Key Takeaways
Standard vs. itemized deductions both reduce taxable income, but the standard deduction is a flat amount while itemizing totals specific expenses; choose whichever gives the larger deduction each year.
OBBB changes boosted tax benefits, including higher standard deductions, a temporary $40,000 SALT cap for itemizers, and a new bonus deduction for seniors.
Seniors age 65+ can claim up to an extra $6,000 per person (2025–2028), subject to income phaseouts, whether they itemize or take the standard deduction.
Itemizing is most beneficial for taxpayers with large deductible expenses, such as mortgage interest, high state and local taxes, major charitable gifts, or high medical bills.
State tax rules may differ from federal rules, so your best federal choice (standard vs. itemized) isn’t always the best for your state return.
Tax credits are often more valuable than deductions because they reduce your tax bill dollar-for-dollar and can be claimed regardless of deduction method.
Choosing between itemized deductions vs standard deduction is one of the most important decisions taxpayers make each year. With recent changes from the One Big Beautiful Bill (OBBB), including enhanced standard deductions, a new senior deduction, and expanded SALT limits, it’s more important than ever to understand not just how deductions work but which set of rules applies to your tax year. This guide walks through what the deductions are, how to decide between them, and how major factors like state taxes and age can shift the balance in your favor.
Standard vs. Itemized Deductions at a Glance
At a high level, both the standard deduction and itemized deductions reduce your taxable income. The key difference is simplicity versus customization: the standard deduction is a flat amount set by law, while itemized deductions let you add up specific eligible expenses you incurred during the year. If your total itemized deductible expenses exceed the standard deduction, itemizing may lead to bigger tax savings. If not, the standard deduction typically wins for ease and efficiency.
What Is the Standard Deduction?
The standard deduction is a fixed-dollar benefit everyone is entitled to take if they qualify, without needing to itemize individual expenses. The IRS updates this amount annually for inflation.
Standard Deduction Amounts After the One Big Beautiful Bill
The table below shows IRS indexed amounts as adjusted under the One Big Beautiful Bill provisions for tax years 2025 and 2026. These are the figures most relevant to taxpayers deciding between standard and itemized deductions:
These adjusted figures are based on official IRS inflation adjustments under the OBBB provisions. Without OBBB adjustments, baseline IRS amounts would be slightly lower, but the law effectively makes the higher OBBB figures the operative values for most filers.
New Senior Deduction
In addition to the standard amounts above, the OBBB also introduced a bonus deduction for taxpayers aged 65 or older. For tax years 2025 through 2028, eligible seniors can claim up to an additional $6,000 deduction per person, on top of the standard deduction and the traditional extra standard deduction for age or blindness. This senior deduction phases out for higher incomes (above $75,000 for single filers or $150,000 for joint filers). It also applies whether you itemize or take the standard deduction.
What Are Itemized Deductions?
Itemized deductions let you subtract specific qualified expenses from your income to lower your tax bill. Unlike the standard deduction, itemizing requires documentation such as receipts, mortgage statements, or medical bills. Common itemized deductions include:
Mortgage interest on qualified home loans
State and local taxes (SALT) up to allowable limits
Medical and dental expenses above if they exceed a threshold percentage of your income
Casualty and disaster losses in federally declared disaster zones
The sum of these itemized expenses, as recorded on IRS Schedule A, determines whether itemizing beats the standard deduction each year.
Common Expenses You Can Itemize
Itemized deductions allow taxpayers to subtract specific qualifying expenses from their taxable income, which can sometimes exceed the standard deduction and result in greater tax savings. Understanding what qualifies, especially with recent changes under the One Big Beautiful Bill (OBBB), is essential for planning your 2026 taxes.
Mortgage Interest
Homeowners can deduct interest paid on qualified home loans, which often makes itemizing more advantageous, particularly in the early years of a mortgage when interest payments are highest. In addition to traditional mortgage interest, mortgage insurance premiums (PMI) are permanently deductible starting in tax year 2026 under OBBB, though they were not deductible for tax years 2022–2025. This deduction applies to FHA MIP, VA funding fees, and USDA guarantee fees. Taxpayers with an AGI under $100,000 can claim the full deduction, which phases out completely at $110,000 AGI.
Other mortgage-related deductions include points paid on a home purchase or refinance. Points may either be deducted in full in the year paid if they are for a purchase of a primary residence or amortized over the life of the loan for refinances. Additionally, mortgage interest is limited by loan amount thresholds: $750,000 for post-2017 loans and $1 million for earlier loans. Interest on a second home may also qualify, subject to the same loan limits.
SALT Deduction
The OBBB temporarily expanded the state and local tax (SALT) deduction, one of the largest recent changes to itemized deductions. For tax years 2025 through 2029, the SALT cap is increased to $40,000 for single filers, heads of household, and married couples filing jointly. Married taxpayers filing separately have a $20,000 cap. These amounts will increase by roughly 1% annually through 2029.
