ATRA phaseout taxes

The American Taxpayers Relief Act (ATRA) imposes phaseouts of itemized deductions (known as Pease limitations) and for personal exemption phaseouts (known as PEP) for taxpayers whose adjusted gross incomes surpass threshold levels. The threshold levels are the same for both phaseouts. The thresholds took effect in 2013 and will be adjusted for future inflation.

Pease limitations on itemized deductions
The Pease limitation, revived by the ATRA, reduces the amount of a higher income taxpayer's itemized deductions by 3% of the amount by which the taxpayer's adjusted gross income exceeds an applicable threshold (see above table). The amount of itemized deductions reduced is limited to no more than 80%. Not all itemized deductions are subject to reduction. The following deductible expenses are excluded from the limitation:
 * Medical expenses
 * Investment interest
 * Casualty, theft, or wagering losses.

PEP limitations on personal exemption
The ATRA also revives the phaseout on personal exemptions. Under the law, the total exemptions that may be claimed by a taxpayer is reduced 2% for each $2,500 ($1,250 for married filing separate) by which the taxpayer's adjusted gross income exceeds an applicable threshold. The table below illustrates these reductions for each $2,500 increment above the threshold (see table above).