Itemized deductions are specific expenses that taxpayers list individually on their tax return to reduce taxable income. Instead of taking the standard deduction, taxpayers may choose to itemize if their total deductible expenses exceed the standard deduction for their filing status.
Itemized deductions are reported on Schedule A (Form 1040).
✅ Common Categories of Itemized Deductions (with Examples)
🏥 Medical and Dental Expenses
Only the portion of qualified medical and dental expenses that exceeds 7.5% of Adjusted Gross Income (AGI) is deductible.
Example:
If a taxpayer has $10,000 in medical expenses and an AGI of $50,000, the 7.5% threshold is $3,750.
✅ The deductible amount is $6,250 ($10,000 − $3,750).
🏛 State and Local Taxes (SALT)
Includes:
- State or local income tax or sales tax (choose one), and
- Property taxes
🔺 OBBBA SALT Cap Increase (Tax Years 2025–2029)
- New cap: $40,000
($20,000 if Married Filing Separately) - Applies starting tax year 2025
- Cap increases by 1% annually through 2029
- Cap reverts to $10,000 in 2030
⚠️ Income‑Based Phaseout (“SALT Torpedo”)
- Phaseout begins when Modified AGI exceeds $500,000
- Deduction is reduced by 30% of income over $500,000
- Deduction will never be reduced below $10,000
- Fully phased down at ~$600,000 MAGI (2025)
Example:
A taxpayer pays $35,000 in state and local taxes and has MAGI under $500,000.
✅ They may deduct the full $35,000 (instead of being limited to $10,000).
🏠 Mortgage Interest
Interest paid on loans secured by a primary or secondary residence.
✅ OBBBA made TCJA limits permanent:
- Deduction limited to interest on up to $750,000 of acquisition debt
- No return to the old $1,000,000 limit for newer loans
❤️ Charitable Contributions
- Cash contributions:
- Up to 60% of AGI (now permanent under OBBBA)
- New AGI floor for itemizers (starting 2026):
- Contributions are deductible only to the extent they exceed 0.5% of AGI
- Carryforwards remain available for unused amounts
🌪 Casualty and Theft Losses
- Still deductible only for disaster‑related losses
- OBBBA permanently expands eligibility to include Federally declared disasters
📂 Other Itemized Deductions
- Gambling losses:
- Deductible only up to winnings
- OBBBA limits deduction to 90% of winnings starting 2026
- Investment interest: Still allowed, subject to limits
- Certain profession‑specific expenses (unchanged)
🚫 Suspended Miscellaneous Itemized Deductions
Under the Tax Cuts and Jobs Act, and now made permanent by OBBBA, the following are not deductible:
- Unreimbursed employee expenses
- Tax preparation fees
- Investment advisory fees
- Hobby expenses
- Certain legal fees
✅ Suspension applies beyond 2025 unless Congress changes the law.
🗂 When Should Taxpayers Itemize (2025+)?
Taxpayers should consider itemizing if:
- Their SALT payments approach or exceed $30,000–$40,000
- They have significant mortgage interest
- They made large charitable contributions
- Their total itemized deductions exceed the standard deduction
💡 The OBBBA SALT increase means more taxpayers—especially in high‑tax states—may benefit from itemizing again.