The expanded SALT deduction is subject to income-based phaseouts. Taxpayers with Modified Adjusted Gross Income (MAGI) above $500,000 ($250,000 for married filing separately) see their $40,000 cap gradually reduced, fully reverting to the original $10,000 ($5,000 for married filing separately) at $600,000 MAGI ($300,000 for married filing separately). Deductible SALT expenses include state and local property taxes, either state income or sales taxes (whichever is higher, but not both), and personal property taxes where applicable.
This expansion makes itemizing more attractive for taxpayers in high-tax states, particularly when combined with mortgage interest or charitable contributions. Business owners can continue to use the pass-through entity tax (PTET) workaround to convert state income taxes into a federal deduction.
Charitable Contributions
OBBB also significantly updated charitable deduction rules for tax year 2026. A new above-the-line deduction allows non-itemizers to claim up to $1,000 for single filers and $2,000 for married couples filing jointly for cash contributions to public charities. Contributions to donor-advised funds or supporting organizations do not qualify.
For itemizers, a 0.5% AGI floor applies: only donations exceeding 0.5% of AGI are deductible. Taxpayers in the top 37% bracket have the value of their deductions reduced to 35 cents per dollar donated. The permanent 60% AGI limit on cash contributions remains, and non-cash contributions retain a 30% limit, with unused deductions carried forward five years.
Strategic planning opportunities include bunching contributions, giving appreciated assets, or using qualified charitable distributions (QCDs) for taxpayers over 70½ to satisfy RMDs. Starting in 2027, a school voucher donation credit allows up to $1,700 in non-refundable credits for contributions to scholarship-granting organizations.
Medical and Dental Expenses
Itemized deductions include medical and dental expenses exceeding 7.5% of AGI. Deductible costs include insurance premiums (if not paid pre-tax), prescription drugs, medical equipment, long-term care expenses, and mileage for medical travel. Self-employed taxpayers may also deduct health insurance premiums above the line, further reducing taxable income. This deduction is particularly valuable for those with high out-of-pocket expenses.
Casualty and Disaster Losses
Starting in 2026, the OBBB expands casualty loss deductions to include state-declared disasters in addition to federally declared disasters. However, the rules vary depending on the type of disaster. For regular declared disasters, which include federally declared events not specifically designated as “qualified disasters” and state-declared disasters (declared by a governor or, in D.C., the mayor), losses are subject to a $100 floor per casualty and a 10% of AGI threshold, meaning only amounts exceeding 10% of adjusted gross income are deductible. Taxpayers must itemize deductions on Schedule A to claim these losses.
For disasters specifically designated by Congress as qualified disasters—federally declared events with this special designation—more generous rules apply. The floor increases to $500 per casualty, the 10% of AGI limitation is removed, and losses can be claimed even if taking the standard deduction. Under OBBB, these provisions were extended to qualified disasters where the declaration occurred between January 1, 2020, and September 2, 2025, with the incident period beginning no earlier than December 28, 2019, and ending no later than August 3, 2025.
The inclusion of state-declared disasters in the regular category significantly broadens eligibility, allowing more taxpayers to offset disaster-related expenses on their 2026 tax returns while maintaining special benefits for federally designated qualified disasters.
Itemized Deductions vs. Standard Deduction
Deciding between the two methods comes down to a simple principle: choose the path with the higher deduction amount, but only after careful calculation. For example, if your total itemized deductions (mortgage interest, SALT, charitable gifts, etc.) add up to $35,000 in 2026, and your applicable standard deduction is $32,200 (married filing jointly), itemizing yields a larger deduction and will likely reduce your tax bill more.
Because many taxpayers have fluctuating expenses year to year, it’s smart to run the numbers both ways.” Tax software can do this automatically, comparing your itemized total against the standard deduction. This ensures you don’t leave savings on the table.
Key Factors That Influence Your Choice
Several personal and financial circumstances heavily influence how worthwhile itemizing is:
Homeownership — Mortgage interest and property tax payments often make itemizing more valuable, especially for new homeowners.
High Tax State Residency — Residents of high-tax states may have large SALT deductions, though the expanded SALT cap phases down at higher income levels.
Large Charitable Giving — Significant donations can push your total itemized deductions higher than the standard deduction.
Medical Expenses — High unreimbursed medical costs can spike deductible expenses if they exceed the AGI threshold.
Life Events — Major changes like marriage, divorce, or career shifts can affect your deduction strategy, as combined incomes or expenses change year over year.
Each of these factors can change the math when comparing itemized deductions vs standard deduction, and tax planning should reflect your specific situation.
State Tax Considerations
Remember, your federal deduction strategy does not always align with your state tax return. Some states adopt the federal method you choose; others have separate rules that determine whether you itemize or take a standard deduction at the state level. In states with income tax, this can create a situation where it’s beneficial to itemize federally but take a different approach on the state return, or vice versa. Understanding both federal and state tax implications can prevent missteps and uncover additional savings opportunities.
Standard Deduction Pros and Cons
Understanding the strengths and limitations of the standard deduction can help you make an informed decision.
