8528 / Are the itemized deductions of high-income taxpayers subject to phase-out?
Editor's Note: The Pease limitation on itemized deductions that applied to certain high-income taxpayers was suspended for tax years beginning after December 31, 2017 and before January 1, 2026 under the 2017 TCJA.The 2025 OBBB permanently repealed the pre-existing Pease limitation..1
For tax years beginning after 2025, the OBBB created a new limit that reduces itemized deductions (including the SALT deduction) by 2/37 of the lesser of the taxpayer's (1) total itemized deductions or (2) amount of taxable income exceeding the 37% rate bracket.The new limit does not apply when calculating the Section 199A QBI deduction, which was also made permanent under the OBBB.
Planning Point: Note that while Pease limitation did not apply to the medical expense deduction, the OBBB did not create an exemption for the medical expense deduction.
Pre-2018 Pease Limitation
For tax years beginning before 2018, the aggregate of most itemized deductions is reduced dollar-for-dollar by the lesser of (1) 3 percent of the individual's adjusted gross income that exceeds $261,500 for a single filer in 2017 ($313,800 in the case of a married taxpayer filing jointly, $287,650 for heads of household, and $156,900 for married taxpayers filing separately) or (2) 80 percent of the amount of such itemized deductions otherwise allowable for the taxable year.2 The threshold income levels for determining the phaseout are adjusted annually for inflation.3
The phase-out of the value of itemized deductions is not applicable to medical expenses deductible under IRC Section 213, investment interest deductible under IRC Section 163(d), or certain casualty loss deductions.4 The limitation also is not applicable to estates and trusts.5 For purposes of certain other calculations, such as the limits on deduction of charitable contributions or the 2 percent floor on miscellaneous itemized deductions (prior to 2018), the limitations on each separate category of deductions was applied before the overall ceiling on itemized deductions was applied.6 The deduction limitation was not taken into account in the calculation of the alternative minimum tax.7
1. IRC § 68(f).
2. Rev. Proc. 2016-55.
3. IRC § 68(b); as amended by ATRA, § 101(2)(b); Rev. Proc. 2017-58.
4. IRC § 68(c).
5. IRC § 68(e).
6. IRC § 68(d).
7. IRC § 56(b)(1)(F).