Q. Many of my clients were subject in the past to a reduction in their itemized deductions because of IRS rules and income thresholds. I heard this IRS rule changed. What is the 2012 rule on reducing itemized deductions, and how might it impact my clients' annual charitable giving?
A. The overall limitation, or "phase-out", rule on itemized deductions did in fact change. While the 2009 phase-out rate was 1%, there is no phase-out at all in 2010, 2011, or 2012.
As you may know, the phase-out rule was a "haircut" for taxpayers earning more than a certain income threshold (which was indexed for inflation and therefore varied by year). The phase-out on itemized deductions was a way for the IRS to raise taxes, and it impacted high earners.
There will be no "haircut" or reduction on the amount of the itemized deductions you can take for 2010, 2011, or 2012 charitable contributions up to your Adjusted Gross Income (AGI) limit (50% for cash donations; 30% for securities – assuming the charitable contributions are made to public charities). However, unless Congress takes some action, the phase-out will come back beginning on January 1, 2013.