The standard deduction is ideal for taxpayers with minimal deductible expenses. It reduces tax liability quickly and efficiently without the hassle of tracking dozens of receipts or tax forms. However, its fixed nature sometimes leaves money on the table if your actual deductible expenses exceed the standard amount.
Above-the-Line Deductions: Tax Breaks You Can Take With the Standard Deduction
One of the biggest misconceptions about the standard deduction is that taking it means you can’t claim any other deductions. You can still claim “above-the-line” deductions, which lower your Adjusted Gross Income (AGI) before you even choose between itemizing or the standard deduction. A lower AGI can help you qualify for more credits, avoid phase-outs, and even reduce things like Medicare premiums later on. Common above-the-line deductions include:
Student loan interest (up to $2,500, subject to income limits)
Traditional IRA contributions (may be deductible depending on income and workplace retirement coverage)
HSA contributions (deductible and grow tax-free when used for qualified medical expenses)
Half of self-employment tax
Self-employed health insurance premiums
Educator classroom expenses (up to $300, or $600 if both spouses are educators)
Alimony payments for divorce agreements finalized before 2019
Moving expenses for active-duty military members
Temporary above-the-line deductions available through 2028:
Tip income deduction (up to $25,000, with income phase-outs)
Overtime pay deduction (up to $12,500 single / $25,000 joint, for the premium portion of overtime)
Car loan interest deduction (up to $10,000 on qualifying new U.S.-assembled vehicles, with income limits)
Charitable contributions for non-itemizers starting in 2026 (up to $1,000 single / $2,000 joint for cash donations to qualified charities)
Itemized Deduction Pros and Cons
Itemizing has powerful advantages, but it also comes with tradeoffs.
The greatest strength of itemizing is its potential to reduce taxable income beyond the standard deduction, but only if your total qualifying expenses justify it. For taxpayers with large mortgage interest or medical bills, this can translate into substantial tax savings.
At the same time, itemizing demands organization and proof. Without proper documentation, deductions may be challenged by the IRS.
Credits vs. Deductions
It’s worth highlighting that tax credits are different from deductions. While deductions reduce your taxable income, tax credits reduce your actual tax liability dollar-for-dollar. For example, a $1,000 deduction might reduce taxable income and save $200–$300 in tax depending on your bracket, but a $1,000 tax credit reduces your tax bill by the full $1,000. Credits are often more valuable overall, and you can claim eligible credits regardless of whether you itemize or take the standard deduction. Always explore credits like the Child Tax Credit or Earned Income Tax Credit alongside your deduction strategy.
How to Itemize Deductions Step-by-Step
Understanding how to itemize deductions can make this process easier and more accurate. Here’s a structured approach:
Track Potential Deductions Throughout the Year. Save receipts, mortgage statements, property tax bills, medical expense records, and documentation of charitable gifts.
Organize Expenses by Category. Group these expenses into the IRS-recognized categories (medical, taxes, interest, charity, casualty).
Use Schedule A of Form 1040. Enter totals for each category on Schedule A; tax software typically guides this process.
Compare to Standard Deduction. After adding up all eligible itemized expenses, compare the total to your standard deduction amount (including senior bonuses under OBBB if applicable).
Maintain Records. Keep documentation for at least three years in case the IRS requests support for your itemized claims.
This systematic approach ensures you capture all deductible expenses while staying compliant with IRS expectations.
How Optima Tax Relief Can Help
At Optima Tax Relief, we help taxpayers reduce their tax burden and achieve real relief. Our experts review your income, expenses, and deductions to maximize savings while ensuring IRS compliance.
Whether you owe back taxes, face penalties, or have complex deductions like mortgage interest, SALT, or charitable contributions, we provide strategic solutions to lower your liability and resolve tax issues efficiently. With Optima Tax Relief, you get expert guidance, peace of mind, and a tailored plan to protect your financial future.
Frequently Asked Questions
Does itemizing increase audit risk?
Itemizing can slightly increase audit risk because you’re claiming specific expenses that require proof. However, accurate reporting and documentation greatly reduce problems.
Are tax credits affected by itemizing or taking the standard deduction?
No, most tax credits can be claimed regardless of which deduction method you choose. Credits reduce your tax bill directly, making them especially valuable.
How to itemize deductions properly?
You track qualifying expenses during the year, total them by category, and report them on Schedule A with your tax return. Good recordkeeping is essential in case of IRS questions.
Tax Help for People Who Owe
Both itemized deductions vs standard deduction have a place in smart tax planning. For many taxpayers, the standard deduction offers a simple and substantial benefit with minimal recordkeeping. But taxpayers with sizeable deductible expenses especially mortgage interest, charitable contributions, and expanded SALT limits often find itemizing yields bigger savings.
The best strategy is to evaluate both methods each year, preferably with tax software or professional guidance, and make the choice that minimizes your overall tax liability. Good planning and recordkeeping can unlock meaningful savings where you might not expect them, especially in a year with large deductible expenses or significant life changes. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers.
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