For the last several years, the “Standard Deduction vs. Itemizing” debate has been a short conversation for most Americans. With the standard deduction nearly doubled since 2017 and the SALT cap stuck at $10,000, roughly 90% of taxpayers stopped itemizing.
That calculation just got a lot more complicated.
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law, introducing sweeping changes to the tax code. While the Standard Deduction has increased again for 2025, new rules for state taxes, charitable giving, and mortgage interest may suddenly make itemizing attractive again for millions of households.
Here is the deep dive on how itemized deductions are changing for the 2025 tax year (the return you will file in early 2026).
1. The SALT Cap Quadruples to $40,000
The most headline-grabbing change in the new bill is the relief for taxpayers in high-tax states like New York, California, and New Jersey.
Since 2018, the State and Local Tax (SALT) deduction—which allows you to deduct property taxes plus state income or sales taxes—was capped at $10,000. This was a “marriage penalty” that applied effectively the same limit to singles and married couples.
For 2025, the SALT cap has been raised to $40,000.
The Fine Print:
- Income Phase-Out: The full $40,000 deduction is available to filers with a Modified Adjusted Gross Income (MAGI) under $500,000.
- The Reduction: If you earn over $500,000, the cap is reduced by 30% of the excess income.
- High Earners: Once your MAGI hits $600,000, the benefit is fully phased out, and you are back to the original $10,000 cap.
Why this matters: If you own a home with $15,000 in property taxes and pay $10,000 in state income tax, you used to lose $15,000 of those deductions. In 2025, you can deduct the full $25,000.
2. Charitable Giving: The New “0.5% Floor”
While the SALT cap is a win for itemizers, the new rules for charitable donations are stricter. The OBBBA introduces a “floor” to charitable deductions similar to the rule for medical expenses.
The Rule: You can only deduct charitable contributions that exceed 0.5% of your Adjusted Gross Income (AGI).
Example:
- Your Income: $100,000
- 0.5% Floor: $500
- Your Donation: You donate $2,000 to your local church or charity.
- The Deduction: You can only deduct $1,500 ($2,000 minus the $500 floor).
This effectively eliminates the tax benefit of “micro-donations” for high earners, though it will have a minor impact on those who tithe or donate significantly.
3. Mortgage Interest Deduction Limits Made Permanent
There was fear that the Mortgage Interest Deduction limit would revert to the old $1 million cap or expire entirely. The OBBBA has made the current structure permanent.
- The Limit: You can deduct interest on up to $750,000 of mortgage debt ($375,000 if married filing separately).
- Home Equity: Interest on Home Equity Loans remains non-deductible unless the funds were used strictly to buy, build, or substantially improve the home.
4. The “No Tax on…” Deductions (Are These Itemized?)
This is a point of confusion for many. The OBBBA introduced three highly publicized deductions:
- Car Loan Interest Deduction (Up to $10,000 in interest)
- Overtime Pay Deduction
- Tip Income Deduction
Crucial Clarification: According to the IRS guidance released post-bill, you do NOT need to itemize to claim these. These are treated as “above-the-line” deductions (or adjustments to income), meaning they are available to you even if you take the Standard Deduction.
Should You Itemize in 2025?
With the Standard Deduction for 2025 rising to $15,750 for singles and $31,500 for married couples, the hurdle is still high. However, the higher SALT cap changes the math significantly.
The answer to this question will depend on many unique factors, and may not be as obvious as you think. Our accountants always look at your tax liability from all angles to find the most advantageous way to file. As soon as you receive your complete documents for the 2025 tax year, reach out to get started! Call us at (802) 748-4914 or say hello at info@mcandco.com.