Often, we as taxpayers simplify our tax deductions as either taking the standard deduction, or itemizing. Yet, for some it’s not quite that simple, and starting this year, things are changing again.

Up until 2017, higher-income taxpayers who itemized deductions were subject to the Pease limitation. This reduced the total allowable amount of a taxpayer's itemized deductions if their Adjusted Gross Income (AGI) exceeded certain thresholds.

While the recently-passed One Big Beautiful Bill permanently repealed the Pease limitation, it replaced it with a couple of different limitations, one for everyone, and then one for those in the highest tax bracket, starting in 2026.

Admittedly, there are lots of numbers and calculations to be done by your tax professional, the bottom line is that those who may wish to itemize their deductions will have a few other hurdles or considerations to deal with in order to get the best “bang for their buck” tax-wise.

Let’s take a look at a quick example:

Example: Doug and Delilah are a married couple with $1.2 million in adjusted gross income (AGI) and $300,000 of itemized deductions, resulting in $900,000 of taxable income. This puts them in the 37% marginal tax bracket.

Under current law, they can fully deduct their itemized deductions, saving $111,000 in tax ($300,000 × 37%).

Under the new law, however, after all the calculations, their total allowable itemized deductions would decrease to approximately $278,108. This would result in around $8,100 more in taxes due under the new law than the current.

Why? To put it simply, itemized deductions under the new law must exceed 0.50% of AGI. Additionally, for those in the highest tax bracket, the government also wants to limit the tax benefit for deductions to 35% vs. 37%, so there is a further reduction there.

Again, we know that this is complicated, yet this is why it will be important to discuss your situation with your tax professional.

Considering all of this, below are a couple of planning ideas that you may wish to discuss with your financial or tax professional in the new year.

1. Consider doubling up charitable contributions in some years, as possible. This will give you a better chance at exceeding new income percentage limitations, as well as have a higher likelihood of exceeding the standard deduction (2026: $16,100 single/$32,200 joint).
2. For those that may be close to the top 37% tax bracket, discussing ways to reduce AGI with your tax professional could be valuable. Consider pre-tax retirement savings, HSA or FSA contributions, or tax-loss harvesting that can be used to offset capital gains, and any remaining capital losses can be used (up to $3,000) to offset ordinary income.

It’s always best to discuss newly implemented tax rules with your tax advisor, preferably before the end of each tax year, so they have time to suggest alternatives that may benefit or assuage your tax burden.