The majority of your itemized deductions will flow from your federal itemized deductions. Items such as medical and dental expenses, property taxes, state tax and charitable contributions are items not subject to 2% of your AGI. In other words, you would get the full deduction.
On the other hand, most miscellaneous deductions cannot be deducted in full and must be reduced by 2% of your Alabama adjusted gross income. Generally, the 2% limit applies to job expenses you paid for which you were not reimbursed. The limit also applies to certain expenses you paid to produce or collect taxable income.
In order to get a tax benefit on your Alabama return, 2% of your state adjusted gross income would have to be greater than the deduction. Whatever deduction remains, is your deduction on your Alabama return.
The miscellaneous itemized deductions that are NOT subject to the 2% limit are as follows:
- Gambling losses to the extent of gambling winnings.
- Deduction for repayment of amounts under a claim of right if more than $3,000.
- Unrecovered investment in a pension.
- Impairment-related work expenses of a disabled person.
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