Welcome to the third installment in our Q3 blog series covering the recently-enacted tax bill that was signed into law earlier this summer.
In our first blog, the series introduction, we explored a high-level overview of the tax changes in 2025 related to the One Big Beautiful Bill (OBBBA). Then, we moved on and covered the most important things for retirees or those quickly approaching retirement.
The focus of today’s blog will be on what high-income professionals should know regarding how the changes in this law will impact their tax situation. Let’s dive in!
Changes Related to Itemized Deductions
The legislation made numerous changes to itemized deductions. Let’s look at a couple of the most pertinent.
Higher State and Local Tax Deduction
The SALT deduction has been capped at $10,000 for a few years now. With this new law, the SALT deduction cap has been increased to $40,000 for the 2025 tax year. Starting in 2030, the cap goes back down to the former $10,000 level.
One item of note for high-income individuals and families: the $40,000 SALT cap begins to be reduced for those with Modified Adjusted Gross Incomes over $500,000 and is fully phased back to $10,000 for those with MAGI’s over $600,000.
Changes to Charitable Giving Deduction
Charitable giving deductions have, for many years, been limited to a certain percentage of Adjusted Gross Income based on the type of property donated and the type of charity being donated to. While the substance of these limitations remains with this new bill, there are a couple of additional nuances to be aware of.
New Threshold for Deductibility
Starting in 2026, the first 0.5% of AGI worth of charitable giving is not deductible. A donor will only be able to deduct charitable donations in excess of 0.5% of their AGI.
New Deduction for Those Taking The Standard Deduction
Also starting in 2026, those that will take the Standard Deduction will also be eligible to take an additional deduction for cash (not securities or other property) donated to qualified 501(c)3 charities (not Donor-Advised Funds). The deduction is $1,000 for Single filers and $2,000 for joint filers.
New Limit on Itemized Deductions for Taxpayers in the 37% Bracket
The new tax bill has introduced a limit that will reduce the amount of itemized deductions for taxpayers in the top tax bracket (37%), starting in 2026. This new limitation replaces the Pease limitation, which was suspended in 2017 by the Tax Cuts and Jobs Act and has been formally repealed by this new law.
In practice, it reduces the value of itemized deductions for top-bracket filers by two cents on the dollar — lowering the tax benefit from $0.37 to $0.35 per dollar deducted.
Child Tax Credit Changes
The legislation also made some changes to the Child Tax Credit.
- Permanently Increased – The Child Tax Credit has been increased to $2,200 per eligible child starting in 2025.
- Now Indexed to Inflation – For the first time ever, the Child Tax Credit will be indexed to inflation starting in 2026.
- Income Phase-Out Remains – High-income individuals and families are still phased out of the Child Tax Credit. The phaseout begins for single (and Head of Household) filers with MAGIs over $200,000 and for joint filers with MAGIs over $400,000.
Other 2025 Tax Changes That High-Income Households Should Know
There are some other changes that will impact high-income households that we want to briefly highlight.
Additional K-12 Expenses Eligible for Qualified 529 Distributions
- Dual enrollment fees for college courses taken in high school
- Education therapy for students with varying disabilities, including behavioral, occupational, and physical.
- Perhaps most notably, the limit for these types of expenses has been increased from $10,000 per year to $20,000 per year, starting in 2026.
New “Trump Accounts” for Kids
The law also created a new type of account intended to help jumpstart a child’s retirement savings. The account, more commonly referred to as a “Trump Account” is actually a type of IRA that can be opened and funded for a child under age 18, so long as they have a social security number.
This type of account provides another alternative available to adults that are looking to save for a child’s future without the limitations and restrictions that apply to UTMA accounts and 529 plans.
There are numerous rules for these types of accounts, with some of the rules being dependent on if the child is under 18 or over 18. If you are interested in learning more, please check with your advisor.
Phase-Outs for High-Income Households
There are other provisions included in the new legislation. While these have been reported in the media, many of them do not apply to high income taxpayers due to income phaseouts.
Here are some examples of new tax laws that some high-income taxpayers will likely be phased out of:
- Qualified Tips Deduction
- Qualified Overtime Deduction
- New Auto Loan Interest Deduction
- Expanded Child and Dependent Care Credit
As Always, the Most Important Changes Are Those Important to You
As with many laws passed by Congress, this recently enacted one has a lot of layers to it. No blog post or AI answer can truly fit your personal situation, goals, and understand your portfolio like your personal financial advisor or wealth manager.
If you, or someone you know, have any further questions on how the new tax law impacts your personal situation, please reach out to us!
