Standard vs. Itemized Deductions in 2025: What Changed Under OBBBA

The One Big Beautiful Bill Act (OBBBA) has introduced a wave of tax changes that create both confusion and opportunity for nearly every taxpayer. Navigating these updates requires more than general knowledge — it takes a clear understanding of how each provision applies to your specific financial situation.

This overview highlights some of the most impactful OBBBA changes affecting individual tax filings starting in tax year 2025, including deduction updates, expanded credits, and new income adjustments. To ensure you’re maximizing every benefit available under the new law, schedule a personalized review with Hiatt Accounting Group today — we’ll help you turn complex tax reform into practical savings.

2025 Standard Deduction Increases

The standard deduction is the simplest way to reduce taxable income — and for 2025, it’s larger than ever.

Filing Status 2025 2024 Change

Single / MFS $14,600 $14,000 +$600

Head of Household $21,900 $20,800 +$1,100

Married Filing Jointly / QSS $29,200 $28,000 +$1,200

Result: More households will benefit from taking the standard deduction rather than itemizing, especially after inflation and OBBBA adjustments.

SENIOR RELIEF (65+)

For the first time, OBBBA introduces an enhanced additional standard deduction for older taxpayers.

• Taxpayers age 65 or older can now claim an extra $6,000 each (previously $1,550 single / $3,100 joint).

• Couples where both spouses are 65+ can claim a total of $12,000.

• The phaseout starts once modified adjusted gross income (MAGI) exceeds $75,000 (single) or $150,000 (joint). The deduction is fully phased out at $175,000 (single) or $250,000 (joint).

• Available if you itemize or take the standard deduction.

Changes Affecting Itemized vs. Standard Deductions (Effective 2025–2029)

The OBBBA made subtle but meaningful shifts to deduction rules that impact returns filed in 2026 and beyond:

Medical Expense Deduction

• The AGI threshold remains 7.5%, but OBBBA broadens the definition of qualified medical expenses.

• Now includes long-term care services, in-home care, and certain preventive health and wellness programs as deductible when paid out-of-pocket.

• Clarifies eligibility for home-based medical equipment and transportation for medical purposes.

• Allows expanded coverage for healthcare-related travel and lodging within prescribed IRS limits.

Charitable Contributions - Beginning in tax year 2026

• OBBBA reinstates limited above-the-line charitable deductions for non-itemizers.

  • Up to $1,000 (single) or $2,000 (married filing jointly) for cash gifts to qualified public charities (excluding donor-advised funds and supporting organizations).

  • Available in addition to the standard deduction — even if the taxpayer does not itemize.

• For itemizers, charitable gifts are deductible only to the extent they exceed 0.5% of AGI (a new floor).

• The 60% of AGI limit for cash donations to public charities is made permanent.

• The tax benefit of charitable deductions is capped at a 35% effective rate for high-income taxpayers, preventing excessive benefit in top brackets.

SALT Cap (State and Local Tax Deduction)

• For tax years 2025–2029, the SALT deduction cap increases from $10,000 to $40,000 ($20,000 for married filing separately).

• The benefit phases out by 30% of the amount that a taxpayer’s MAGI exceeds $500,000 (joint) or $250,000 (separate) — but the deduction cannot fall below $10,000.

• Both the cap and thresholds are indexed upward by 1% per year through 2029, then revert to prior levels in 2030.

• OBBBA preserves the PTET workaround, allowing eligible pass-through entities to continue deducting state taxes at the entity level.

Energy & Property-Related Deductions / Credits

• OBBBA significantly restructures and phases out certain energy-related credits and deductions:

  • Energy Efficient Home Improvement Credit (§25C) and Residential Clean Energy Credit (§25D) expire after December 31, 2025; homeowners completing projects before that date may still claim a 30% credit (subject to per-item limits).

  • The Alternative Fuel Vehicle Refueling Property Credit (§30C) (e.g., EV chargers) applies only to property placed in service by June 30, 2026.

  • The New Energy Efficient Home Credit (§45L) for homebuilders ends for homes acquired after June 30, 2026.

  • The Energy Efficient Commercial Buildings Deduction (§179D) is phased out for projects starting construction after June 30, 2026.

  • The Clean Electricity Investment Credit (§48E) for renewable energy systems terminates for projects placed in service after December 31, 2027, unless construction begins within 12 months of enactment.

  • Tightened domestic content and foreign-entity restrictions may affect qualification for future projects.

• For homeowners completing qualifying improvements, these incentives can still increase the value of itemizing in the short term.

Overall Limitation on Itemized Deductions

• Starting in 2026, OBBBA imposes a 35% cap on the tax benefit of itemized deductions for high-income taxpayers, reducing the effective value of deductions for those in the top brackets.

• This means that even if you itemize large deductions, they can’t reduce tax liability beyond a 35% rate.

Miscellaneous Itemized Deductions

• Deductions previously subject to the 2% AGI floor — such as tax prep fees, unreimbursed employee expenses, and investment management fees — remain permanently eliminated under OBBBA.

Casualty & Theft Losses

• OBBBA extends eligibility for federally declared disaster losses, expanding what qualifies for deduction and extending the claim period.

• Taxpayers can claim these losses without itemizing if related to a federally declared disaster event.

Mortgage Interest Deduction

• The $750,000 mortgage debt limit for interest deductions remains, but OBBBA clarifies that home equity loan interest is deductible again if the proceeds are used for qualified home improvements.

• Strengthens recordkeeping requirements for tracing loan proceeds to eligible uses.

Inflation Adjustments

• OBBBA modifies the inflation indexing formula used for standard deductions, phaseout thresholds, and credit limits to ensure smaller annual bracket creep but steadier increases in deduction values.

