With the passage of the One Big Beautiful Bill Act (OBBBA), many who took a standard deduction may now need to consider a potential change to itemizing. If this applies to you, it’s best to know now so you can take advantage of it.

The OBBBA changes

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 jointly taxpayers, making it one of the most severe marriage penalties in the tax code. Many taxpayers who typically itemized deductions found themselves taking the standard deduction.

But effective for tax years 2025 through 2028, this limit of tax deductions is increasing to $40,000. This will result in many individuals once again itemizing their deductions.

Itemizing your deductions

Now is a great time to conduct a quick review of your situation. You’ll want to see if next year’s tax return can be filed with itemized deductions. Here are some who should undergo this review:

1. High state income taxes. If you paid significant state income taxes, you will need to conduct this planning review.
2. High property taxes. If you have high property taxes, take the time to calculate what your total itemized deduction could be with the new $40,000 limit. You may also want to consider this if you have multiple properties that could have applicable taxes.
3. 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.
4. Small business owner. Suppose you own a small business that is a flow-through entity, like a partnership or a subchapter S corporation. In that case, your state income tax on this business activity might be limited on your personal tax return. This again would warrant a review.

Potential planning steps

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.
• Prepaying property taxes. Remember, your tax return is on the cash basis. So, a property tax bill due at the end of the year can apply 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 takeaway is to plan now to take full advantage of the opportunity to reduce next year’s tax obligation. Contact our RRBB advisors for more information or if you have any questions.