Mortgage Interest

Wealthy people should note that the $400,000 and $450,000 income thresholds for top rates on wages and gains apply to taxable income, not adjusted gross income, Zander said. Some top earners above those levels will have some benefit from deductions such as those for mortgage interest paid or charitable contributions that will drop their taxable income below the cutoffs, he said.

A married couple with two children earning $700,000 in wages with $10,000 in qualified dividends and $20,000 in long- term capital gains would save $7,000 in federal taxes owed rather than what they would have paid if the higher rates started at $250,000, according to an analysis by Tony Nitti, a partner at WithumSmith & Brown in Aspen, Colorado, who provides tax consulting for high net-worth people.

The calculation assumes the family had itemized deductions of $55,000 including charitable contributions, mortgage interest, real estate and state taxes paid.

“It’s a victory for high-income taxpayers but not as much of a victory for as many high-income taxpayers as people may think,” Nitti said.

‘Sweet Spot’

That’s because taxpayers in the “sweet spot” of $250,000 to $450,000 in annual income may not see tax savings even with the higher income thresholds for rate increases, Nitti said. If they live with children in high-tax states such as New York or California, they probably are subject to the alternative minimum tax, or AMT, which means their tax liability under that system largely won’t change.

One example is a married taxpayer with two children living in California with annual income of $450,000 from wages, $20,000 in capital gains, $10,000 in dividends and $55,000 in deductions. The family would have owed about $123,000 in federal taxes if the tax cuts had expired for couples earning more than $250,000, Nitti said. Still, the family’s tax bill is the same with the threshold set at $450,000 because of AMT liability, Nitti said.

The AMT is a parallel tax system that requires people to calculate their taxes twice -- once under the regular system and once under the AMT, which takes back some tax breaks. Taxpayers must pay whichever is higher, meaning that reductions in ordinary tax rates often don’t benefit AMT payers.

Payroll Tax