As 2025 comes to an end, it is an appropriate time to revisit state and local tax deductions and charitable giving plans. The One Big Beautiful Bill (OBBBA) introduced several updates that may influence year-end strategies, particularly for taxpayers who pay substantial state and local taxes (SALT) or who regularly give to charity. These changes affect how deductions apply beginning this year and into 2026 and prior strategies may need to be reconsidered.
Below is a summary of the key developments based on current reporting.
SALT Deduction Changes
Higher SALT cap beginning in 2025
Beginning in 2025, the OBBBA raises the SALT deduction cap to $40,000 per return and indexes it upward by 1% annually each year through 2029. The cap is scheduled to revert to $10,000 in 2030.
To receive the full benefit of the expanded SALT deduction, taxpayers must itemize. Some reports note that the number of itemizers is expected to increase significantly because more taxpayers will now find that itemized deductions exceed the standard deduction.
SALT cap phases down at higher income levels
The full $40,000 SALT deduction generally applies to taxpayers with adjusted gross income up to $500,000. Above this level, the deduction begins to phase down and is reduced to $10,000 once income reaches $600,000.
Itemizing may be more attractive for some taxpayers
The expanded SALT deduction alone may tip the balance toward itemizing for individuals who previously defaulted to the standard deduction. Whether itemizing is beneficial depends on the combination of SALT payments, mortgage interest, charitable contributions and other eligible deductions.
Considering prepayment of property taxes
Some taxpayers may explore paying 2026 property taxes this year to increase their deductible SALT amount for 2025. However, this strategy is only valid if the taxes are formally assessed and due this year. Estimated payments or deposits for future bills do not qualify.
Charitable Giving Changes Beginning in 2026
While the SALT changes apply for 2025, the charitable deduction rules start in 2026. These upcoming changes may affect how donors choose to time contributions made this year.
New deduction available to nonitemizers in 2026
Beginning next year, individuals who do not itemize will be eligible for a modest charitable deduction. The deduction applies only to cash contributions made directly to qualifying public charities. Gifts to donor-advised funds, supporting organizations or contributions of property will not qualify.
Because this deduction becomes available next year, some taxpayers who typically do not itemize may consider delaying smaller cash gifts until 2026.
New limitation for itemizers in 2026
Starting in 2026, taxpayers who itemize must reduce the amount of their charitable deduction by 0.5% of adjusted gross income. The practical effect is that only the portion of charitable contributions that exceeds 0.5% of adjusted gross income will be deductible.
The value of the deduction for the highest-income taxpayers will decrease. Instead of receiving the benefit of their full marginal tax rate, the deduction will be limited to a lower percentage.
Donor-advised funds remain good option
For taxpayers who want to secure a charitable deduction this year but need additional time before selecting final charitable recipients, contributions to donor-advised funds remain a flexible option under current rules.
Qualified charitable distributions remain unchanged
The OBBBA does not modify the rules governing qualified charitable distributions from IRAs. Individuals age 70½ or older may continue to make qualified charitable distributions to satisfy charitable goals in a tax-efficient manner.
Planning Ahead
As you consider your year-end planning, it is important to review how the expanded SALT deduction and the upcoming charitable giving changes may influence your overall strategy. Thoughtful preparation can help ensure that deductions and contributions are structured in a way that aligns with your financial and philanthropic objectives.
KJK’s Estate, Wealth & Succession Planning Team can assist with evaluating these developments and determining how they apply to your personal planning priorities.