Limitation on Itemized Deductions (Pease)
The Limitation on Itemized Deductions (known as Pease after Donald Pease, the Ohio congressman who helped create it) reduces most itemized deductions by 3 percent of the amount by which AGI exceeds a specified threshold, up to a maximum reduction of 80 percent of itemized deductions. The 2001 tax act phased down the limitation and then eliminated it entirely for 2010. The 2010 tax act extended the repeal of Pease through 2012. The American Taxpayer Relief Act of 2012 (ATRA) allowed Pease to resume as scheduled but raised thresholds above those set under previous law.
- The 2001 tax act reduced Pease by 1/3 in 2006 and 2007 and by 2/3 in 2008 and 2009 before repealing it entirely for 2010. Subsequent legislation extended the repeal through 2012, after which the limitation returns.
- 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).
- Because itemized deductions tend to increase with income, disallowed deductions are almost always less than 80 percent of total deductions. Pease is effectively just an income tax surcharge, equal to 3 percent of the taxpayer’s marginal tax rate.
- Pease does not apply under the AMT.
- Thresholds for Pease vary by filing status:
Single filers $250,000
Heads of household $275,000
Married couples filing jointly $300,000
Married couples filing separately $150,000
Single filer with no dependents and AGI = $300,000: AGI exceeds the phaseout threshold by $50,000 (= $300,000 - $250,000); 3 percent of $50,000 is $1,500. Itemized deductions may be reduced by $1,500, up to a maximum of 80% of itemized deductions.
Married couple with two children and AGI = $375,000: AGI exceeds the phaseout threshold by $75,000 (= $375,000 - $300,000); 3 percent of $75,000 is $2,250. Itemized deductions may be reduced by $2,250, up to a maximum of 80% of itemized deductions.
Individual Income Tax Parameters (Including Brackets), 1945-2012 (Click on the PDF or Excel links for historical data on the phaseout of itemized deductions from 1991-2009)