Many taxpayers carefully plan each year around deductible expenses—charitable giving, state and local taxes, mortgage interest, and other itemized deductions. Beginning in 2026, higher‑income taxpayers may discover that these deductions do not reduce their tax bill as much as they have in the past. If you have traditionally relied on itemized deductions to lower your taxes, this is a change worth understanding.
What’s changing in 2026
A new federal rule imposes an overall limitation on itemized deductions for individuals with income above certain thresholds. While you can still claim itemized deductions, the amount of tax savings they produce may be reduced once your income reaches the highest federal tax bracket.
Who may be affected
This change is primarily relevant to taxpayers whose income places them in the top 37% bracket—often business owners, executives with large bonuses, investors who recognize significant capital gains, and retirees with high RMDs. The limitation is keyed to the threshold where the 37% bracket begins for the taxpayer’s filing status.
Why it matters
A deduction is only valuable to the extent it reduces tax. Beginning in 2026, two taxpayers could make the same charitable gift or pay the same amount of state and local taxes, but the higher‑income taxpayer may receive less federal tax benefit because total itemized deductions can be reduced.
Planning Ideas to Consider Before Year-End
Every taxpayer’s situation is different, so there isn’t a one-size-fits-all strategy. However, if you expect to be in the highest tax bracket, now is a good time to review your tax plan before the year ends.
- Review your charitable giving. If you make charitable contributions each year, it may be worth discussing whether the timing of those gifts still makes sense under the new rules.
- Take another look at bunching deductions. Combining deductible expenses into one year can still be an effective strategy, but the potential tax savings may differ from the past savings.
- Think about how you make charitable gifts. If you regularly donate to charity and own appreciated investments, giving securities instead of cash may still provide additional tax benefits in the right circumstances.
- Look at the bigger picture. The timing of bonuses, business income, investment sales, Roth conversions, and other taxable income can all affect how much benefit you receive from your deductions. Reviewing these items together—not one at a time—can help you make more informed decisions.
Bottom line
Starting in 2026, higher-income taxpayers may not receive the same tax benefit from itemized deductions as they have in the past. That doesn’t mean these deductions are no longer valuable—it simply means that thoughtful planning becomes even more important.
If you expect your income to be higher in 2026, now is a good time to review your projected income, anticipated deductions, and the timing of major financial decisions. A little planning before year-end can help you make the most of the opportunities that are still available.
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