What are Above-the-line deductions?
Above-the-line deductions are tax deductions that reduce gross income to arrive at adjusted gross income (AGI) on Form 1040, available to taxpayers regardless of whether they claim the standard deduction or itemize. The One Big Beautiful Bill Act introduces three significant new above-the-line deductions for tax year 2026 returns, including qualifying tips (up to $25,000), overtime compensation (up to $12,500 individual or $25,000 joint), and vehicle loan interest (up to $10,000). These deductions provide greater tax benefits than below-the-line itemized deductions because they reduce AGI, which affects eligibility for numerous other tax benefits and phase-outs. Strategic coordination of above-the-line deductions with Health savings account contributions maximizes overall tax savings while optimizing benefit eligibility thresholds.
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