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 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 $258,250
Heads of household $284,050
Married couples filing jointly $309,900
Married couples filing separately $154,950
Single filer with no dependents and AGI = $300,000: AGI exceeds the phaseout threshold by $41,750 (= $300,000 - $258,250); 3 percent of $41,750 is $1,253. Itemized deductions may be reduced by $1,253, up to a maximum of 80% of itemized deductions.
Married couple with two children and AGI = $375,000: AGI exceeds the phaseout threshold by $65,100 (= $375,000 - $309,900); 3 percent of $65,100 is $1,953. Itemized deductions may be reduced by $1,953, 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 1991-2012)