With the passage of the One Big Beautiful Bill Act (OBBB Act) many who took a standard deduction may now need to consider a potential change to itemizing. If this could be you, it is better to know this now, when you can still take tax advantage of your situation.
The Change:
In 2024 you could only take a maximum of $10,000 as an itemized deduction on Schedule A for taxes of any kind. To make matters worse, this limit was the same for single filers and married filing joint taxpayers, making it one of the most severe marriage penalties in the tax code. So many taxpayers who typically itemized deductions, often found themselves taking the standard deduction.
But effective for tax years 2025 thru 2029, this limit of tax deductions is increasing to $40,000. This will result in many individuals once again itemizing their deductions.
The Review:
Now is a great time to conduct a quick review of your situation to see if next year's tax return may be filed with itemized deductions. Here are some who should undergo this review:
High state income taxes. If you paid significant state income taxes you will need to conduct this planning review.
High property taxes. If you have high property taxes or have multiple properties that could have applicable tax, take the time to calculate what your total itemized deduction could be with the new $40,000 limit.
Multiple homes. If you own a cabin or applicable vacation property in addition to a primary residence, this could be enough to bring you over the standard deduction limit.
Small business owner. If you own a small business that is a flow through entity like a partnership or a Sub-chapter S corporation, your state income tax on this business activity might be limited on your personal tax return. This again would warrant a review.
Potential planning actions
If you think the higher deduction limit for taxes may be of benefit, you may want to consider ways to maximize your itemized deductions.
Things to consider:
Increasing your use of charitable giving by giving more or placing multiple years of giving into one year.
Pre-paying property taxes. Remember your tax return is on the cash basis, so a property tax bill due at the end of the year can be applied to the year you actually pay the bill.
Understanding your qualified interest expense. Consider any interest paid on qualified home debt and the new interest deduction on U.S. sourced new car loans.
The key take away is to plan now to take full advantage of the opportunity to reduce next year's tax obligation.