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May I claim a subtraction for dividend/interest/capital gains if I am a senior citizen?

Senior Citizens age 77 and older may subtract dividend, interest and capital gains to the extent they are included in adjusted gross income.

The subtraction is limited to $12,697 for single filers and to $25,394 for joint filers for 2022. These limits must be reduced by any subtraction for retirement benefits.

Example 1: Eligible for full subtraction;

Senior Citizen filing a single return with $5,000 pension subtraction is only allowed an interest subtraction of $7,697 ($12,697 - $5,000 = $7,697).

Mary is 77 years old and has pension of $5,000 and interest income of $4,000.

Maximum dividend/interest/capital gains deduction $12,697
Less pension subtraction - $5,000
Allowable dividend/interest/capital gains deduction $7,697

Mary can subtract all $4,000 of interest income.

 

Example 2: Eligible for partial subtraction;

Senior Citizen filing a single return with $8,000 pension subtraction is only allowed an interest subtraction of $4,697 ($12,697 - $8,000 = $4,697).

Mary is 77 years old and has pension of $8,000 and interest income of $4,000.
Maximum dividend/interest/capital gains deduction $12,697
Less pension subtraction - $8,000
Allowable dividend/interest/capital gains deduction $4,697

Mary can only subtract $4,697 of interest income. 

 

Example 3: Not eligible for subtraction;

Senior Citizen filing a single return with $17,000 pension subtraction is not allowed an interest subtraction.

Mary is 77 years old and has pension of $17,000 and interest income of $4,000.

Maximum dividend/interest/capital gains deduction $12,697
Less pension subtraction - $17,000
Allowable dividend/interest/capital gains deduction $0

Mary's allowable dividend/interest/capital gains deduction is zero.