Tax returns for 2025 saw many of our clients itemizing their deductions again. Let’s take a look at why this shift occurred—and the planning opportunities it may create.
Why are more clients itemizing again?
As a reminder, every taxpayer can take the greater of the standard deduction or the sum of their allowable itemized deductions. This amount is subtracted from Adjusted Gross Income (AGI) to arrive at taxable income.
AGI includes all taxable income sources—wages, interest, dividends, pensions, capital gains, Social Security, IRA distributions, and more. From there, you subtract either the standard deduction or your itemized deductions to determine taxable income, which is the figure used to calculate your tax liability.
Following the Tax Cuts and Jobs Act and, more recently, the One Big Beautiful Bill Act (OBBBA), two key changes discouraged many taxpayers from itemizing: a higher standard deduction and a $10,000 cap on the state and local tax (SALT) deduction. As a result, many charitably inclined families adopted a “bunching” strategy—grouping multiple years of charitable giving into a single year to exceed the standard deduction and capture a tax benefit.
Recent changes under OBBBA have shifted the landscape again. For tax years 2025 through 2029, the SALT deduction cap increases to as much as $40,000 for certain taxpayers. This higher cap may make itemizing worthwhile again—particularly for those with significant state income taxes or real estate taxes.
What Counts as an Itemized Deduction?
Itemized deductions include:
- Medical and dental expenses that exceed 7.5% of your AGI
- State and local taxes (SALT), including income or sales tax, real estate tax, and personal property tax
- Limited to $10,000 from tax years 2017 through 2024
- Increased to up to $40,000 from 2025 through 2029 for certain taxpayers, with a phaseout beginning at $500,000 of Modified AGI (MAGI) and fully phased out above $600,000
- Gifts to charity, including:
- Cash gifts (generally limited to 60% of AGI)
- Gifts of appreciated securities (generally limited to 30% of AGI)
- Casualty or theft losses from federally declared disasters (uncommon)
It’s important to note that Qualified Charitable Distributions (QCDs) from IRAs are not included in itemized deductions. Instead, they reduce income “above the line,” meaning they lower AGI directly.
With the SALT cap now expanded for some taxpayers, more households may once again exceed the standard deduction threshold. This, in turn, can make the tax benefit of charitable giving from taxable accounts more accessible.
Planning Implications and Opportunities
Managing Income Around the SALT Phaseout
If your MAGI is near the $500,000–$600,000 phaseout range, it may be worth considering whether income can be deferred into a future year to preserve the higher SALT deduction.
That said, tax considerations should not override broader financial strategy. For example, being able to deduct an additional $30,000 of SALT could save approximately $9,600 in federal tax for someone in the 32% bracket. However, delaying the sale of a $1,000,000 appreciated holding to defer the capital gain could expose you to market risk—a decline of just 1% would offset that $9,600 tax benefit.
It’s also important to note that, for purposes of this SALT-related MAGI calculation, tax-exempt interest is not included. Only excluded foreign income and the foreign housing exclusion are added back to AGI. Therefore, if taxable interest is pushing your MAGI over the $500,000 threshold, consider whether shifting to an asset that produces tax-exempt interest—such as tax-exempt bonds or tax-exempt money market accounts—could help manage your exposure to the phaseout.
Reconsider Tracking Deductible Expenses
If you have been taking the standard deduction in recent years, you may have stopped tracking certain expenses—particularly medical costs. If itemizing is back on the table, it may be worthwhile to revisit your records and estimate whether medical expenses exceed 7.5% of AGI.
Rethinking Charitable Giving Strategies
With renewed access to itemizing, this is a good time to revisit how you give:
- Should you give cash or appreciated securities from a taxable account?
- Should you use QCDs from an IRA?
- Or is a combination of both most effective?
Gifts from Taxable Accounts
For those holding highly appreciated investments (stocks, mutual funds, or ETFs), donating securities can be especially powerful if you are itemizing. This approach allows you to:
- Reduce concentrated positions without realizing capital gains
- Receive a charitable deduction
- Fulfill philanthropic goals
Bunching might still be the best strategy, but re-run the numbers with the updated SALT rules in place.
Qualified Charitable Distributions (QCDs)
QCDs remain a highly effective strategy for those eligible, particularly because they reduce AGI directly. Lower AGI can have additional benefits beyond taxes, such as reducing Medicare premium surcharges or increasing eligibility for certain deductions.
Looking Ahead
OBBBA introduced additional limitations on itemized deductions are scheduled to take effect beginning in 2026, which may further influence planning decisions.
As you can see, many of these considerations are interconnected. Decisions around income timing, deductions, and charitable giving often affect one another in subtle ways.
Final Thoughts
At Bragg Financial, we strongly encourage coordinating with your CPA to determine the best course of action. A particularly good time for tax planning is after your prior-year return has been filed—typically after April 15—when CPA firms have more capacity to run projections for planning purposes.
