As of January 1, 2013, married taxpayers with income above $300,000 and single taxpayers with income above $250,000 will see their itemized deductions reduced. Itemized deductions are the common deductions taxpayers take for items such as mortgage interest, property taxes, state and local taxes, and charitable deductions. The thresholds will increase each year by inflation.
The reduction is the lesser of a) 3% of the itemized deductions that exceed the threshold above, or b) 80% of the itemized deductions. For example, if a married couple had income of $500,000 and itemized deductions of $50,000, the reduction would be $6,000, so they could deduct only $44,000 of their itemized deductions. The calculation is below:
a) 3% above the threshold – ($500,000 – $300,000) = $200,000 * 3% = $6,000
b) 80% of the itemized deductions – $50,000 * 80% = $40,000
So the lesser of the two is $6,000, hence that is the reduction in the itemized deductions.
Of course, seek advice from your tax consultant or CPA regarding your particular situation.