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High-Income Taxpayers

Jan 01, 2023

In addition to being subject to higher federal tax rates, taxpayers whose income exceeds certain levels have tax deductions and credits that are reduced or eliminated.

The provisions listed may have additional qualifications and restrictions. Other provisions of the tax code, such as fringe benefit limitations and taxation on the sale of a principal residence, may further restrict a taxpayer’s ability to take deductions or cause the taxpayer to pay additional tax. Ask your tax professional for more details.

Capital Gain Tax Rates

Itemized Deductions and Personal Exemptions

Taxes paid. The itemized deduction for state and local taxes is limited to $10,000 ($5,000 MFS). Foreign real property taxes are not deductible.

Home mortgage interest. A taxpayer may treat no more than $750,000 as acquisition indebtedness ($375,000 MFS). A $1,000,000 ($500,000 MFS) limitation applies for any indebtedness incurred prior to December 15, 2017.

A deduction for home equity indebtedness (other than for acquisition or improvement) is not allowed.

Personal exemptions. The deduction for personal exemptions is suspended for tax years 2018 through 2025.

Individual Retirement Arrangements (IRAs)

Traditional IRA Phaseout Based on Modified AGI (MAGI)

If an individual is an active participant in an employer-sponsored retirement plan, the deduction for a traditional IRA contribution is phased out when MAGI is between the following.

If you are not an active participant, but your spouse is, your deduction is phased out when modified AGI is between the following.

Child Tax Credit

$2,000 credit (under age 17), reduced by $50 for each $1,000 of modified AGI above $400,000 Married Filing Jointly ($200,000 all other filing statuses).

Credit for Other Dependents

A nonrefundable credit of up to $500 is allowed for dependents other than a qualifying child for the Child Tax Credit.

Adoption Expenses

Additional Medicare Tax

Medicare Tax on Earned Income

The employee portion of the hospital insurance (Medicare) tax is increased by an additional tax of 0.9% on wages received in excess of the threshold amount. However, unlike the general 1.45% hospital insurance (Medicare) tax on wages, this additional tax is on the combined wages of the employee and the employee’s spouse, in the case of a joint return.

Medicare Tax on Unearned Income

The Net Investment Income tax is 3.8% on the lesser of net investment income or the excess of modified adjusted gross income over the threshold amount.

Education Benefits

Qualified Business Income

Threshold amounts for qualified business income limitations are:

  • $364,200 Married Filing Jointly.
  • $182,100 Single, Head of Household, Qualifying Surviving Spouse.
  • $182,100 Married Filing Separately.

Excess Business Loss Limitation

For 2023, the threshold amount for determining an excess business loss is $289,000 ($578,000 MFJ).

Gift Exclusion

The annual gift exclusion for gifts to any person is $17,000.

Estate Tax Exclusion

The basic estate tax exclusion amount is $12,920,000.


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