"I am doing some tax planning for 2013 and expect significant capital gains. Can you advise how the limitation of itemized deductions will be calculated for 2013 returns?"

Kathleen Pender, Chronicle Columnist for SF Gate answers this tax question:  A: The "fiscal cliff" legislation resurrected the Pease limitation, which reduces most itemized deductions by 3 percent for every dollar your adjusted gross income exceeds $250,000 (single) or $300,000 (married filing jointly). However, the limitation won't reduce these deductions by more than 80 percent. Capital gains are included in adjusted gross income, so a big windfall could push you into Pease territory. Suppose you are married and your adjusted gross income is $400,000. Multiply $100,000 by 3 percent and you will lose $3,000 worth of these deductions. (Few people will hit the 80 percent limit.) The limitation applies to mortgage interest, charitable contributions, state and local taxes, income and property taxes, and miscellaneous itemized deductions. It does not apply to deductions for medical and dental expenses, investment interest and casualty, theft, or gambling losses - which are less common.  Pease adds roughly 1 percent to the top three marginal tax rates, says Michael Kitces, a partner with Pinnacle Advisory Group. If you are subject to the alternative minimum tax, it's a little more complicated. You first figure your taxes the regular way, including the Pease limitation if applicable. Then you figure out your taxes under the AMT. Although there is no Pease limitation in the AMT calculation, the AMT itself disallows 100 percent of certain itemized deductions - including state and local income taxes, and property taxes.  You then pay whichever tax is higher. For people who are deep into the AMT, Pease usually won't have an impact because their AMT will still be higher than their regular tax, says Mark Luscombe, a principal tax analyst with CCH. People who are barely into the AMT may find that the return of Pease puts them back into the regular tax system, resulting in a tax increase.  In California, Pease is almost irrelevant because most people who earn enough to be affected by it are in the AMT, Kitces says. One exception: At very high income levels, many people are subject to regular tax, and would be hit by Pease. In 2010, roughly 85 percent of California tax returns with adjusted gross income between $200,000 and $1 million paid AMT, but only 40 percent of those with incomes over $1 million did. The fiscal cliff legislation brings back another stealth tax starting in 2013. The personal exemption phaseout will reduce the deduction you get for each person on your tax return by 2 percent for every $2,500 (or fraction thereof) in adjusted gross income that exceeds $250,000 (single) or $300,000 (married).  The exemption amount for 2013 is $3,900 per person. If your adjusted gross income exceeds those thresholds by more than $122,501, your exemptions are completely eliminated.