Unfortunately, at higher levels of income, your hard-won and carefully documented itemized deductions will be phased out, and you won't be able to deduct them in the current year -- or ever.

This is true of personal exemptions as well. However, while personal exemptions can be phased out completely if your income is high enough, the situation with itemized deductions is a little better -- they won't be reduced by more than 80 percent.

Tip Regardless of whether your itemized deductions are phased out, you always have the option of using the standard deduction for your filing status, which remains the same no matter how high your income rises.

The adjusted gross income (AGI) levels at which the phaseout of itemized deductions begins are adjusted annually for inflation. For 2006, they are:

• $150,500 for singles, heads of households, and married people filing jointly
• $75,250 for marrieds filing separately

If your AGI as shown on Line 37 of your tax return is higher than the applicable threshold, you have to subtract the threshold amount from your income. The remaining amount of AGI is multiplied by 3 percent. The answer you get is subtracted from the total amount of affected deductions, and you can only deduct the remainder. However, in no event will your deductions be reduced by more than 80 percent of their value.

• Not all deductions are subject to the phaseout.
• Our case study shows how the limit applies.
• We also provide some suggestions on minimizing the effect of the phaseout.