Our goal is not only to guide decisions, but also to help you understand the “why” behind the planning. We hope this overview provides helpful context for the questions and strategies we discuss together.
This information is believed to be accurate at the time of publication but should not be used as specific investment or tax advice as opinions and legislation are subject to change. You should always consult your tax professional or other advisors before acting on the ideas presented here.
Bragg Financial Welcomes Alex Wagner
April 21, 2026Mag 7 – When Too Much Success Becomes a Risk
May 3, 2026Tax returns for 2025 saw many of our clients itemizing their deductions again. Let’s take a look at why this shift occurred—and the planning opportunities it may create.
Why are more clients itemizing again?
As a reminder, every taxpayer can take the greater of the standard deduction or the sum of their allowable itemized deductions. This amount is subtracted from Adjusted Gross Income (AGI) to arrive at taxable income.
AGI includes all taxable income sources—wages, interest, dividends, pensions, capital gains, Social Security, IRA distributions, and more. From there, you subtract either the standard deduction or your itemized deductions to determine taxable income, which is the figure used to calculate your tax liability.
Following the Tax Cuts and Jobs Act and, more recently, the One Big Beautiful Bill Act (OBBBA), two key changes discouraged many taxpayers from itemizing: a higher standard deduction and a $10,000 cap on the state and local tax (SALT) deduction. As a result, many charitably inclined families adopted a “bunching” strategy—grouping multiple years of charitable giving into a single year to exceed the standard deduction and capture a tax benefit.
Recent changes under OBBBA have shifted the landscape again. For tax years 2025 through 2029, the SALT deduction cap increases to as much as $40,000 for certain taxpayers. This higher cap may make itemizing worthwhile again—particularly for those with significant state income taxes or real estate taxes.
What Counts as an Itemized Deduction?
Itemized deductions include:
It’s important to note that Qualified Charitable Distributions (QCDs) from IRAs are not included in itemized deductions. Instead, they reduce income “above the line,” meaning they lower AGI directly.
With the SALT cap now expanded for some taxpayers, more households may once again exceed the standard deduction threshold. This, in turn, can make the tax benefit of charitable giving from taxable accounts more accessible.
Planning Implications and Opportunities
Managing Income Around the SALT Phaseout
If your MAGI is near the $500,000–$600,000 phaseout range, it may be worth considering whether income can be deferred into a future year to preserve the higher SALT deduction.
That said, tax considerations should not override broader financial strategy. For example, being able to deduct an additional $30,000 of SALT could save approximately $9,600 in federal tax for someone in the 32% bracket. However, delaying the sale of a $1,000,000 appreciated holding to defer the capital gain could expose you to market risk—a decline of just 1% would offset that $9,600 tax benefit.
It’s also important to note that, for purposes of this SALT-related MAGI calculation, tax-exempt interest is not included. Only excluded foreign income and the foreign housing exclusion are added back to AGI. Therefore, if taxable interest is pushing your MAGI over the $500,000 threshold, consider whether shifting to an asset that produces tax-exempt interest—such as tax-exempt bonds or tax-exempt money market accounts—could help manage your exposure to the phaseout.
Reconsider Tracking Deductible Expenses
If you have been taking the standard deduction in recent years, you may have stopped tracking certain expenses—particularly medical costs. If itemizing is back on the table, it may be worthwhile to revisit your records and estimate whether medical expenses exceed 7.5% of AGI.
Rethinking Charitable Giving Strategies
With renewed access to itemizing, this is a good time to revisit how you give:
Gifts from Taxable Accounts
For those holding highly appreciated investments (stocks, mutual funds, or ETFs), donating securities can be especially powerful if you are itemizing. This approach allows you to:
Bunching might still be the best strategy, but re-run the numbers with the updated SALT rules in place.
Qualified Charitable Distributions (QCDs)
QCDs remain a highly effective strategy for those eligible, particularly because they reduce AGI directly. Lower AGI can have additional benefits beyond taxes, such as reducing Medicare premium surcharges or increasing eligibility for certain deductions.
Looking Ahead
OBBBA introduced additional limitations on itemized deductions are scheduled to take effect beginning in 2026, which may further influence planning decisions.
As you can see, many of these considerations are interconnected. Decisions around income timing, deductions, and charitable giving often affect one another in subtle ways.
Final Thoughts
At Bragg Financial, we strongly encourage coordinating with your CPA to determine the best course of action. A particularly good time for tax planning is after your prior-year return has been filed—typically after April 15—when CPA firms have more capacity to run projections for planning purposes.
Our goal is not only to guide decisions, but also to help you understand the “why” behind the planning. We hope this overview provides helpful context for the questions and strategies we discuss together.
This information is believed to be accurate at the time of publication but should not be used as specific investment or tax advice as opinions and legislation are subject to change. You should always consult your tax professional or other advisors before acting on the ideas presented here.
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