Itemized Deductions

Itemizing deductions is generally beneficial for those whose deductible expenses exceed the standard deduction amount. This is often the case for homeowners, high-income earners, or individuals with significant medical expenses. Note that if you are in the top 37% tax bracket, OBBBA caps the value of itemized deductions at 35 cents per dollar, reducing the effective tax benefit by approximately 4.6%.

The following are commonly itemized deductions.

Medical Expenses. You generally can deduct unreimbursed medical expenses exceeding 7.5% of your adjusted gross income. Travel expenses related to medical care, such as parking, mileage, and public transportation, can also be included. Tax professionals generally advise you to itemize medical expenses if they exceed the standard deduction.

SMART MOVE: If you need more deductions this year, but don't have the cash, consider charging contributions, medical expenses, business expenses, and some state tax payments. Just remember to pay them off quickly to avoid increasing debt.

Mortgage Interest and Qualified Mortgage Insurance Premiums. Married taxpayers filing jointly may deduct the interest on a mortgage of up to $750,000 of principal. The deduction is limited to half of that for single taxpayers. Interest on home equity loans, home equity lines of credit (HELOCs), and second mortgages may be deducted only when used to buy, build, or substantially improve the taxpayer's primary or secondary qualified residence that secures the loan, subject to limits. Also, beginning in 2026, OBBBA may allow you to deduct qualified mortgage insurance premiums for home acquisition debt (for policies issued after 2006). This deduction is treated as part of your qualified residence interest deduction and phases out between $100,000 and $110,000 AGI or $50,000 to $55,000 married filing separately.

State and Local Taxes. OBBBA temporarily increases the State and Local Tax (SALT) deduction cap from $10,000 in 2025 to $40,000 in 2026 and later. The cap will revert to the lower amount again in 2029, unless Congress takes action.

SMART MOVE: If you're a partner in a partnership or owner of an S-corporation, discuss the pass-through entity tax with your tax professional as a workaround for the $40,000 SALT tax deduction limit.

Educator Expenses. Beginning in 2026, OBBBA rewrites the rules for the educator expense deduction. Notably, the new law removes the $300 cap that was previously imposed, but it requires taxpayers to claim the write-off as an itemized deduction. Previously, educators could deduct it without needing to itemize.

Charitable Contributions. OBBBA introduced several significant changes for individuals who deduct charitable contributions. Starting in 2026, you may deduct itemized charitable contributions to the extent the total exceeds 0.5% of your adjusted gross income (AGI). This change effectively limits the deductibility of smaller contributions, particularly for lowerand middle-income taxpayers.

However, OBBBA also contains some positive news for individual donors. It makes permanent the 60% AGI limit for cash contributions to public charities, a provision originally enacted by the TCJA. TCJA raised the AGI limitation from 50% to 60% of AGI, meaning a taxpayer could deduct cash contributions to public charities totaling up to 60% of their AGI in a single year. Without the change under OBBBA, the limit would have reverted to 50% of AGI after 2025.

SMART MOVE: When donating to a charity, ensure the organization is qualified by searching the IRS database, Tax Exempt Organization Search Tool. Only donations qualified by the IRS are eligible for tax deductions.

Finally, the OBBBA introduced a new nonrefundable tax credit for individual taxpayers who make qualifying contributions to eligible scholarship-granting organizations. The purpose of this provision is to expand educational opportunities, particularly in the private and religious school sectors, by incentivizing private donations to these institutions. The credit is available in an amount up to $5,000 or 10% of AGI, whichever is less, and is available to all taxpayers, including non-itemizers.