OBBBA: Itemized Deductions & the New Charitable Floor: More Complexity. Fewer Write-Offs. What You Need to Know.
Big Changes Coming to Itemized Deductions (Starting 2026)
Even if you itemize, your deductions might not go as far. Here’s what’s new:
1. Charitable Giving Floor
Beginning in 2026, you’ll only be able to deduct charitable contributions that exceed 0.5% of your AGI. That means:
• A $500,000 AGI household must give more than $2,500 to start receiving a deduction.
• A $200,000 AGI taxpayer needs to give over $1,000.
📌 Deadline: Complete charitable gifts by December 31, 2025 to avoid the floor.
🚨 Key Detail: For maximum efficiency, consider “bunching” gifts into 2025 — especially if your annual giving typically falls below the new threshold.
2. New SALT Rules (More detail below)
The state and local tax (SALT) deduction limit increases — temporarily — but phases down to the current $10,000 limit for high earners.
3. High-Income Surtax on Deductions
Taxpayers in the 37% bracket will see their deductions reduced — effectively turning that 37% benefit into a 35% one.
4. Miscellaneous Deductions? Gone but an Old Deduction Recategorized.
OBBBA made permanent the temporary suspension on the many miscellaneous deductions allowed prior to the Tax Cuts and Jobs Act of 2017. How do you deduct a miscellaneous deduction when they can’t be deducted? You change its name! Beginning in 2026, educator expenses are no longer considered miscellaneous, so not only can they be deducted, but they are no longer limited to $300 for single filers or $600 for joint filers. The catch is that benefit to the taxpayer is lost if they do not itemize.
🚨Takeaway: 2025 is the last year to make deductible charitable gifts without meeting a floor. For many high-income taxpayers, 2026 may deliver a smaller tax benefit for deductions.
The SALT deduction deserves a deeper discussion, and, as promised, here it is. Below we’ll outline where the new cap landed, how it phases out at high income levels, and what it means for high-tax-state residents.
Consider it a Temporary Win for Taxpayers in High-Tax States with Lots of Fine Print.
For years, the $10,000 SALT deduction cap has been a thorn in the side of taxpayers in high-tax states. OBBBA finally offers some relief… but with caveats.
Here’s what’s changing:
SALT Deduction Limit Raised to $40,000 (in 2025)
Starting in 2025, the cap on state and local tax (SALT) deductions jumps from $10,000 to $40,000 — the same for all filing statuses (except married filing separately, which is $20,000). Even better: the cap increases by 1% per year through 2029. But…
⚠️ …It Phases Out for High Incomes
If your Modified AGI exceeds $500,000 (single) or $1 million (joint), your allowable SALT deduction gets clawed back — quickly.
For example:
Every extra $1 of income above the threshold reduces your deduction by 30 cents. That creates effective marginal tax rates over 45% in some cases.
This means:
• Taking more income could push you into a higher tax bracket and reduce your deduction.
• On the flip side, reducing AGI through charitable giving, pre-tax retirement contributions, or deferring income can magnify your SALT deduction.
📌 Deadline: SALT cap increases take effect on January 1, 2025, but your AGI for the full calendar year determines whether you're in the phaseout zone.
🚨 Key Detail: If you’re near or above the $500K/$1M income thresholds, start planning early to shift income, increase deductions, or consider entity-level PTET (pass through entity tax) elections where applicable.
Business Owners: PTET Still Alive
Good news for pass-through business owners: the state-level workaround (PTET) that lets you pay state taxes at the entity level — and fully deduct them — is still in play. The Senate dropped earlier efforts to eliminate it.
Coming Up Next: We’ll look at how mortgage interest, charitable giving, and other itemized deductions are shifting — and what’s still deductible (and what’s not).
