How the One Big Beautiful Bill Act Reshapes Itemized Deductions
Published on by Travis Knight in Tax Services
The passing of the “One Big Beautiful Bill Act” (OBBBA) will have a significant impact on individuals, with some of the most important changes affecting itemized deductions. As tax policy continues to evolve, understanding the ripple effects on individual and business planning is critical. The provisions below reflect some of the most significant changes under the OBBBA that may shape tax strategies in the years ahead.
Standard deduction increase made permanent
The increase in the basic standard deduction, which was temporarily implemented under the Tax Cuts and Jobs Act (TCJA), is made permanent in the OBBBA. For 2025, the standard deduction for married filing jointly will be $31,500, heads of household will receive $23,625, and single filers and married filing separately will see $15,750. The TCJA’s temporary increase for tax years 2018 though 2025 was set to expire and revert to much lower amounts in 2026 before the OBBBA was passed. The additional standard deductions for those who are blind or age 65 or older remain unchanged.
State and local tax (SALT) deduction cap increased
The itemized deduction limit for state and local taxes (including real estate taxes) rises to $40,000 for married and individual filers ($20,000 for married filing separately) beginning in 2025, with scheduled 1% annual increases for inflation through 2029. In 2030, the cap reverts to the $10,000 ($5,000 MFS) limits established by the TCJA. The new $40,000 cap begins phasing out for high-income taxpayers with modified adjusted gross income over $500,000, until the deduction is reduced to the previous $10,000 limit.
Permanent suspension of miscellaneous deductions
The suspension of miscellaneous itemized deductions under the TCJA is made permanent by the OBBBA. Prior to 2018, taxpayers who itemized could take deductions for investment expenses, tax preparation fees, and certain employee expenses that exceeded 2% of their adjusted gross income. These deductions were set to return in 2026 until the OBBBA was passed.
Educator expenses are the only miscellaneous itemized deduction that remains, though with some modifications. For 2025, the above-the-line deduction of up to $300 for unreimbursed educator expenses remains in place under the TCJA. Beginning in 2026, the deduction becomes an itemized deduction on Schedule A, and the $300 cap is removed. However, filers using the standard deduction will lose eligibility for the deduction starting in 2026.
New limitation on itemized deductions
A new formula reduces itemized deductions by 2/37 of the lesser of the deductions or taxable income (before this limitation and increased by itemized deductions) that exceeds the 37% bracket. This effectively caps the benefit of itemized deductions at 35% for taxpayers in the highest bracket starting in 2026. The calculation excludes the qualified business income (QBI) deduction under Sec. 199A, potentially giving some relief from the limitation to pass-through business owners in the highest tax bracket. This new limitation permanently replaces the “Pease limitation” on itemized deductions, which was set to return in 2026 after being suspended by the TCJA.
Changes to charitable deductions
Beginning in 2026, the OBBBA creates a permanent below-the-line deduction from AGI for cash charitable contributions of up to $1,000 for an individual or $2,000 for a married filing jointly return. This allows non-itemizers to deduct their charitable contributions in addition to the standard deduction, similar to the provisions in the CARES Act that applied in 2021. This below-the-line deduction excludes contributions to donor-advised funds.
For those who itemize, a 0.5% floor on itemized charitable deductions will apply beginning in 2026. Only charitable contributions exceeding 0.5% of AGI are deductible. Amounts disallowed by the floor may carry forward only if the 0.5% limitation is exceeded. If total contributions are below the floor, no amounts will carry forward, and the deduction is permanently disallowed. The floor provision does apply to individuals taking the standard deduction.
An additional tax credit has been created for gifts to scholarship-granting organizations (SGOs) of up to $1,700 beginning in tax year 2026. This is similar to state credits in Indiana, Ohio, and several other states. The federal credit is reduced for any state credit received, and any amount taken as a credit on the federal or state return will be excluded from the charitable contribution deduction.
What to do next
Wondering how the OBBBA’s changes to deductions could affect your 2025-2026 tax strategy? Contact us today for a free consultation with one of our experienced tax advisors. You can also learn more about what the OBBBA means for individuals and businesses here. As always, we’re here to help.
