This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Run the Numbers on Itemized Deductions

Itemized deductions seem to be a simple enough concept. The government decides which personal expenditures of taxpayers deserve a tax break, with the taxpayers' benefit, in theory, based on their tax rate. Unfortunately, as with most rules in our tax code, it is a bit more convoluted. Two reasons it is not so simple are the Alternative Minimum Tax and the itemized deduction phase-out.

The dreaded Alternative Minimum Tax affects more people every year, because it was never indexed for inflation. High-income people living in states with high property and state income taxes bear the brunt. Effectively, a portion of their itemized deduction is eliminated because state income taxes and property taxes are AMT-preference items.

Imagine a married couple with two kids living in New Jersey making $750,000 a year. They have gross itemized deductions of $101,984, including their state income tax liability of $49,784 and $20,000 of residential property taxes. The couple would have an AMT tax liability of $7,496 solely because of these two preference items. Since the couple is in the 28% marginal bracket, the AMT has effectively wiped out 38% of their state income and property tax benefit. The math works as follows:

A tax benefit of $69,784 times 28% equals $19,539. That AMT tax liability of $7,496 accounts for 38% of it, leaving a net benefit of $12,043, or 62%.

The itemized deduction phase-out for high-income earners is eliminated for this year but set to return in 2011. The phase-out amount is 3% of AGI above a threshold amount of $166,800 (for married couples filing separately, $83,400). The phase-out is capped at 80% of the itemized deduction amount. For this year the hypothetical couple above would have no phase-out of their itemized deductions. But flash forward to next year and the couple, assuming the exact same itemized deductions, would have $17,400 of their itemized deductions phased out.

Current thinking is that high-income earners should push their itemized deductions when possible into next year because higher tax rates will make them more valuable. On the surface, it would appear someone in the 35% bracket headed into the 39.6% bracket would automatically be better off pushing itemized deductions to next year. But it's not necessarily better if you get a higher percentage of a smaller base!

When tax planning for itemized deductions, you really need to run the numbers to account for AMT and the phase-outs. Doing it on the back of an envelope just doesn't cut it.

>To submit a news tip, email:


Follow on Twitter and become a fan on Facebook.

Michael Maye is the founder and president of MJM Financial Advisors, a registered investment advisory firm in Berkeley Heights, N.J. He is a member of the National Association of Personal Financial Advisors (NAPFA) and has been a speaker covering tax topics at NAPFA's national and regional conferences. Maye has also been a frequent contributor to the Star Ledger of New Jersey's 'Biz Brain' and 'Get With the Plan' articles. In addition to NAPFA, he is a member of Financial Planning Association, American Institute of Certified Public Accountants, New Jersey State Society of CPAs and the Estate Planning Council of Northern New Jersey.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs