Understanding IRS Schedule A Itemized Deductions Under the OBBB Act

Preface: “The precise point at which a tax deduction becomes a ‘loophole’ or a tax incentive becomes a ‘subsidy for special interests’ is one of the great mysteries of politics.” – John Sununu

Understanding IRS Schedule A Itemized Deductions Under the OBBB Act

When filing taxes, taxpayers can choose between the standard deduction or itemized deductions on IRS Schedule A. The One Big Beautiful Bill (OBBB) Act, signed into law in 2025, made several important updates that impact itemized deductions for individuals. Below is a breakdown of the key changes and how they may affect your tax return.

State and Local Tax (SALT) Deduction Limit

• • • From 2025 through 2029, the SALT deduction limit increases to $40,000 ($20,000 if married filing separately).
    • In 2025, the limit starts at $40,000 ($20,000 separate). It rises slightly each year by 1% until 2029.
    • However, the benefit phases out for high-income taxpayers:
      • If your modified adjusted gross income (AGI) exceeds $500,000 ($250,000 if separate), your deduction limit is reduced.
      • The reduction equals 30% of the excess income above the threshold, with at least a $10,000 ($5,000 if separate) reduction.
    • After 2029, the limit returns to $10,000 ($5,000 if separate) in 2030.

Home Mortgage Interest Deduction

• • • The home mortgage interest deduction rules from the Tax Cuts and Jobs Act (TCJA) are made permanent.
    • You can deduct interest on up to $750,000 of acquisition debt ($375,000 if married filing separately).
    • The suspension of interest deductions on home equity debt also remains permanent.

Car Loan Interest Deduction

• • • Typically, personal loan interest is not deductible.
    • Under the OBBB Act, for 2025–2028, you can deduct up to $10,000 per year of interest on loans for U.S.-assembled passenger vehicles.
    • The deduction phases out for taxpayers with AGI over $100,000 ($200,000 for joint filers).
    • Important: This deduction applies even if you don’t itemize.

Charitable Contribution Deductions

• • • Starting in 2026, non-itemizers can deduct up to $1,000 ($2,000 for joint filers) of cash charitable contributions.
    • For those who itemize, a new 0.5% floor applies: your allowable deduction is reduced by 0.5% of your contribution base.
    • Example: If your contribution base is $100,000, $500 would be subtracted from your allowable deduction.

Personal Casualty and Theft Loss Deduction

• • • Under the OBBB Act, the rules limiting deductions to federally declared disasters are made permanent.
    • The law expands this to include state-declared disasters such as floods, fires, or explosions recognized by a governor.
    • Losses tied to qualified disasters between 2019 and September 2025 are also covered.

Gambling Losses

• • • Gambling losses can only offset gambling winnings.
    • The OBBB Act introduces a new restriction: starting after 2025, only 90% of wagering losses are deductible, and this deduction is limited to the amount of gains.
    • Example: If you win $10,000 and have $12,000 in losses, you can deduct only $9,000.

Moving Expenses

• • • The TCJA suspended most moving expense deductions, and the OBBB Act makes this permanent.
    • Only active-duty military members and intelligence community employees (and their families) qualify for moving expense deductions or reimbursements.

Miscellaneous Itemized Deductions

• • • The suspension of miscellaneous itemized deductions (like unreimbursed employee expenses) is now permanent.
    • Exception: Educator expenses are allowed above the line up to $300 (increasing with inflation). Starting after 2025, teachers can also itemize classroom expenses above this limit.

Phaseout of Itemized Deductions

• • • A new overall limit applies to high-income taxpayers:
      • • Itemized deductions are reduced by 2/37 of the lesser of:
          1. Total itemized deductions, or
          2. Taxable income above the 37% bracket threshold.
    • This applies after other limits (such as the SALT cap) are calculated.

Planning Note: Standard Deduction vs. Itemizing

• • • The OBBB Act makes the standard deduction increase permanent:
      • $15,750 for single filers (2025)
      • $23,625 for heads of household
      • $31,500 for married filing jointly
    • The amounts adjust for inflation in future years.
    • You may still choose to itemize if your deductions (SALT, mortgage, charitable, etc.) are greater than the standard deduction.

Final Thoughts

The OBBB Act reshaped how taxpayers approach Schedule A deductions. For most, the higher standard deduction will remain the simpler choice. However, with changes such as the higher SALT cap, charitable deduction rules, and the new car loan interest deduction, some taxpayers may benefit from itemizing their deductions.

Careful planning is essential, especially for those near phase-out thresholds. Consider consulting a tax advisor to evaluate whether itemizing or taking the standard deduction will provide the best tax outcome under the new rules.