Itemized Deductions
Quick Definition
Itemized deductions are a list of specific eligible expenses that you can subtract from your Adjusted Gross Income (AGI), reported on Schedule A of Form 1040, as an alternative to the standard deduction. You itemize when your total eligible expenses exceed the standard deduction, resulting in lower taxable income and a smaller tax bill.
What It Means
Itemizing requires tracking and documenting your actual deductible expenses throughout the year. Since the Tax Cuts and Jobs Act (TCJA) of 2017 nearly doubled the standard deduction, only about 11% of taxpayers itemized in recent years. However, the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, raised the SALT cap from $10,000 to $40,400 for 2026, which makes itemizing worthwhile for many more homeowners in high-tax states for the first time since 2017.
The calculation is simple: add up all your Schedule A deductions. If the total exceeds your standard deduction, itemize. Otherwise, take the standard deduction.
2026 Standard Deduction Amounts
The OBBBA made the TCJA's increased standard deduction permanent. For tax year 2026, the IRS adjusted amounts upward in Revenue Procedure 2025-32:
| Filing Status | 2026 Standard Deduction | Age 65+ Add-on |
|---|---|---|
| Single | $16,100 | +$2,050 |
| Married Filing Separately | $16,100 | +$1,650 per spouse |
| Head of Household | $24,150 | +$2,050 |
| Married Filing Jointly | $32,200 | +$1,650 per spouse |
| Qualifying Surviving Spouse | $32,200 | +$1,650 |
Source: IRS, 2026 tax inflation adjustments.
Main Categories of Itemized Deductions
1. State and Local Taxes (SALT): New $40,400 Cap for 2026
The OBBBA raised the SALT cap dramatically for 2026. This is the single biggest change to itemized deductions since the TCJA.
| SALT Component | Deductible? | Notes |
|---|---|---|
| State income taxes paid | Yes (capped) | Or state sales taxes, whichever is higher |
| Local income taxes | Yes (capped) | Combined SALT cap: $40,400 ($20,200 MFS) |
| Property taxes (real estate) | Yes (capped) | Primary and vacation homes |
| Foreign income taxes | No (separate foreign tax credit) | Use Form 1116 instead |
| Car registration fees (ad valorem portion) | Yes (capped) | Only the value-based portion |
The SALT cap progression under OBBBA:
| Tax Year | SALT Cap | Notes |
|---|---|---|
| 2018-2024 | $10,000 | Original TCJA cap |
| 2025 | $40,000 | OBBBA raised the cap |
| 2026 | $40,400 | 1% indexing adjustment |
| 2027 | ~$40,800 | Estimated 1% increase |
| 2028 | ~$41,200 | Estimated 1% increase |
| 2029 | ~$41,600 | Estimated 1% increase |
| 2030 | $10,000 | Reverts to old cap unless Congress extends |
The expanded cap phases out for high earners. Above $505,000 MAGI ($252,500 MFS), the cap drops 30 cents per dollar of MAGI excess, with a floor of $10,000. This means ultra-high-income taxpayers in high-tax states still effectively hit the $10,000 floor.
Source: USTaxTools, 2026 Standard Deduction Amounts, CountryTaxCalc, TCJA Sunset 2026.
2. Mortgage Interest
| Type | Deductibility |
|---|---|
| Primary home mortgage interest | Yes, on first $750,000 of acquisition debt (post-2017 loans) |
| Second home mortgage interest | Yes, combined with primary within $750,000 limit |
| HELOC/home equity loan interest | Yes, only if used to buy, build, or improve the home |
| Investment property mortgage | Deducted on Schedule E, not Schedule A |
| Mortgage insurance premiums (PMI) | Sometimes; Congress has intermittently extended |
Acquisition debt limit: Loans used to buy, build, or substantially improve your home. Pre-TCJA loans (originated before December 15, 2017) retain the old $1 million limit.
