Itemizing is back baby!
Never has living in a high tax state been so exciting (sarcasm intended). If you know what I’m referring to when I say itemizing is back, you too may be a financial/tax nerd. If you don’t know what I am talking about, well strap in for a few minutes and I will tell you. A couple of important notes before I begin. All of the numbers I reference here will generally refer to a couple filing Married Filing Jointly, and this post will primarily speak to those with higher incomes (>$200k per year), pre-retiree age, and living in a high tax state. Also, if you make over $500k, great for you, but your deductions may be reduced.
After several years of being limited in our deductions due to the SALT cap of $10,000, the new bill passed this year will raise the cap to $40,000. What specifically does this mean? It means that if you pay a lot in non-federal taxes (state, property, real estate) that you may once again be able to itemize your deductions on your tax return in 2025. Since the TCJA was passed in 2017, a lot of people who may have previously itemized each year, found themselves taking the standard deduction instead. So things like charitable contributions and mortgage interest paid were no longer a usable tax deduction. Get ready to dig up those donation receipts from Amvets and track down those 503c letters for this year though.
SALT stands for State and Local Tax. The cap of $10k made a lot of tax returns easier, as it requires very little tracking to take the standard deduction. The rub is that your overall taxes paid might have been higher with your itemized deductions being limited each year. The standard deduction for 2025 is $31,500, and just by doing some quick math, you can see that those who pay a lot in state (think about the state tax withheld from your paycheck) and local (think real estate) taxes will probably eclipse that number with taxes alone.
An important note that I am communicating to clients. The rules for charitable deductions are changing slightly starting in 2026. Therefore, it may behoove you to make contributions in 2025 that you would have made in 2026. Beginning in 2026, only the amount of total charitable contributions that exceeds 0.5% of your adjusted gross income (AGI) is deductible. The 0.5% floor applies only to those who itemize charitable deductions on your 2026 federal income tax returns and afterward. To put some numbers to it, if your AGI is $200k, the first $1,000 of charitable contributions you make next year will not be deductible as an itemized deduction. This is certainly not a reason not to make contributions, but it might just be a good reason to make those contributions in 2025 instead.
If you have followed along this far, great work. If you need some clarification on what this means to you, feel free to reach out. I would be happy to help if I can. Happy itemizing season to all who celebrate!
