04 Oct Itemized Deductions – Schedule A
There was a phase out of deductions that existed prior to 2011 and has been reinstated for 2013. There was not a phase out for higher income earners during 2011 or 2012. For 2013, those earners in excess of $250,000 single and $300,000 married will be subject to the “Pease Limitations”, which reduces the amount of itemized deductions allowed. The reduction can be significant and is calculated by first taking the “lesser” of (a) 3% of the amount above income limits, or (b) 80% of allowable deductions. Then, whatever formula results in the lowest number, that amount would be used to reduce the total itemized deductions.
Allowing State Income Tax to be an itemized deduction now extends into 2013, which is beneficial for those employees in high income earning areas such as the bay area. The Pease Limitation applies to this deduction and it’s included in phase outs.
Medical Expenses now need to exceed 10% of a taxpayer’s adjusted gross income to be deductible, up from 7.5%. However, the Pease Limitations do not apply to medical expenses, and any deduction will not be decreased in a phase out.
***All income limits listed are MAGI (modified adjusted gross income)