Schedule A Deductions Disappearing Northbrook IL

Lets Talk About......Schedule A Deductions Disappearing
By Alan Orlowsky

According to the Huffington Post, former White House press secretary Ari Fleischer said he would likely give less to charity in 2013 because of new limits on Schedule A itemized deductions.

In talking with a number of Tax professionals, there seems to be a lack of consensus about how much the new law will actually reduce charitable deductions and other itemized deductions like those for state income tax, real estate and mortgage interest.

This article outlines what the new law really means in this area.

If you want to see how the new law affects you, follow the link to use an interactive calculator. http://inknowvision.com/agi_limits/agi_limits.htm

What does the new law do?

The New law brings back the Pease Amendment which was canceled during the Bush Tax Cuts. The Pease Amendment reduced itemized deductions for high income earning taxpayers. The effect was to make tax rates higher for those taxpayers without actually changing or increasing the rates.

What itemized deductions are subject to being reduced?

Deductions for mortgage interest, state income tax, real estate tax, sales tax, personal property tax, points paid for a loan, mortgage insurance premiums, charitable gifts, job expenses, and tax preparation fees.

What deductions are not subject to being reduced?

The reduction does not apply to deductions for medical expenses, investment interest, casualty and theft losses, and gambling losses (which can only offset gambling winnings included in income).

Who does it affect?

1. Married Taxpayers filling jointly earning over $300,000 per year.
2. Married Taxpayers filling separately earning over $150,000 per year.
3. Single Taxpayers earning over $250,000 per year.
4. Single head of household Taxpayers earning over $275,000 per year.

How much is the reduction?

The reduction is equal to 3% of the amount over the threshold.

Can you provide an example?

Let's say you are a married filling jointly taxpayer earning combined adjusted gross income of $500,000. In addition, you have mortgage interest, charitable deductions and state income tax totaling $80,000. You would lose $6,000 of your itemized deductions and you would be able to deduct $74,000.

If you have questions about this post or about a particular legal situation, please contact Alan Orlowsky by calling 847-325-5559 or visit our website at http://www.orlowskywilson.com