Big Beautiful Breakdown: Changes to Itemized Deductions

Under the Tax Cuts and Jobs Act (TCJA), miscellaneous itemized deductions were suspended from 2018 through 2025. The OBBBA now makes that suspension permanent.

That means deductions for unreimbursed employee business expenses, investment expenses or other “miscellaneous” costs previously subject to the 2% adjusted gross income (AGI) floor are gone for good.

If you regularly incur employee business expenses, consider setting up a corporate reimbursement plan so those costs can still be properly deducted by your business.

Deductions That Remain

Many key deductions are unaffected and still available on Schedule A of Form 1040, including:

• Mortgage interest
• State and local taxes (SALT)
• Charitable contributions
• Medical expenses and health insurance premiums
• Personal casualty and theft losses

These deductions continue to play a vital role in managing taxable income, though existing limits still apply.

New Limits for High-Income Taxpayers

Starting in 2026, high earners will face a new cap on the benefit of itemized deductions. For taxpayers in the 37% bracket, the OBBBA limits the value of itemized deductions to no more than 35% of their amount.

This means the higher your income above the 37% threshold, the greater the reduction—or even elimination—of your itemized deduction benefit.

Strategic Planning Opportunities

To make the most of the new rules, consider:

• Structuring reimbursements: Avoid unreimbursed employee expenses by arranging corporate reimbursements.
• Monitoring taxable income: Try to stay below the 37% threshold ($626,350 for single filers and $751,600 for joint filers in 2025, adjusted for inflation).

The Bottom Line

The OBBBA cements a new era for itemized deductions. While the rules are tighter, opportunities remain for thoughtful planning. With careful income management and expense structuring, you can still preserve valuable tax benefits and maintain a winning strategy under the new law.

For help with all your tax planning and wealth management needs, contact the team at Illumination Wealth today.