3. Charitable Contributions
| Contribution Type | Limit | Notes |
|---|---|---|
| Cash to public charities | 60% of AGI | Most common |
| Appreciated stock to public charities | 30% of AGI | No capital gains; deduct fair market value |
| Non-cash property | 30% of AGI (50% for certain gifts) | Form 8283 for gifts over $500 |
| Contributions to private foundations | 30% of AGI (cash) / 20% (stock) | More restrictive |
| Carryforward | 5 years | Unused deductions carry forward |
Substantiation rules:
- Cash gifts under $250: bank record or receipt required
- Cash gifts $250+: written acknowledgment from the charity
- Non-cash gifts over $500: Form 8283; over $5,000: qualified appraisal
4. Medical and Dental Expenses
Only expenses exceeding 7.5% of AGI are deductible:
Deductible Medical Expenses = Total Qualifying Medical Expenses - (7.5% x AGI)
| Deductible | Not Deductible |
|---|---|
| Health insurance premiums (not employer-subsidized) | Cosmetic surgery (non-medically necessary) |
| Long-term care insurance premiums | Gym memberships |
| Out-of-pocket medical, dental, vision | Teeth whitening |
| Prescription drugs | Over-the-counter drugs (with exceptions) |
| Medical equipment and devices | |
| Ambulance and transportation for medical care |
Example: AGI = $80,000; medical expenses = $9,000.
- 7.5% x $80,000 = $6,000 threshold
- Deductible portion = $9,000 - $6,000 = $3,000
5. Casualty and Theft Losses
Post-TCJA, deductible only for losses in federally declared disaster areas:
- Net loss after insurance reimbursement, minus $100 per event, minus 10% of AGI
- Significantly restricted compared to pre-2018 rules
6. Miscellaneous Deductions
Post-TCJA, most miscellaneous deductions (unreimbursed employee expenses, investment advisory fees, tax preparation fees) were eliminated. Only a few remain deductible:
- Gambling losses (up to gambling winnings)
- Some casualty losses (disaster areas only)
- Certain legal fees related to producing taxable income
New OBBBA Deductions for 2026
The OBBBA introduced several new deductions that interact with the itemizing decision. These are taken as adjustments to income (above-the-line), not on Schedule A, but they reduce taxable income regardless of whether you itemize or take the standard deduction:
| New Deduction | Amount | Expires |
|---|---|---|
| Tip income exclusion | Up to $25,000 | End of 2028 |
| Overtime pay exclusion | Up to $12,500 ($25,000 MFJ) | End of 2028 |
| Auto loan interest deduction | Up to $10,000 | End of 2028 |
| Senior deduction (age 65+) | $6,000 per person | End of 2028 |
These above-the-line deductions reduce your AGI, which can make it easier to clear the 7.5% medical expense threshold and may affect other AGI-based calculations.
The Itemizing Decision: Examples for 2026
| Taxpayer | Filing Status | Deductible Expenses | Standard Deduction | Decision |
|---|---|---|---|---|
| Renter, no donations | Single | $2,000 (SALT only) | $16,100 | Take standard |
| New homeowner | MFJ | $18,000 (mortgage $12K + SALT $6K) | $32,200 | Take standard |
| High-mortgage homeowner, high-tax state | MFJ | $52,000 (mortgage $22K + SALT $18K + charity $12K) | $32,200 | Itemize |
| Large charitable donor | Single | $28,000 (SALT $10K + charity $18K) | $16,100 | Itemize |
| Major medical year | Single | $20,000 total | $16,100 | Itemize |
| Moderate homeowner, high-tax state | MFJ | $35,000 (mortgage $15K + SALT $15K + charity $5K) | $32,200 | Itemize |
The raised SALT cap means many homeowners in California, New York, New Jersey, Connecticut, and Illinois who were just below the itemizing threshold under the old $10,000 cap will now benefit from itemizing for the first time since 2017.
