to tax and are often taken as itemized deductions, rather than standard deductions.

• Example 1: Charitable Contributions

  Sarah, a high-income earner, donates a significant sum of money to her local animal shelter, which is a qualified non-profit organization. When preparing her tax return, she first calculates her total income and then her Adjusted Gross Income (AGI). After determining her AGI, she then lists her donation as an itemized deduction. This charitable contribution is considered a below-the-line deduction because it is subtracted from her AGI, not from her gross income directly, to arrive at her taxable income.

• Example 2: Home Mortgage Interest

  Mark owns a home and pays substantial interest on his mortgage throughout the year. Instead of taking the standard deduction, Mark chooses to itemize his deductions because the total of his itemized deductions, including his mortgage interest, is greater. After calculating his Adjusted Gross Income, Mark includes the interest paid on his home loan as an itemized deduction. This mortgage interest is a below-the-line deduction because it is applied after his AGI has been established, reducing the income on which he will ultimately pay taxes.