The One Big Beautiful Bill Act: Key Changes to Itemized Deductions
The One Big Beautiful Bill Act (OBBBA) introduces significant changes to itemized deductions that impact individual taxpayers and their estate planning. Outlined below is a summary of the key provisions affecting state and local tax (SALT) deductions, charitable deductions and the new “2/37 reduction” for high-income taxpayers.
SALT Deduction
Subject to the reduction noted below, the OBBBA raises the cap on SALT deductions from $10,000 to $40,000, further increased by 1 percent annually from 2026 through 2029 before reverting to $10,000 in 2030.
For single filers with an adjusted gross income (AGI) of more than $250,000 and joint filers above $500,000, the allowable SALT deduction is reduced by $0.30 for every $1 of AGI over those thresholds, to a minimum of $10,000. As a result, single filers between $250,000 and $350,000 AGI and joint filers between $500,000 and $600,000 AGI will see a partial reduction, and filers above those ranges will be limited to a $10,000 SALT deduction.
Charitable Deduction
Beginning in 2026, taxpayers who take the standard deduction may claim an above-the-line charitable deduction of up to $1,000 (single) or $2,000 (joint). This benefit is unavailable to those who itemize.
For itemizers, the OBBBA imposes a new 0.5 percent of AGI floor for charitable contributions below that amount. For instance, an individual with $250,000 AGI receives no deduction for the first $1,250 of charitable contributions. Practitioners expect this floor will also apply to contributions carried forward into 2026, pending further IRS guidance.
2/37 Limitation
Taxpayers in the highest income bracket, currently 37 percent, must reduce most itemized deductions by 2/37 (approximately 5.4 percent) beginning in 2026. The 37 percent bracket begins at $626,350 for single filers, $751,600 for joint filers and $15,650 for estates and trusts.
This reduction does not apply to the Qualified Small Business Income deduction or SALT deduction, both which are governed by separate rules. It does, however, apply to deductions such as mortgage interest, charitable donations and professional fees for trusts and estates.
For example, a single taxpayer with $650,000 AGI who donates $50,000 to charity will lose $3,250 due to the 0.5 percent charitable deduction floor. The remaining $46,750 is further reduced by 2/37 (about $2,527), resulting in a deductible amount of $44,223.
Estate Planning Outlook
Taxpayers who itemize, especially those in the top tax bracket, should consider making charitable gifts in 2025 before these limitations come into effect.
High-income taxpayers anticipating lower future income may benefit from deferring gifts to years when their tax rates drop, avoiding the 2/37 reduction.
Trusts and estates that deduct expenses for professional fees may consider pre-paying upcoming expenses in 2025. This will maximize the deduction for those expenses and keep them from being subject to the 2/37 reduction in 2026.
If you have questions about how the OBBBA may affect your estate and income tax planning, or if you need assistance navigating these tax law changes, contact Reinhart attorney Nick Smith or another member of Reinhart’s Trusts and Estates Practice.
