Most, but not all itemized deductions are subject to an overall reduction rule if AGI exceeds the annual threshold. Itemized deductions are reduced by 3% of the excess of AGI over the threshold. If AGI is extremely high, the 3% reduction applies until 80% of itemized deductions are eliminated.
The reduction in itemized deductions cannot exceed 80%, there cannot be a complete phaseout of itemized deductions; a minimum of 20% is protected from this dis-allowance.
Are You Subject to the Limit?
Annual Threshold. You are subject to the limit on certain itemized deductions if your adjusted gross income (AGI) is more than $300,000 if married filing jointly or qualifying widow(er), $275,000 if head of household, $250,000 if single, or $150,000 if married filing separately. Your AGI is the amount on Form 1040, line 38.
Which Itemized Deductions Are Limited?
The following Schedule A (Form 1040) deductions are subject to the overall limit on itemized deductions.
Taxes paid—line 9
Interest paid—lines 10, 11, 12, and 13
Gifts to charity—line 19
Job expenses and certain miscellaneous deductions—line 27
Other miscellaneous deductions—line 28, excluding gambling and casualty or theft losses.
Which Itemized Deductions Are Not Limited?
The following Schedule A (Form 1040) deductions are not subject to the overall limit on itemized deductions. However, they are still subject to other applicable limits.
Medical and dental expenses—line 4.
Investment interest expense—line 14.
Casualty and theft losses of personal use property—line 20.
Casualty and theft losses of income-producing property—line 28.
Gambling losses—line 28.