Bunching Strategy
Since you can only choose one method per year, "bunching" concentrates deductions into alternating years to maximize itemizing in some years while taking the standard deduction in others:
Example with $8,000/year charitable budget and $15,000 SALT + $12,000 mortgage interest (MFJ):
- Normal approach: $8,000 + $15,000 + $12,000 = $35,000 (barely above $32,200 standard) - itemize, but barely
- Bunching approach: Contribute $16,000 in odd years via a Donor-Advised Fund (DAF). Odd year total: $16,000 + $15,000 + $12,000 = $43,000 (well above standard). Even year: take $32,200 standard deduction.
A Donor-Advised Fund (DAF) is the perfect bunching vehicle: contribute multiple years' worth of charitable giving in one year, take the large deduction, then distribute grants to charities over subsequent years at your own pace.
Key Points to Remember
- Itemize only if total Schedule A deductions exceed your standard deduction ($16,100 single / $32,200 MFJ for 2026)
- The SALT cap jumped from $10,000 to $40,400 for 2026 under OBBBA, but reverts to $10,000 in 2030 unless Congress extends
- The SALT cap phases out above $505,000 MAGI, dropping 30 cents per dollar toward a $10,000 floor
- Mortgage interest on up to $750,000 of acquisition debt is deductible
- Medical expenses are only deductible above the 7.5% of AGI threshold
- Charitable contributions carry forward 5 years if you exceed AGI limits
- The bunching strategy with a Donor-Advised Fund can multiply tax benefits for consistent charitable givers
- New OBBBA above-the-line deductions (tips, overtime, auto loan interest, senior deduction) reduce AGI regardless of itemizing
Common Mistakes to Avoid
- Not recalculating whether to itemize for 2026: If you have been taking the standard deduction since 2018 because the $10,000 SALT cap made itemizing pointless, the new $40,400 cap may change the math. Run the numbers for 2026.
- Forgetting the SALT phase-out: If your MAGI exceeds $505,000, the $40,400 cap phases down 30 cents per dollar. At very high incomes, you are back to the $10,000 floor. Do not assume you get the full $40,400 if you are a high earner.
- Assuming the SALT cap increase is permanent: The expanded cap reverts to $10,000 in 2030. If you are planning multi-year tax strategies, factor in this cliff.
- Not keeping substantiation records: If you itemize, you need mortgage Form 1098, property tax statements, charitable donation receipts, medical bills, and state tax records. Keep these for at least 3-7 years in case of IRS audit.
Frequently Asked Questions
Q: Can I itemize some deductions and take the standard deduction for others? A: No. It is an either/or choice for each tax year. You either take the standard deduction or itemize all Schedule A deductions. You cannot mix and match within a year.
Q: Are all deductions on Schedule A limited to the list above? A: Yes. Schedule A is the comprehensive list of allowable itemized deductions. Congress strictly controls what qualifies. Unlike some countries, the US tax code does not allow a general "necessary and ordinary" personal expense deduction, only specific congressionally authorized items.
Q: What records do I need to itemize? A: Mortgage Form 1098 (from lender), property tax statements, charitable donation receipts and acknowledgment letters, medical bills and insurance EOBs, state income tax paid (from prior year return or state records), and any other receipts supporting your claimed deductions. Keep these for at least 3-7 years in case of audit.
Q: Will the SALT cap go back down to $10,000? A: Under current law, the expanded $40,400 cap reverts to $10,000 in tax year 2030 unless Congress extends it. The 2026-2029 window is when itemizing is most generous for residents of high-tax states.
Q: How do the new OBBBA deductions affect itemizing? A: The tip income exclusion, overtime pay exclusion, auto loan interest deduction, and senior deduction are above-the-line adjustments, not Schedule A itemized deductions. They reduce your AGI regardless of whether you itemize or take the standard deduction. However, by lowering AGI, they can make it easier to clear the 7.5% medical expense threshold.
