At a Glance
The One Big Beautiful Bill (OBBB), enacted July 4, 2025, significantly reshapes itemized deductions for high-income taxpayers. Key provisions include a new 35% benefit cap on deductions, a temporary increase in the SALT deduction cap, a 0.5% AGI floor on charitable deductions, and the permanent suspension of miscellaneous itemized deductions. While some rules restrict deduction value, others—such as expanded SALT and PTET strategies—create planning opportunities. High earners should review their tax strategies, adjust entity structures, and time deductions to minimize the bill’s impact.
Contents
- Changes to the Itemized Deduction Cap
- State and Local Tax (SALT) Deductions
- Charitable Contributions Floor
- Miscellaneous Itemized Deductions
- Pass-Through Entity Tax (PTET)
- Looking Ahead
The One Big Beautiful Bill (OBBB), signed into law on July 4, 2025, introduces sweeping changes to the U.S. tax code, many of which directly affect itemized deductions for high-income taxpayers. While some provisions offer strategic planning opportunities, others impose new limitations that reduce the overall value of deductions. Below are the key changes high-income professionals should consider as they prepare for the upcoming filing season.
Changes to the Itemized Deduction Cap
Itemized deductions are now limited to a 35% benefit cap regardless of whether the taxpayer falls into the 37% tax bracket. For reference, a $10,000 deduction will reduce the tax liability by $3,500 instead of $3,700. This change effectively lowers the value of deductions for those in the highest income brackets.
State and Local Tax (SALT) Deductions
The cap on state and local tax deductions have increased to $40,000 for joint filers ($20,000 for married filing separate) from years 2025 through 2029. This cap is set to increase 1% annually through 2029 and will eventually revert to the previous $10,000 cap by 2030. However, due to phase-outs, there is a partial benefit for those with modified adjusted incomes (MAGI) between $500,000 and $600,000. Full phase out occurs for MAGI over $600,000 and is limited to $10,000 cap. Ultra-high earners may see little to no advantage with these changes.
Charitable Contributions Floor
Beginning in 2026, taxpayers who itemize will only be allowed to deduct charitable contributions above 0.5% of their AGI. That means someone with an AGI of $500,000 will not be allowed to deduct the first $2,500 of donations. This will reduce the value of smaller donations made by the taxpayer and may encourage donors to consolidate or accelerate their giving strategies.
Miscellaneous Itemized Deductions
The OBBB has permanently suspended miscellaneous itemized deductions, such as tax prep fees, investment fees, and unreimbursed employee expenses. Nevertheless, educators can expense up to $300 above-the-line deduction for 2025. For tax year 2026, educator expenses will have no cap and can be itemized if the taxpayer chooses to opt out of the standard deduction.
Pass-Through Entity Tax
Business owners can use pass-through entity tax (PTET) to pay their state and local taxes through the business entity. These taxes are then reported on the business owner’s individual tax return. This remains a valuable strategy to use for high-income earners in high-tax states as it allows the taxpayer to bypass the SALT deduction cap discussed previously.
Looking Ahead
The OBBB introduces a complex mix of limitations and opportunities for high-income taxpayers. While the expanded SALT cap and PTET strategies offer planning advantages, the 35% benefit cap and charitable contribution floor reduce the overall value of itemized deductions. As these changes take effect, high-income professionals should:
- Reassess their tax strategies
- Optimize entity structures
- Time deductible expenditures carefully
Proactive planning and consultation with a qualified tax advisor will be essential to navigating the new landscape and minimizing the impact of these limitations in the 2025 filing season and beyond.
Tori Vergara is a Tax Manager at ARB who provides tax and consulting services to dealerships, individuals and private foundations. Prior to joining ARB, Tori worked at a global firm for five years in Salt Lake City, Utah, specializing in expatriate taxation.
Kim Arruda is a Senior Tax Accountant at ARB with extensive experience in individual, corporate, estate, trust, and not-for-profit taxation. Before joining ARB, Kim worked as a senior accountant at notable public accounting firms, where she also gained experience in reviews, compilations, and audit procedures.
