Itemized Deductions – The Tax Deduction Of The Rich

The wealthy could see their tax burden go up by an average of $14,000 if lawmakers limit itemized deductions as part of a fiscal cliff deal.

Taxpayers with adjusted gross incomes of $250,000 or more deducted an average of nearly $91,000 in 2010, according to a CNNMoney analysis of Internal Revenue Service data. If Congress limits deductions to $50,000, folks in this income bracket would be hit harder than others.

Only about one-third of Americans itemize their deductions, and they are mostly the well off. In 2010, only 29.3% of those making between $30,000 and $50,000 itemized, but 96.8% of those making $250,000-plus did.

With many Republicans reluctant to raise tax rates, lawmakers are looking at other ways to raise revenues. An alternative is curbing the use of deductions, an approach that Mitt Romney championed on the presidential campaign trail.

State and local income taxes are the most popular deduction among wealthy itemizers. Nearly 96% of those in the top bracket took advantage of this deduction, lowering their income by an average of nearly $37,000. The tax break made up 40% of their total deductions, versus only 15.5% for the middle class — defined as those earning $50,000 to $100,000.

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