Example 1: Sarah & spouse (MFJ), Parker, CO (OBBBA Rules)

Assumptions (MFJ; AGI = $180,000; both under 65):

• Mortgage interest (primary home): $10,200

• Property taxes: $4,000

• State income tax paid: $6,000

• Charitable cash gifts to qualified charities: $3,000

• Unreimbursed medical expenses: $6,000

• Investment interest expense: $500 (with ≥$500 net investment income)

Step-by-step itemized calculation (2025)

Medical (7.5% of AGI floor):

• 7.5% × $180,000 = $13,500 floor

• Paid $6,000 → below the floor → $0 deductible

SALT (State & Local Taxes) under OBBBA (cap = $40,000 in 2025):

• State income tax $6,000 + property tax $4,000 = $10,000 → fully deductible (well under the $40k cap)

Mortgage interest: $10,200

Charitable contributions (cash): $3,000 (2025 has no 0.5% AGI floor; that starts 2026)

Investment interest: $500 (limited to net investment income; assumed met)

Total itemized deductions (2025):
$10,000 (SALT) + $10,200 (mortgage) + $3,000 (charitable) + $500 (inv. interest) + $0 (medical)
= $23,700

Compare: Itemizing $23,700 vs. Standard $29,200 → Standard wins by $5,500
Approx. tax impact at 22% marginal rate: $5,500 × 0.22 ≈ $1,210 less tax by taking the standard deduction..

Result: The standard deduction saves Sarah more — she won’t need to itemize this year.

Here in Castle Rock and across Douglas County, we see many homeowners and small business owners who used to itemize before the higher standard deduction was introduced.

However, with Colorado’s mix of property taxes and mortgage rates, some families are once again finding that itemizing gives them a better result — especially when factoring in charitable giving and medical expenses. Let’s take a look at another example:

Example 2: MFJ household, Castle Pines, CO (OBBBA rules)

Meet Steve and Linda, Castle Pines homeowners, both under 65, filing jointly with an AGI at ~$200,000

• Unreimbursed medical expenses: $22,000

• State income tax withheld/paid: $9,000

• Property taxes on home: $14,000

• Mortgage interest (primary residence): $13,500

• Charitable cash gifts to qualified charities: $8,000 (no DAFs/supporting orgs)

• Investment interest expense: $1,500 (with ≥$1,500 net investment income)

Compute allowable itemized amounts (2025 rules):

• Medical: 7.5% of AGI floor = 0.075 × 200,000 = $15,000 → deductible = 22,000 − 15,000 = $7,000

• SALT (state + property): 9,000 + 14,000 = $23,000 (≤ OBBBA cap of $40,000, so fully allowed)

• Mortgage interest: $13,500

• Charitable (cash): $8,000 (under 60% of AGI limit; no 0.5% floor until 2026)

• Investment interest: $1,500 (limited to net investment income; assumed met)

Total itemized deductions:

• Start with medical 7,000 + SALT 23,000 = 30,000

• mortgage interest 13,500 = 43,500

• charitable 8,000 = 51,500

• investment interest 1,500 = 53,000

Compare to standard deduction (2025 MFJ): $29,200

Result: Itemizing = $53,000 vs. Standard = $29,200 → extra deduction = $23,800.

Approximate tax savings from itemizing instead:

• At a 22% marginal rate: 23,800 × 0.22 = $5,236

• At a 24% marginal rate: 23,800 × 0.24 = $5,712

Why this household benefits from itemizing

• OBBBA’s higher SALT cap ($40k) lets them deduct the full $23,000 in state + property taxes (pre-OBBBA’s $10k cap would have chopped this).

• Significant medical spending above the 7.5% floor and solid mortgage interest plus charitable giving push itemized totals well beyond the standard deduction.

Quick 2026 note (if the same facts shifted a year later)

• The new 0.5% AGI floor on charitable gifts would reduce the charitable deduction by $1,000 (0.5% × $200,000), making it $7,000 instead of $8,000—but total itemized would still be $52,000, comfortably beating the (slightly higher) 2026 standard deduction.

Pro Tip: Don’t Forget “Above-the-Line” Deductions

Even if you take the standard deduction, you may still qualify for adjustments to income that reduce taxable income before deductions are applied — such as:

• Traditional IRA contributions

• Self-employed health insurance premiums

• HSA contributions

• Student loan interest

When Itemizing Makes Sense

You should consider itemizing if your combined deductible expenses exceed your standard deduction.
Here are some common scenarios where it may pay off:

• You have high mortgage interest or property taxes

• You experienced significant medical expenses

• You make large charitable donations

• You live in a high-tax state

• You had unreimbursed disaster losses

If you’re unsure, we recommend using a side-by-side comparison. At Hiatt Accounting Group, we use our Itemized vs. Standard Deduction Evaluation Tool to help clients easily see which method saves the most.

OBBBA reshapes nearly every factor influencing whether a taxpayer should itemize or take the standard deduction — from higher standard deduction amounts and senior benefits, to expanded SALT relief and charitable flexibility.
The result: more taxpayers will still benefit from the standard deduction, but certain groups (homeowners, retirees, high-donation households) will again find itemizing strategically advantageous.

Ready to Find Out What Works Best for You?

Let’s run the numbers together.

Our team will help you determine whether taking the standard deduction or itemizing will save you more on your 2025 taxyear return — and show you how to plan ahead for 2026.

Call or text us: (720) 595-9473
Email: ahiatt@hiattaccountinggroup.com
Visit: www.hiattaccountinggroup.com