The Pease Limitation previously put a cap on how much wealthy individuals could claim for certain itemized deductions if their income was over a certain amount. The overall itemized deduction limit, or Pease Limitation, was suspended under the Tax Cuts and Jobs Act (TCJA). This change, along with the other itemized deduction changes, will make large adjustments for taxpayers’ deductibility of itemized deductions.
Previous Law
Under the previous law, the total amount of otherwise allowable itemized deductions was limited for certain high-income taxpayers. The limitation applied to all itemized deductions except medical expenses, investment interest, casualty, theft or wagering losses, and certain qualified charitable contributions. The allowable itemized deductions were reduced by 3% of the amount that the AGI was over the threshold amount, but couldn’t reduce it by more than 80%.
New Law
Under the new tax law, this complicated calculation is suspended, and no additional calculation will limit the itemized deduction. Several other itemized deductions were affected in the TCJA that reduce the itemized deduction, so the additional reduction is not necessary.
Impact on Individuals
With all of the changes to itemized deductions, it is likely that more people will qualify under the standard deduction instead of itemizing, cutting down on some of the record keeping that is necessary throughout the years.
These changes will combine to affect each taxpayer’s specific situation. Contact an Anders advisor with questions on how the new tax law will affect you.
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