REG, Regulation

Sources for From Gross Income to Taxable Income

Last reviewed 2026-10-08

The standards and authorities behind PocketCPA's REG lessons on From Gross Income to Taxable Income. The topic rests on IRC Secs. 62, 63, 67, 170, 199A.

About this topic

The individual return is one subtraction done twice. Gross income comes down to adjusted gross income, and adjusted gross income comes down to taxable income.

Two statutes hold that frame.

Key points

Adjusted gross income (AGI) is gross income minus above-the-line deductions; it controls many phase-outs and limitations.
Itemized deductions include state and local taxes (capped at $10,000), mortgage interest, charitable contributions, and casualty losses in federally declared disasters.
The standard deduction is taken in lieu of itemizing; the higher of the two is generally chosen.
The qualified business income (QBI) deduction under Sec. 199A is 20% of QBI, subject to W-2 wage and property limitations for higher-income taxpayers.

What the lessons cover

Above-the-line adjustments (Sec. 62)
Standard deduction versus itemized (Sec. 63)
Itemized deductions
The qualified business income deduction (Sec. 199A)
Sec. 199A cooperatives: the patron reduction and the cooperative deduction
Sec. 199A(g): the pass-through to patrons and who qualifies
Retirement and health savings adjustments (Secs. 219 and 223)
Education, self-employment tax, and self-employed health insurance (Secs. 221, 164(f), and 162(l))
Taxes paid and the SALT phasedown (Sec. 164)
Interest: qualified residence, investment, and vehicle loans (Sec. 163)
Charitable contributions: property type, ceilings, and the floor (Sec. 170)
Medical expenses and casualty losses (Secs. 213 and 165(h))

Authoritative references

Where these deductions sit in the Code. Each entry names the section, then its subsections.

IRC Sec. 62 Adjusted gross income defined.
- (a)(1) trade and business deductions.
- (a)(2)(A) through (a)(2)(E) employee categories.
- (a)(7), (a)(15) through (a)(21) enumerated adjustments, with flush language on Sec. 199A and double deduction.
- (b) qualified performing artist.
- (c)(1) and (c)(2) arrangements not treated as reimbursement.
- (d)(1) through (d)(3) eligible educator, coordination, and indexing.
IRC Sec. 63 Taxable income defined.
- (a) the itemizer rule.
- (b)(1) through (b)(7) the non-itemizer list.
- (c)(1) through (c)(7) the standard deduction, the dependent limitation, the zero-deduction cases, and the post-2017 amounts.
- (d) the definition of itemized deductions.
- (e) the election to itemize.
- (f) the aged and blind additional amounts.
IRC Sec. 67 Two-percent floor on miscellaneous itemized deductions: (b) exclusion list including (b)(13) educator expenses; (g) definition of educator expenses; (h) permanent disallowance for years beginning after 2017.
IRC Sec. 68 Overall limitation on itemized deductions: (a) the 2/37 reduction and its two prongs; (b) ordering after all other limitations. Amended generally by Pub. L. 119-21, Sec. 70111(a).
IRC Sec. 163 Interest.
- (d) the investment interest limitation and its carryforward.
- (h)(1) the disallowance of personal interest for a non-corporate taxpayer.
- (h)(2) the list of what personal interest is not.
- (h)(3) qualified residence interest, including (h)(3)(B)(i) tracing and (h)(3)(F)(i) the post-2017 rewrite.
- (h)(4) qualified passenger vehicle loan interest for 2025 through 2028.
IRC Sec. 164 Taxes.
- (a)(1) through (a)(3) deductible taxes, and (b)(5) the sales tax election.
- (b)(6) the cap and its trade or business exception.
- (b)(7) applicable limitation amount and MAGI phasedown.
- (c)(1) local benefit assessments, and (f) one-half of self-employment tax.
IRC Sec. 165 Losses: (a) uncompensated losses; (b) basis ceiling; (h)(1) through (h)(5) personal casualty mechanics and the disaster requirement.
IRC Sec. 170 Charitable contributions.
- (b)(1)(A) through (b)(1)(D) ceilings, with (b)(1)(G) the 60 percent cash ceiling and (b)(1)(H) contribution base.
- (b)(1)(I) the 0.5 percent floor and its absorption order.
- (b)(2)(A) the corporate 1 to 10 percent band.
- (d)(1) and (d)(2) carryovers, and (e)(1)(A) and (e)(1)(B) reduction rules.
- (p) the non-itemizer cash deduction.
IRC Sec. 199A Qualified business income.
- (a) the two caps.
- (b)(1) through (b)(6) combined amount, per-business limit, phase-in, W-2 wages including the (b)(4)(C) 60-day return requirement, and qualified property including the (b)(6)(B) depreciable period.
- (b)(7) the patron reduction for qualified payments from a specified agricultural or horticultural cooperative.
- (c) QBI and its exclusions, and (d) qualified trade or business and the SSTB rules.
- (e)(1) and (e)(2) taxable income and threshold amount.
- (f) partnerships, S corporations and AMT coordination.
- (g)(1) the 9 percent cooperative domestic-production deduction, its 50 percent wage ceiling, and the Sec. 1382(b) and (c) add-back.
- (g)(2) the patron pass-through and its written-notice condition.
- (g)(3) qualified production activities income and domestic production gross receipts, including the land and related-person exclusions.
- (g)(4) the definition of a specified agricultural or horticultural cooperative and the marketing-cooperative attribution.
- (g)(5) expanded affiliated groups and the oil related 3 percent reduction.
- (g)(6) the regulations the Secretary is directed to prescribe.
- (i) the minimum deduction for active QBI.
Other sections applied: Sec. 162(l) self-employed health insurance; Sec. 213 medical expenses; Sec. 219 retirement savings; Sec. 221 education loan interest; Sec. 223 health savings accounts; Sec. 1401 and Sec. 1402(a)(12) self-employment tax base.
Amending act: One Big Beautiful Bill Act, Pub. L. 119-21 (July 4, 2025), Secs. 70105, 70110, 70111, 70201 and 70425, with the Sec. 164(b)(7) and Sec. 163(h)(4) provisions as enacted.

How PocketCPA uses these sources

Every lesson is written in original words and cites the paragraph each rule comes from. No standard's text is reproduced. How lessons and questions are written and checked is set out in our methodology.