For high income earners, are early withdrawal penalties on cds considered tax preference items for taxes? My ewps this year are getting close to the standard deduction amount. I have no other deductions that qualify and there are still more cds I could break so this question is relevant to cd decisions. Thank you;
Answers
The EWPs are shown on your 1099-INT, either on line 2 or as a reduction on the income reported on line 1. (The only place I've seen it done as a reduction in income on line 1 has been with PenFed. All of the other CUs I've done EWPs with list the EWP on line 2.) So when you do your taxes, the EWPs are reported when you're entering your income, not in the next section when you are reporting your deductions.
A check of Form 6251 for 2022 reveals no line 2 letter entry for EWP add backs. And goodness knows there are a great many other ones, all the way from "a" to "t"! So that appears to leave the line 3 catch all as the only possible place you could enter an EWP add back.
Absent specific mention anywhere, I don't think EWPs are a preference item. Best bet would be to try it on that basis. If the IRS takes exception, worst thing likely to happen is you will receive a letter requesting more money.
There is always the possibility of an IRS letter ruling concerning this matter and I didn't probe that deeply. But letter rulings are often so obscure that many IRS agents remain unaware of such outcomes, to the benefit of taxpayers. On that one I speak from personal experience.
https://www.irs.gov/pub/irs-pdf/f6251.pdf
https://www.irs.gov/instructions/i6251