Maximizing Your Deductions: How OBBBA Changes Itemized Deductions in 2025

When filing taxes, individuals take either the standard deduction or itemized deduction. All taxpayers are eligible to use the standard deduction when filing their taxes. Whereas only certain taxpayers are eligible to itemize their deductions. The standard deduction for 2025 is $31,500 for taxpayers filing jointly with their spouse and $15,750 for single filers.

Most taxpayers use the standard deduction because it is higher than their total itemized deductions. However, changes introduced under OBBBA make it easier for more taxpayers to itemize deductions, potentially lowering their tax bills by capturing benefits like the increased SALT deduction, mortgage insurance premiums, and other adjustments.

SALT Deduction Temporarily Increased

The state and local tax (SALT) deduction limit, which was capped at $10,000 under the Tax Cuts and Jobs Act of 2017, is getting a temporary boost under OBBBA.

Starting in 2025, the SALT deduction cap will rise to $40,000 for most filing statuses ($20,000 for married filing separately). From 2026 through 2029, the cap will increase by 1% per year. In 2030, the cap will revert to the original $10,000 limit.

However, higher-income taxpayers will see a phasedown:

• If your modified adjusted gross income (MAGI) exceeds $500,000 ($250,000 if married filing separately), your available deduction is reduced by 30% of the amount over the threshold.
• Once MAGI reaches $600,000 ($300,000 for married filing separately), the deduction drops to a minimum of $10,000.

This gives taxpayers an opportunity for bigger SALT deductions over the next several years, but the benefit limits high income earners.

Mortgage Insurance Premiums Includable

Under the Tax Cuts and Jobs Act (TCJA), homeowners could deduct mortgage interest on up to $750,000 of qualified mortgage debt. This applied to loans used to buy, build, or improve the taxpayer’s primary or secondary residence. OBBBA keeps this deduction in place, but starting in 2026, it adds an extra benefit – mortgage insurance premiums will also be deductible.

This change is especially helpful for homeowners who had smaller down payments and were required to carry MIP — such as those using FHA or VA loans, or certain conventional loans. For these taxpayers, the ability to deduct both mortgage interest and MIP could result in a larger overall itemized deduction.

Charitable Contributions Subject to New AGI

Charitable contribution deductibility depends on several factors – the type of property being donated, the type of organization receiving it, and your adjusted gross income (AGI). These determine how much of your gift you can itemize as a deduction. Here are the current limits before any OBBBA changes.

Example – Current Rules:

Assume a single filer has $150,000 of AGI and donates $5,000 in cash to a public charity. Cash donation deductibility to a public charity is limited to 60% of AGI. In this example, that is $90,000. Since $5,000 is lower then $90,000, the full gift is deductible.

Beginning in 2025, deductions for charitable contributions will only be allowed to the extent that total contributions exceed 0.5% of AGI. In other words:

First 0.5% of AGI in donations are not deductible.
Only contributions above this threshold are eligible for a deduction.
The law also specific the order in which this 0.5% AGI floor applies:

1. Capital gain property contributed to non-public charities.
2. Capital gain property contributed to public charities using fair market value.
3. Cash contributions to non-public charities.
4. Qualified conservation contributions (a specific type of contribution of land or real estate for conservation purposes).
5. Capital gain property contributed to public charities using cost basis; and
6. Cash contributions to public charities

Example – New OBBBA Rules:

Assume a single filer has $150,000 of AGI. This taxpayer receives an inheritance and decides to make a couple charitable donations:

• $50,000 in cash to public charities.
• $50,000 in appreciated securities to a private foundation.

If we apply the 0.5% AGI floor, this amount is $750. This is subtracted first from the appreciates securities donation, which is $49,250. We know that appreciated securities donated to a private charity has a 20% of AGI limit, which in this case is $30,000. This means we can deduct $30,000 this year and carry forward $19,250 into future years.

The $50,000 cash donated to public charities is subject to 60% AGI limit which is $90,000. Making the entire $50,000 cash donation fully deductible this year. The total allowable deduction for 2025 is $80,000 with $19,250 carried into the future.

Limitations on Loss Deductions

The tax code allows only a couple of personal losses to be deducted. The two most common are:

• Wagering (gambling) losses.
• Personal casualty losses from disasters like fires, floods, and earthquakes.

Under the Tax Cuts and Jobs Act (TCJA), wagering losses have been deductible up to the amount of wagering gains. This meant a gambler could offset all winnings with an equal amount of losses, resulting in no taxable income from wagering. Starting in 2026, OBBBA changes this rule – wagering loss deductions will be limited to 90% of wagering gains. If a gambler has $100,000 in wagering losses and $100,000 in wagering gains in a year:

• Under TCJA rules: $100,000 in losses offsets $100,000 in gains → $0 taxable income from wagering.
• Under OBBBA rules: $100,000 × 90% = $90,000 deductible losses → $10,000 of taxable wagering income, even though the gambler broke even.

Under TCJA, personal casualty losses could only be deducted if they resulted from a federally declared disaster. Beginning in 2026, OBBBA expands this to also include state-declared disasters. The only criteria is that the loss must not be covered by insurance and the deductible amount must exceed 10% of AGI.

Miscellaneous Itemized Deductions Eliminated

Before the Tax Cuts and Jobs Act (TCJA), taxpayers could claim certain “miscellaneous” itemized deductions, including investment expenses and unreimbursed employee expenses. These deductions were only allowed to the extent they exceeded 2% of AGI. TCJA suspended these miscellaneous deductions, and the OBBBA makes that suspension permanent. This means taxpayers cannot deduct these expenses moving forward, even if they itemize.
However, OBBBA does introduce a new itemized deduction for teachers, coaches, and other educators who spend personal funds on classroom materials.

• Educator expenses are still deductible on Schedule 1 for taxpayers who don’t itemize.
• Current limits: $300 per educator, or $600 for married couples who are both educators.
• For taxpayers who do itemize, these limits are lifted, allowing a larger deduction.Limitations for the 37% Tax Bracket

Before the Tax Cuts and Jobs Act (TCJA), high-income taxpayers who itemized were subject to the Pease limitation, which reduced allowable itemized deductions by 3% for income above certain AGI thresholds:

• $261,500 for single filers
• $287,650 for head of household filers
• $313,800 for married filing jointly (2017 numbers)

TCJA temporarily suspended the Pease limitation, and OBBBA permanently repeals it. However, starting in 2026, it introduces new limitations for taxpayers in the top 37% federal tax bracket. Here is how the new limitation works:

• Only applies to high-income taxpayers in the 37% bracket
• Reduces allowable itemized deductions by 2/37 of the lesser of:
  1. The taxpayer’s total itemized deductions, or
  2. The amount by which taxable income plus total itemized deductions exceeds the 37% bracket threshold

This means that even without the Pease limitation, very high-income taxpayers may still see a partial reduction in their itemized deductions starting in 2026.

OBBBA brings significant changes to itemized deductions, from the increased SALT cap and deductible mortgage insurance to the new AGI floor for charitable contributions and limitations for high-income taxpayers. Some provisions expand deductions, while others limit them, making careful planning more important than ever.

Reviewing your deductions and working with a CPA or tax professional can help you maximize benefits and minimize your tax liability under the new rules. Planning ahead also allows you to time contributions, losses, and other deductions strategically to get the most value from itemizing. Staying informed now can prevent surprises when filing your 2025 tax return and beyond.