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Return to Itemized Deduction Limits
Through 2009, higher-income farmers frequently saw their itemized deductions reduced because their income was high enough to trigger a limitation formula. This meant a higher tax bill for the year. After a three-year hiatus, ATRA brings this limit on itemized deductions back into effect for higher-income farmers for 2013 and subsequent years. The limitation affects farmers with adjusted gross income (AGI) over a threshold amount ($250,000 for farmers filing single or $300,000 for farmers filing jointly).
Generally, farmers affected by this rule will have their itemized deductions reduced by 3% of the amount by which AGI exceeds the threshold amount. The reduction is subject to a "cap" that is part of the formula, which is triggered if the farmer's income is high enough.
Example: Lisa is a single farmer with 2013 net Schedule F income in the amount of $600,000, which is also the amount of her AGI. She also has $33,000 of allowable itemized deductions, comprised of her charitable contributions, mortgage interest and $3,000 of medical expenses. Because her income is over the $250,000 threshold for single filers, she will have reduced tax benefit from her itemized deductions.
Lisa's $600,000 AGI exceeds her $250,000 threshold amount by $350,000. Lisa's itemized deductions will be reduced by $10,500 (3% × $350,000). Her total itemized deductions for 2013 will be $33,000 - $10,500 = $22,500. This means that for 2013, Lisa will only be able to claim $22,500 of the $33,000 in itemized deductions that would otherwise be allowable.
Note: The $250,000 and $300,000 single filer and joint filer AGI threshold amounts are subject to annual inflation increases for 2014 and subsequent years.