Which specific itemized deductions are limited by income thresholds in 2025 (state and local taxes, mortgage interest, charitable contributions)?
Executive summary
For the 2025 tax year, the biggest income-sensitive limits affect the SALT deduction (raised to $40,000 but phased down for higher MAGI) and upcoming overall limits on itemized deductions and charitable deduction floors that begin in 2026; mortgage interest treatment remains at the TCJA caps but is subject to carry‑forward and other rules [1] [2] [3]. Available sources do not mention any separate 2025 income‑threshold limit that directly reduces mortgage interest deduction amounts for most filers beyond existing TCJA debt caps (not found in current reporting).
1. SALT: a fourfold cap — with an income “torpedo” attached
Congress increased the state and local tax (SALT) itemized deduction to $40,000 for 2025 ($20,000 for MFS), but that larger cap phases down for higher earners: the benefit begins to shrink once modified adjusted gross income (MAGI) exceeds $500,000 and can be cut back to the old $10,000 cap at the high end [2] [4]. Multiple reporting and advisory outlets—Fidelity, Kiplinger and Thomson Reuters—describe a 30% phase‑down rate for incomes above $500,000 (effectively 30 cents reduction per dollar over the threshold) that can leave filers back at $10,000 if they push MAGI high enough [5] [6] [7]. Advisors warn that realizing gains or large Roth conversions can trigger the phaseout and erase the SALT increase for marginal filers [8].
2. Charitable deductions: new floors and 2026 haircut make 2025 timing valuable
Lawmakers preserved many charitable rules for 2025 but altered the landscape starting in 2026. The One, Big, Beautiful Bill Act (OBBBA) introduces floors and overall limitations that make gifts in 2025 more valuable for some donors: itemizers face a 0.5%‑of‑AGI floor on individual charitable deductions beginning in 2026 and the law imposes an overall cap on the tax value of itemized deductions for top‑bracket taxpayers thereafter [9] [10] [3]. Analysts urge front‑loading or “bunching” donations into 2025 to avoid the 2026 floor and the reduced after‑tax value for high‑income taxpayers [9] [11].
3. Mortgage interest: the TCJA limits made permanent but no new 2025 income phaseout reported
The mortgage interest deduction remains governed by the TCJA acquisition‑debt limits—interest on acquisition debt is generally deductible up to the statutory loan caps (e.g., the $750,000 rule originally set by TCJA, preserved under later legislation)—and OBBBA made that treatment permanent rather than adding a new 2025 income‑based phaseout for mortgage interest itself [12] [13]. Several practitioner guides confirm mortgage interest still factors into Schedule A itemizing decisions, but the reporting does not identify a 2025 MAGI threshold that directly cuts the mortgage interest deduction dollar for dollar (available sources do not mention a separate 2025 mortgage‑interest income phaseout) [14] [15].
4. Overall itemized‑deduction limits: the return of a top‑bracket haircut in 2026
The traditional “Pease” style limitation was suspended through 2025; OBBBA replaces it with a narrower mechanism that trims the tax value of itemized deductions for taxpayers in the highest tax bracket (roughly 37%) starting in 2026, effectively reducing the marginal tax benefit of itemized deductions for that small group [16] [17] [18]. Sources describe the formula as a percentage reduction (sometimes described as a 35% cap on the tax value for 37%‑bracket filers or a 2/37ths reduction calculation) and caution that taxpayers with incomes near top‑bracket thresholds should plan now because the limitation is not in effect for 2025 returns [18] [19] [20].
5. Who is affected and what to watch for at year‑end
The changes most help or hurt based on filing status, MAGI and timing: middle‑income couples in high‑tax states may find itemizing worthwhile in 2025 because of the $40,000 SALT cap and existing mortgage and charitable rules; high‑income filers must model the SALT phaseout and the coming 2026 itemized‑deduction haircut before realizing large income events [4] [14] [10]. Tax professionals quoted across outlets recommend modeling MAGI, bunching charitable gifts into 2025, and considering deferral or acceleration of deductible payments depending on expected bracket changes [8] [3] [18].
Limitations and disagreements in the reporting: sources agree on the $40,000 SALT figure and its income‑phaseout mechanics but use slightly different phasing language and projection thresholds for the top bracket in 2026; IRS and Congressional analyses describe the new overall itemized cap differently than private advisers’ summaries, so exact dollar effects will vary by taxpayer [2] [17] [19]. All factual statements above are drawn from the cited sources; available sources do not mention an across‑the‑board 2025 income threshold that reduces mortgage interest deductions beyond existing TCJA debt caps (not found in current reporting).