Which statement accurately describes the Pease limitation of itemized deductions under the Tax Cuts and Jobs Act (TCJA)?

The correct statement regarding the Pease limitation under the Tax Cuts and Jobs Act (TCJA) is that the allowable amount of itemized deductions is reduced by 3% of adjusted gross income (AGI) above certain thresholds. This limitation applies specifically to high-income individuals, where their total itemized deductions are gradually reduced as their AGI exceeds the designated limits.

The thresholds for the Pease limitation are adjusted annually for inflation, and the reduction continues until a maximum limit is reached. This means that for every dollar of AGI over the threshold, the itemized deductions will be reduced by a percentage, effectively limiting the tax benefit that those high-income individuals can receive from their itemized deductions.

Understanding this rule is crucial for taxpayers and tax professionals alike, as it affects the overall tax liability for individuals with higher income, making effective tax planning and estimation necessary.