Following is a summary of federal tax law changes enacted under the 2025 Act, formerly known as the One Big Beautiful Bill (OBBB), which was signed into law on July 4, 2025.
This legislation includes numerous provisions affecting individual taxpayers, with several important revisions to itemized deductions.
Because these rules can be complex and their impact depends on your specific circumstances, we encourage you to review the summary below and contact us or your tax preparer to discuss planning strategies tailored to your situation.
Key Itemized Deduction Changes
State and Local Tax (SALT) Deduction
The SALT deduction cap is temporarily increased to $40,000 for 2025 ($40,400 for 2026, with 1% annual increases through 2029), before reverting to $10,000 in 2030. For taxpayers with modified adjusted gross income above $500,000 in 2025, the benefit of the higher SALT cap is gradually reduced as income increases. However, the allowable deduction will not be reduced below $10,000. Careful income timing and deduction planning may help maximize the benefit during this temporary window. (1)
Qualified Residence Interest
The mortgage interest deduction is now permanently limited to acquisition debt of $750,000 ($375,000 if married filing separately). The previously scheduled increase to $1 million will not occur. Interest on debt above these limits is not deductible, which is important to consider when purchasing, refinancing, or restructuring home loans. (2)
Charitable Contributions
Beginning in 2026, the 60% of adjusted gross income (AGI) limitation for cash contributions to public charities is made permanent. The Act adds a new 0.5% of AGI threshold for itemized charitable deductions, meaning contributions are deductible only to the extent they exceed this amount. Additional rules apply to carryovers and to certain charitable deductions available to non-itemizers, which are not covered here. Strategic “bunching” of charitable gifts into a single year and prioritizing cash contributions to qualifying charities may enhance deductibility.
Starting in 2026, non-itemizers can deduct up to $1,000 (single) or $2,000 (married) in cash gifts to qualified charities “above the line.” (3)
Casualty Losses
The restriction limiting casualty loss deductions to disaster-related losses is now permanent. Starting in 2026, losses from certain state-declared disasters, in addition to federally declared disasters, will qualify. Proper documentation of losses and insurance reimbursements is critical, and amended returns may be appropriate if a qualifying loss was previously unclaimed. (4)
Wagering Losses
Effective in 2026, wagering losses are deductible only up to 90% of wagering winnings, even when losses equal or exceed winnings. Maintaining detailed records of wagering activity will be essential. (5)
Educator Expenses
The Act allows certain K–12 educators to continue deducting unreimbursed classroom expenses as an itemized deduction, even though most miscellaneous itemized deductions have been eliminated. The existing above-the-line deduction for the first $300 in expenses for 2025 ($350 for 2026) remains available. (6)
Miscellaneous Itemized Deductions
Miscellaneous itemized deductions are permanently eliminated. This includes items such as unreimbursed employee business expenses, investment expenses, and tax preparation fees. (7)
Limitation on Itemized Deductions (Formerly Pease Limitation)
The Pease limitation is permanently repealed. Starting in 2026, high-income taxpayers may see a partial reduction in the benefit of certain itemized deductions. This limitation applies only to taxpayers above the top tax bracket threshold and does not eliminate deductions entirely. In many cases, concentrating deductible expenses into a single year may still provide planning advantages. (8)
These provisions present both challenges and opportunities. We recommend reviewing your situation with us or your tax preparer so we can help you develop an effective tax strategy under the new law.
Relevant Internal Revenue Code Sections:
(1) State and Local Tax (SALT) Deduction Limitation - IRC §164(b)(6)
(2) Qualified Residence Interest Deduction Limitation - IRC §163(h)(3)
(3) Charitable Contribution Deduction (Percentage Limits and Floor) - IRC §170(b)(1), §170(f)
(4) Casualty Loss Deduction (Disaster Losses) - IRC §165(a), §165(c)(3), §165(h)
(5) Wagering Loss Limitation - IRC §165(d)
(6) Educator Expense Deduction (Above-the-Line and Itemized) - IRC §62(a)(2)(D)
(7) Elimination of Miscellaneous Itemized Deductions - IRC §67(g)
(8) Overall Limitation on Itemized Deductions (Post-Pease Rules) - IRC §68
Disclosures:
Apella Capital, LLC (“Apella”), DBA Apella Wealth, is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in states where it is properly registered or excluded or exempt from registration requirements. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. Apella Wealth provides this communication as a matter of general information. Any data or statistics quoted are from sources believed to be reliable but cannot be guaranteed or warranted.
Apella Wealth does not provide tax or legal advice and nothing either stated or implied here should be inferred as providing such advice.