One of the tax changes that increased the tax liabilities of high-income taxpayers in 2013 was the reintroduction of the limitation on itemized deductions. This limitation is commonly referred to as the “Pease limitation,” and is named after Donald Pease, the Ohio Congressmen who introduced it. Although the Pease limitation was initially introduced in 1990, subsequent tax acts had gradually phased out the Pease limitation and by 2010, it had been completely repealed. When it was restored in 2013, the Pease limitation generally had the effect of a 1% income tax surcharge to the tax liabilities of those taxpayers who were affected by it.
For 2014, the Pease limitation applies when AGI exceeds $305,040 for joint filers and $254,200 for individuals. Income over these threshold amounts will trigger a limitation on most itemized deductions (including charitable contributions, mortgage interest, state and local income taxes, real estate taxes, and miscellaneous itemized deductions). The limitation generally is equal to 3% of AGI above the applicable amount; however, the limitation can never exceed 80% of the amount of the itemized deductions otherwise allowable for the taxable year.Read More