What is a phase out rule?
When a taxpayer nears an income limit to qualify for a tax credit, there is a gradual reduction of that tax credit. This is known as a phase out. Higher income earners need to be aware that phase outs will come into play as they file their taxes this year.
It is noted that “The last time we saw a phase-out rule for itemized deductions was back in 2009. Unfortunately, this phase-out provision has also been resurrected for 2013 and beyond.
As a result, you can potentially lose up to 80% of your 2013 write-offs for home mortgage interest, state and local income and property taxes, charitable contributions, and miscellaneous itemized deduction items (such as investment expenses and fees for tax advice and preparation).
Phase-out starts as the following AGI thresholds: $250,000 for singles, $300,000 for married joint-filing couples, $275,000 for heads of households, and $150,000 for married individuals who file separate returns.
More specifically, the total amount of your affected itemized deductions is reduced by 3% of the amount by which your AGI exceeds the threshold. However, the reduction cannot exceed 80% of the total affected deductions that you started off with.”