The One Big Beautiful Bill Act Quietly Cut the Tax Benefit of Itemized Deductions for High Earners. Here’s What It Costs.
A quiet provision buried in the One Big Beautiful Bill Act rewired how much high-income filers actually save from their itemized deductions, and most people in the 37% bracket have no idea their write-offs now cost them more than they…
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A married investor with $1 million of taxable income and $100,000 in itemized deductions loses about $5,405 of those write-offs on a 2026 return.
That lost deduction adds exactly $2,000 to the federal tax bill. The cause is a revised Internal Revenue Code Section 68(a), put in place by the One Big Beautiful Bill Act (OBBBA). It reduces itemized deductions for people in the top 37% bracket, so each deductible dollar now saves about 35 cents instead of 37.
How Section 68(a) Shrinks a Deduction
Section 68(a) cuts itemized deductions by 2/37 of whichever of two amounts is smaller: your total itemized deductions, or the amount by which your taxable income plus those deductions goes over the point where the 37% bracket begins. The language came from Pub. L. 119-21, § 70111(a), signed July 4, 2025.
The IRS confirmed the change in IR-2025-103, dated Oct. 9, 2025. The OBBBA permanently repealed the old limit on itemized deductions, the IRS said, “although it imposes a limitation on the tax benefit from itemized deductions for those taxpayers in the highest tax bracket (37%).” That old limit was the Pease rule, and the new formula replaces it.
Revenue Procedure 2025-32 sets the 2026 trigger points. The 37% rate starts above $768,700 for joint filers and above $640,600 for individual filers.
Worked Example: A $1 Million Couple Pays $2,000 More
Assumptions: a married couple filing jointly for tax year 2026, with $100,000 of itemized deductions (mortgage interest, state and local taxes, charitable gifts). Their taxable income is $1,000,000 before Section 68 applies.
| Step | Amount |
|---|---|
| Taxable income plus itemized deductions | $1,100,000 |
| Where the 37% bracket starts (joint) | $768,700 |
| Income above the 37% line | $331,300 |
| Smaller of $100,000 or $331,300 | $100,000 |
| Cut (2/37 of $100,000) | $5,405.41 |
| Itemized deductions still allowed | $94,594.59 |
| Extra federal tax at 37% | $2,000 |
Before 2026, $100,000 of deductions taxed at 37% saved $37,000. Now the same deductions save $35,000. Any household with at least $100,000 of income above the 37% line takes the full hit.
Couples Just Under the Line Lose Much Less, or Nothing
Take a couple with $700,000 of taxable income and the same $100,000 of deductions. Added together, that’s $800,000, which is $31,300 above the 37% line. They lose 2/37 of that amount, or about $1,692 in deductions.
Those lost deductions push their taxable income to about $701,692. That’s still in the 35% bracket, so the extra tax is roughly $592. A couple with $600,000 of taxable income ends up at $700,000 when the deductions are added back. That’s below the line, so they lose nothing.
Single filers reach the limit sooner, at $640,600. Section 68(b) also says the cut applies after every other limit on itemized deductions. So the $100,000 in this example is what remains after the SALT cap, the medical-expense floor and the charitable percentage limits have already done their work.
Moves That Protect the Full 37% Deduction
Section 68 applies only to itemized deductions, so the fixes require moving deductions somewhere else:
- Give from an IRA instead. A qualified charitable distribution (QCD), open to IRA owners age 70½ and older, sends money straight from the IRA to a charity. It never counts as income and never shows up on Schedule A, so the Section 68 cut can’t reach it.
- Max out pre-tax contributions. Money you put into a traditional 401(k) or HSA reduces taxable income directly. For income in the 37% bracket, each dollar still saves the full 37 cents.
- Donate appreciated stock, not cash. The deduction still gets cut. But you never pay capital-gains tax on the stock’s growth, and Section 68 doesn’t touch that savings.
QCDs, donor-advised funds, and appreciated-share gifts all avoid the Section 68 reduction in different ways (we walked through each of them in a free guide on tax-smart charitable giving).
State taxes are a separate question. Section 68 is a federal rule, and whether your state follows it depends on how closely the state links its itemized deductions to the federal code.
The rule first shows up on 2026 returns, which will be filed in 2027. Look for the IRS’s 2026 Schedule A instructions, which should include the calculation worksheet. With three months left in the year, a household near the 37% line should run these numbers with a CPA before year-end giving and contribution deadlines.
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Vilma Rios is a tax professional and tax content contributor with more than 15 years of experience in tax and accounting. She specializes in federal tax research, tax education, and translating complex tax rules into clear, practical information for individuals, families, and small-business owners.
Vilma is a Content Tax Contributor II with the National Association of Tax Professionals (NATP), where she contributes to tax education and professional content. She has also presented tax information through webinars, including Spanish-language tax education, and has appeared on Telemundo 47 discussing tax topics and helping viewers understand important tax-filing requirements.
Her experience also includes tax and accounting work, tax research, IRS-related matters, and public tax education. While in college, Vilma volunteered in an IRS-sponsored tax assistance program and was recognized for her community service by local and state officials.
Known as “Your Tax Geek,” Vilma is passionate about making taxes easier to understand and helping people navigate an increasingly complex tax system.
