Threshold for 3% Deduction Reduction

Taxpayers who declare adjusted gross income in excess of a certain threshold must reduce their itemized deductions by 3% of that excess. Itemized deductions include state and local taxes, mortgage interest, and other itemized deductions, as well as charitable deductions. The reduction is limited to no more than 80% of the taxpayer's total itemized deductions.

Example: The threshold taxable income in 2013 is $300,000 when married filing jointly. If a taxpayer declared $400,000 of taxable income in 2013, his excess income is $400,000 - $300,000 = $100,000. 3% of $100,000 is $3,000. If the taxpayer declared $50,000 in itemized deductions, he would be able to deduct only $50,000 - $3,000 = $47,000.

3% Deduction Reduction Threshold Amounts

 

Year

Married filing jointly and surviving spouses

Married filing separately

Head of household filers

Single filers

1997

$121,200

$60,600

$121,200

$121,200

1998

$124,500

$62,250

$124,500

$124,500

1999

$126,600

$63,300

$126,600

$126,600

2000

$128,950

$64,475

$128,950

$128,950

2001

$132,950

$66,475

$132,950

$132,950

2002

$137,300

$68,650

$137,300

$137,300

2003

$139,500

$69,750

$139,500

$139,500

2004

$142,700

$71,350

$142,700

$142,700

2005

$145,950

$72,975

$145,950

$145,950

2006

$150,500

$75,250

$150,500

$150,500

2007

$156,400

$78,200

$156,400

$156,400

2008

$159,950

$79,975

$159,950

$159,950

2009

$166,800

$83,400

$166,800

$166,800

2010

n/a

n/a

n/a

n/a

2011

n/a

n/a

n/a

n/a

2012

n/a

n/a

n/a

n/a

2013

$300,000

$150,000

$275,000

$250,000

Source: Revenue Procedures 2008-66, 2007-66, 2006-53, 2005-70, 2004-71, 2003-85, 2002-70, 2001-59, 2001-13, 99-42, 98-61, 97-57, 96-59, ATRA 2012.

Phaseout of the 3% Deduction Reduction under the 2001 Tax Act

The Economic Growth and Tax Relief Reconciliation Act of 2001 contained a provision that phased out the 3% deduction reduction as described below.

The amount of the deduction reduction computed in the usual way was reduced by 1/3 in taxable years beginning in 2006 and 2007, by 2/3s in taxable years beginning in 2008 and 2009, and was eliminated in taxable years beginning in 2010. If the deduction reduction was computed to be $9,000 in 2006, for example, the actual reduction was $9,000 – (1/3 x $9,000) = $6,000. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended elimination of the deduction reduction through 2012. The American Taxpayer Relief Act of 2012 revived the phaseout for 2013 and beyond.

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