OBBB Act: How Tax Deductions Changed for High-Income Earners
If you’re in the top 37% federal tax bracket, new tax rules from the OBBBA take effect this year that you should know about.
Learn how top tax bracket earners itemized deductions were impacted and the importance of tax planning in 2026 and beyond.
Pre-OBBBA Tax Deductions for High-Income Earners
Under prior law, every dollar of itemized deductions for those in the 37% tax bracket reduced your tax bill by 37 cents. Mortgage interest, charitable giving, state and local taxes, etc. Completely uncomplicated and proportional. surprises.
Post-OBBBA Tax Deductions for High-Income Earners
Starting in 2026, the OBBB Act introduced new limitations, often called the “2/37 rule,” that applies specifically to taxpayers in the top 37% bracket. It reduces your allowable itemized deductions by 2/37 of whichever is smaller: your total itemized deductions, or the amount your taxable income exceeds the 37% bracket threshold.
Instead of a dollar of deductions saving you 37 cents, it now saves you closer to 35 cents. That may not seem like a big difference, but it adds up on a large deduction.
For 2026, the 37% bracket begins at taxable income above $640,600 for single filers and $768,700 for married couples filing jointly, per the IRS’s official inflation adjustments (Revenue Procedure 2025-32). Married taxpayers filing separately generally see a threshold at roughly half the joint amount. If your income is below these levels, this particular rule doesn’t apply to you at all, it’s specifically aimed at the top bracket.
Pre-OBBBA vs. Post-OBBBA (37% Bracket Taxpayers)
| Before OBBBA (2025 and earlier) | After OBBBA (2026 and beyond) | |
|---|---|---|
| Tax benefit per $1 of itemized deductions | $0.37 | $0.35 |
| Limitation formula | None (Pease limitation repealed under TCJA, 2018–2025) | Reduced by 2/37 of the lesser of: total itemized deductions, or taxable income (with deductions added back) exceeding the 37% bracket threshold |
| Applies to | N/A | Only taxpayers in the top 37% bracket |
| Duration | – | Permanent provision (not one of OBBBA’s temporary items expiring after 2028) |
Example of New Tax Deduction
Say you have $37,000 of allowable itemized deductions in 2026 and your taxable income (before those deductions) exceeds the 37% bracket threshold by $37,000. Your deductions get reduced by $2,000 (2/37 of $37,000), leaving you with $35,000 in allowable deductions. That $35,000 delivers a tax benefit of $12,950, which works out to exactly 35% of your original $37,000, instead of the 37% you might have expected.
The result is similar at higher deduction levels as well. A taxpayer with $100,000 of itemized deductions and income well above the threshold sees those deductions reduced to roughly $94,595. This gives a tax benefit of $35,000 rather than $37,000. Either way you look at it, the net effect is the same. Your deductions are worth 35 cents on the dollar instead of 37.
All Tax Deductions Are Impacted
This isn’t limited to any single category. Mortgage interest, charitable contributions, and state and local taxes (SALT) are all subject to this same reduction if you’re in the top bracket. That matters because it means you can’t plan around it by simply favoring one type of deduction over another. The reduced deduction applies to your itemized deductions as a whole.
It’s also worth knowing this stacks on top of other changes rather than replacing them. If you’re a high earner who itemizes, you’re likely also navigating the new 0.5% AGI floor on charitable giving (the initial portion of your donations each year isn’t deductible at all) and the higher $40,000 SALT cap. None of these provisions operate in isolation, your actual tax outcome depends on how all of them interact together.
Why It Matters for Tax Planning
If you’re in or near the 37% bracket, a few things are worth thinking through this year:
Don’t Evaluate a Deduction in Isolation
A charitable gift, a mortgage interest payment or a state tax payment that looks like it saves you 37 cents on the dollar may really only be saving you 35 cents once this limitation applies.
Timing and Bunching Strategies Matter Even More Now
If you’re already considering bunching several years of charitable giving into one year to clear the new 0.5% AGI floor, it’s worth modeling that alongside this limitation. The two interact and the numbers can shift the ideal strategy.
This is a Permanent Feature of the Tax Code Going Forward, Not a One-Year Rule
Unlike some of the OBBBA’s temporary provisions that expire after 2028, this limitation applies for 2026 and beyond, so it’s worth building into your long-term planning rather than treating it as a one-time adjustment.
If your income puts you in the top federal tax bracket, none of your itemized deductions are worth quite what they used to be and the effect is easy to underestimate because it’s spread quietly across every category rather than showing up as one obvious change. If you’re doing any significant year-end planning around charitable giving, a major purchase, or your overall deduction strategy, it’s worth running the numbers with this new limitation factored in before you finalize anything.
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