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OBBBA Impact on Itemized Deductions

How Does OBBBA Impact My Itemized Deductions; What Steps Should I Take?

With the signing of the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, itemized deductions saw some important shifts: some changes, some extensions, and a few new rules that could affect whether it still makes sense to itemize at all.

If you’ve traditionally itemized deductions to reduce your taxable income or are thinking of itemizing based on information you’ve seen, this article is for you. We’ll walk through the major updates, including the expanded standard deduction, changes to charitable giving, new deduction options like vehicle loan interest, and how to decide your best course of action heading into tax year 2025 and beyond.

First, a Quick Reminder: Standard vs. Itemized Deductions

Taxpayers either take the standard deduction or itemize (not both). The standard deduction is a flat reduction in your taxable income. Due to OBBBA, this amount was increased starting in 2025 to:

  • $15,750 for single filers
  • $31,500 for married couples filing jointly
  • $23,625 for heads of household

These amounts are higher than what was originally projected under pre-OBBBA law and will continue to be adjusted annually for inflation. For many taxpayers, they will continue to take this deduction without change. But if your eligible expenses (like mortgage interest, state taxes, or charitable donations) add up to more than the standard deduction, you may benefit by itemizing.

What is AGI?

Adjusted Gross Income (AGI) is your gross income minus certain adjustments (like retirement contributions or student loan interest). It’s the baseline number used to determine eligibility for many deductions and credits, which is important to know if you do itemize.

Key Updates to Itemized Deductions Under OBBBA

1. SALT Deduction Cap Temporarily Increased

The SALT deduction refers to your ability to deduct state and local taxes—such as income tax, property tax, and sales tax—on your federal tax return. This deduction had been capped at $10,000 under the Tax Cuts and Jobs Act (TCJA), which especially impacted taxpayers in high-tax states like New York, California, or New Jersey.

What’s new under OBBBA?

  • The cap jumps to $40,000 in 2025.
  • It increases by 1% annually through 2029.
  • In 2030, the cap drops back down to $10,000.
  • If your modified AGI exceeds $500,000, your deduction gets phased out- the threshold also increases 1% per year.

Takeaway:
If you live in a high-tax state and your income is in the MAGI threshold range of $500,000 – $600,000, this temporary increase may make itemizing worth it again if you pay a considerable amount in state and local taxes, especially if you previously stopped because of the $10k cap.

2. New Floor on Charitable Contributions Starting in 2026

For non-itemizers, there will be a new above-the-line charitable deduction available: $1,000 per individual, or $2,000 for married couples filing jointly. Please note that this is only available for cash donations, not goods.

For itemizers, historically, charitable donations were fully deductible (within AGI-based limits). But under OBBBA, starting in 2026, only the portion of your charitable contributions that exceeds 0.5% of your AGI will be deductible. This new threshold does not apply to Qualified Charitable Distributions (QCDs) made directly from retirement accounts, so retirees using their Required Minimum Distributions (RMDs) for giving can continue without change.

Takeaway:
Consider “bunching” your charitable donations into 2025 before the floor takes effect. One popular tool is a donor-advised fund (DAF), a charitable investment account where you make a lump-sum donation in a high-income year (like 2025), take the full deduction that year, and distribute the funds to charities over time. If you’re a regular donor, 2025 is your last chance to fully deduct every dollar of giving without a floor, so front-loading gifts into a DAF to preserve deductibility might be a good option.

3. Mortgage Interest and PMI Deductions Extended

OBBBA makes permanent the TCJA rule that limits the mortgage interest deduction to $750,000 of acquisition debt (for mortgages originated after Dec. 15, 2017). But it also reinstates the PMI deduction:

  • Mortgage insurance premiums (PMI) are now permanently deductible as qualified residence interest.

Takeaway:
If you bought a home with a down payment under 20% and are paying PMI, this is now a deductible expense you should factor into your itemized deduction planning.

4. New Deduction for Vehicle Loan Interest (2025–2028)

For the first time, interest on personal-use car loans is deductible under certain conditions. This deduction is not an itemized deduction, and therefore can be taken above the line whether you itemize or not. We include it with the schedule A itemized deductions.

What qualifies?

  • The vehicle must be used for personal purposes (not business or commercial use).
  • The loan must be originated or refinanced after Dec. 31, 2024 and be secured by a first lien on the vehicle.
  • The deduction is capped at $10,000 in interest per year.
  • Phaseouts begin at $100,000 MAGI (single) or $200,000 (joint).

Takeaway:
This is an above-the-line deduction, so you don’t need to itemize to claim it, but it’s still relevant to your broader deduction strategy. If you’re planning to buy or refinance a car, time it for 2025 to lock in eligibility.

5. New Limits on Total Itemized Deductions for High Earners (a.k.a. “Pease-Like” Rule)

A version of the old Pease limitation is back. Beginning in 2026, itemized deductions will be reduced for high-income taxpayers.

Here’s how it works:
If your AGI exceeds the 37% tax bracket threshold (around $609,350 single / $731,200 joint in 2024 terms), your itemized deductions are reduced by 2/37 of the lesser of:

  • Your total itemized deductions, or
  • The amount by which your AGI exceeds that income threshold

This limitation effectively increases your tax bill by reducing the value of your deductions.

Takeaway:
If you’re a high-income filer who relies on itemizing, plan for reduced deduction impact beginning in 2026.

6. Miscellaneous Itemized Deductions Are Permanently Gone

The OBBBA also makes permanent the TCJA-era suspension of deductions for miscellaneous itemizations like unreimbursed employee expenses, investment advisory fees, tax prep fees, and safe deposit box costs and more.

Should I Still Itemize under OBBBA?

That depends. With the higher standard deduction now made permanent and new floors or caps on several key categories, fewer taxpayers may benefit from itemizing each year. Alternatively, with the higher SALT deduction cap and the new deduction for mortgage insurance premiums, you may reconsider now more than ever. If you have a flow through business that you have previously paid pass through entity (PTE) tax, consider if it is more advantageous to continue paying PTE tax or to itemize on Schedule A instead. In general, with OBBBA’s changes, it is worth itemizing it if your total deductible expenses exceed the standard deduction, especially in years when:

  • You make large charitable donations
  • You pay significant mortgage interest and PMI
  • You live in a high-tax state and qualify for the expanded SALT deduction
  • You bunch deductions in alternating years for better effect

Conclusion

It is key that you begin tax planning now, so that you can map your deductions for 2025 and 2026. If you are a regular donor, consider front-loading donations or using a donor-advised fund before the 0.5% floor begins. At the end of the day, now is the time to talk to a tax expert.

Navigating phaseouts, floors, and sunset provisions is complex, and a professional can help you strategize year-by-year. Need more assistance? Please connect with us online, or reach out to us directly at 1-770-495-9077 or email us at [email protected].

The above article only intends to provide general financial information and is based on open-source facts, it is not designed to provide specific advice or recommendations for any individual. It does not give personalized tax, financial, or other business and professional advice. Before taking any form of action, you should consult a financial professional who understands your particular situation. CKH Group will not be held liable for any harm/errors/claims arising from the articles. Whilst every effort has been taken to ensure the accuracy of the contents, we will not be held accountable for any changes that are beyond our control.

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