Itemized & Standard Deductions Planning 2025/2026December 1, 2025

With the sweeping changes in the latest tax law here are some planning items for you to consider before the end of 2025 and into 2026. The following is a summary of changes and examples.

STANDARD DEDUCTION CHANGES FOR 2025:

$31,500 MFJ or qualifying surviving spouse
$23,625 for Head of household
$15,750 Single or MFS

ITEMIZED DEDUCTION CHANGES:

STATE AND LOCAL TAXES:

The state and local income tax deduction increases to $40,000 ($20,000 MFS) starting in 2025. However, if your modified adjusted gross income (MAGI) exceeds $500,000 ($250,000 MFS) the deduction will phase out down to the $10,000 ($5,000 MFS) minimum once MAGI reaches $600,000. The phase out limit will increase by 1% annually through 2029. After 2029 this will revert to $10,000.

CHARITY:

2026: Charitable cash contribution deductions to public charities (not private foundations or donor-advised funds) beginning in 2026 will be allowed for a deduction for non-itemizers of $1,000 single and $2,000 for married filing joint individuals. As always make sure charity letters for amounts over $250 are retained.

2026: For those that itemize, charitable contributions will also become restricted. There is a new 0.5% Adjusted Gross Income (AGI) floor limitation on charitable deductions, meaning only above 0.5% of AGI will be deducted. For example: if your AGI is $100,000, the first $500 of the allowable contribution deduction isn’t deductible.

For 2026, the total amount of ALL itemized deductions will also be limited, though that impacts only those in the 37% tax bracket. The limitation is the lower of 2/37 of total itemized deductions or the amount of taxable income that exceeds the 37% tax bracket. Essentially limiting 35 cents per dollar for the top tax bracket. For 2026, for married filing joint the 37% bracket begins at $768,700 and $640,600 for single.

Here’s two examples that takes all of the above into account:

Example 1 – Assume married taxpayers have adjusted gross income (AGI) and modified adjusted gross income (MAGI) of $1 million for 2025 and 2026. For 2025 and 2026 their itemized deductions consist of the following, state and local taxes $45,000, deductible mortgage interest $15,000 and charity of $75,000.

For 2025, state and local taxes to deduct are the maximum $10,000 (due to phase out), mortgage interest $15,000 and charity $75,000, totaling $100,000.

For 2026, total itemized deductions change based on the tax law changes mentioned above. First, state and local taxes will phase down to the minimum of $10,000 as the AGI is $1million, but the phase out ends at $600,000.

Second, charitable contributions are reduced by .5% of adjusted gross income. In this example $5,000 ($1 million x .5%). Total charity is now $70,000 ($75,000-$5,000).

Third, the limitation on itemized deductions occurs. Total itemized deductions after applying the state tax and charity reductions equals $95,000 ($10,000 state and local tax, $15,000 mortgage interest and $70,000 adjusted charity). MAGI in excess of the 37% bracket totals $231,300 ($1 million-$768,700). Applying this limitation, 2/37 x $95,000 equals $5,135. The lesser amount to apply is $5,135.

For 2026, the total itemized deductions are now $89,865, previous $95,000 adjusted less the itemized deduction reduction calculation of $5,135.

As a summary, itemized deductions for 2025 under current law total $100,000 and 2026 under new law total $89,865. The difference of $10,135 at 37% causes a potential tax increase of $3,750. Each individual situation may vary.

Example 2 – Assume a single taxpayer has adjusted gross income (AGI) and modified adjusted gross income (MAGI) of $550,000 for 2025 and 2026. For 2025 and 2026 their itemized deductions consist of the following, state and local taxes $45,000, deductible mortgage interest $15,000 and charity of $75,000.

For 2025, state and local taxes to deduct are $20,000 as the MAGI is $550,000 but the phase out ends at $600,000 and therefore a 50% phase out, mortgage interest $15,000 and charity $75,000, totaling $110,000.

For 2026, total itemized deductions change based on the tax law changes mentioned above. First, state and local taxes will phase down to $20,000 as the MAGI is $550,000, but the phase out ends at $600,000 and therefore a 50% phase out.

Second, charitable contributions are reduced by .5% of AGI. In this example $2,750 ($550,000 x .5%). Total charity is now $72,250 ($75,000-$2,750).

Third, the limitation on itemized deductions occurs. Total itemized deductions after applying the state tax and charity reductions equals $107,250 ($20,000 state and local tax, $15,000 mortgage interest and $72,250 adjusted charity). AGI in excess of the 37% bracket totals $-0- since the income is below the 37% bracket starting point ($550,000 v $640,600) Applying this limitation, 2/37 x $107,250 equals $5,797. The lesser amount to apply is $-0-.

For 2026, the total itemized deductions remain at $107,250.

As a summary, itemized deductions for 2025 under current law total $110,000 and 2026 under new law total $107,250. The difference of $2,750 at 35% (taxpayer did not reach 37%) causes a potential tax increase of $963. Each individual situation may vary.

PLANNING RELATED TO ITEMIZED AND STANDARD DEDUCTIONS:

For planning purposes as we get toward the year-end, consider “bunching” 2026 donations into 2025 in order to avoid the 2026 new floor. If you have a large charitable commitment over a number of years, perhaps it may be best to accelerate the 2026 amount into 2025.

If 70 ½ or older make qualified charitable distributions (QCD) directly from your IRA. The QCD reduces the amount of the taxable portion of the IRA and reduces adjusted gross income.

Maximize HSA and 401K contributions which also reduces adjusted gross income.

Please contact us should you have any additional questions or comments.