How does the One Big Beautiful Bill Affect Me? 3 Tax Changes High-Income Families Need to Know
If you follow the news, you’ve probably heard about the "One Big Beautiful Bill" (OBBB) that became law in July 2025.
The OBBB made significant changes, affecting minor and major parts of the tax code. For example, things like bike commuting benefits all the way through the tax brackets/tax rates were impacted.
There are too many changes to give anyone a simple summary of: “You’ll benefit from this” or “You won’t benefit,” but we can discuss smaller parts of the OBBB to see who will be affected and how.
In this article, we will discuss changes to itemized deductions that will affect the financial plans of high-income families.
Itemizing vs. the Standard Deduction
When you file your federal return, you choose between two deduction options that help to lessen your taxable income. Your options are to:
Take the standard deduction (a flat amount based on your filing status)
Itemize your deductions (you list out specific deductible expenses on Schedule A).
Less and less Americans are itemizing because the Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction and capped the deduction for state and local taxes (SALT) at $10,000, making itemizing less worthwhile for most people.
For tax year 2025, single filers have a standard deduction of $15,750 and those married filing jointly have a standard deduction of $31,500.
However, for high-income families in high-tax states like California, itemizing (instead of taking the standard deduction) is essential for reducing a significant tax bill.
And, the OBBB made three major changes impacting those who itemize.
Change #1: The SALT Cap Upgrade
You can deduct some of what you pay in state and local taxes (SALT), which helps to lessen your taxable income.
For years though, there was a $10,000 cap on SALT deductions. This has been a source of frustration for those living in high-tax states, because a family in the Bay Area paying $50,000 in state income and property taxes could only deduct $10,000 of it on their federal return.
However, the OBBB raised the SALT cap to $40,000 for tax years 2025 through 2029. Married couples filing separately get a $20,000 cap each.
Unfortunately, this benefit phases out for higher earners. For single filers and those married filing jointly, the SALT deduction starts to phase out once your modified adjusted gross income (MAGI) exceeds $500k, and disappears entirely at $600k. That means if your income is above $600k, your SALT cap is still $10,000.
The cap and the phase-out threshold both increase by 1% each year through 2029.
What this means for your financial plan: If your household income sits between roughly $300k and $500k, this could meaningfully reduce your federal tax bill, and your tax strategy should be updated to reflect it. If your income exceeds $600k, the impact is limited but it's still worth reviewing whether your withholding, estimated tax payments, and deduction timing are optimized based on the phase-out math.
Change #2: Charitable Deductions Get a Floor
This one catches many people off guard, because it affects both itemizers and non-itemizers.
For those who itemize:
Starting with your 2026 tax return (filed in 2027), you can no longer deduct every dollar of charitable giving. Instead, your charitable deduction is only available for the amount that exceeds 0.5% of your adjusted gross income (AGI). This is similar to the existing rule for medical expenses, where you can only deduct costs above 7.5% of your AGI.
For high-income itemizers, the 0.5% floor won't eliminate the deduction entirely, but it will reduce it. A family with $500k in AGI, for example, would automatically lose the first $2,500 of their charitable deduction. Unused amounts can be carried forward for up to five years, so the dollars aren't lost, but the timing and structure of your giving strategy may need to change.
For those who don't itemize:
Starting in 2026, even if you take the standard deduction you can still deduct up to $1,000 in charitable cash gifts ($2,000 for joint filers).
What this means for your financial plan: Donor-advised funds, bunching charitable contributions into higher-income years, and qualified charitable distributions (QCDs) from IRAs all become more important. If you give consistently, discuss with your advisor how the 0.5% floor, carryforward rules, and deductions will impact your financial plan.
Change #3: High-Income Filers Get Total Deductions Capped
Starting in 2027 (for tax year 2026), total itemized deductions will be reduced for taxpayers in the highest income bracket. This change is the most significant for high earners.
If you’re in the 37% federal tax bracket, your itemized deductions will be reduced by whichever is smaller: 2/37ths of your total itemized deductions, or the income subject to the 37% rate. Some say this has the same effect as capping the tax benefit of itemized deductions at roughly 35%, even if your marginal rate is higher.
You can still itemize but the higher your income, the less each dollar of deductions helps you.
What this means for your financial plan: This rule interacts with everything including mortgage interest, SALT deductions, charitable giving, and investment interest expenses. For taxpayers in the 37% bracket, the assumption that "more deductions = lower taxes" no longer holds in the same way.
Each of these three changes is significant on its own, and together they change how itemized deductions work for high-income families.
Consider a family that owns a home in a high-cost area, has substantial investment accounts, gives generously to charity, and earns well into the six or seven figures. That family is simultaneously affected by all three changes:
Their SALT deduction now has a phase-out.
Their charitable strategy needs to account for a new floor.
Their total deduction value may be cut by the 37% bracket limitation.
Each of those will impact decisions about investment timing, retirement contributions, estate planning, and cash flow.
What You Should Do Now
If you're a high-income earner who itemizes, you need to ask:
Has my withholding or estimated tax been updated to reflect the new SALT cap (and its potential phase-out at my income level)?
Does my charitable giving strategy account for the 0.5% AGI floor?
If I’m in the 37% bracket, how does the deduction limitation affect the value of my itemized deductions?
Are there planning moves (accelerating deductions, structuring charitable vehicles, adjusting investment activity, etc.) that make sense for me?
The best financial plans treat taxes not as an annual chore, but work them into a strategy that makes sense given your investment management, cash flow, and long-term goals.
As always, we recommend working with a professional who understands both tax strategies and wealth management.
Author: Rob Cucchiaro, CFP®
Q&As in this blog:
How does the One Big Beautiful Bill impact me?
How does the One Big Beautiful Bill impact high income earners?
What does it mean to itemize on your tax return?
What does it mean to take the standard deduction on your tax return?
Do more people itemize or take the standard deduction on their tax return?
What is the standard deduction for 2026?
What are SALT deductions?
What are SALT deductions capped at?
How did the One Big Beautiful Bill affect SALT deductions?
Can anyone take the full $40k SALT deduction?
What are the phase out rules for SALT deductions?
How did the One Big Beautiful Bill affect charitable deductions?
Can I still get a charitable deduction if I don’t itemize?
If I’m in the 37% tax bracket, how are my itemized deductions impacted?
Does more deductions always mean lower taxes?
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