2026 Tax Tip: Itemize to Save $4,200 (Maybe You!)

Did you know that the Tax Cuts and Jobs Act (TCJA) of 2017 significantly altered the tax landscape, particularly when it comes to the standard deduction? While many taxpayers benefited from the initially increased standard deduction, its scheduled sunsetting in 2026 presents a crucial opportunity for a large percentage of taxpayers to re-evaluate their tax strategies and potentially save thousands. Are you currently taking the standard deduction without considering if itemizing would be more beneficial? You might be leaving money on the table! We're here to guide you through the upcoming changes and help you determine the optimal tax strategy for your specific situation.

Understanding the 2026 Standard Deduction Changes

The TCJA brought about significant changes to the standard deduction, nearly doubling it for individuals and married couples filing jointly. This made the standard deduction more appealing for many, leading a large number of taxpayers to forgo itemizing. However, these changes are not permanent. The TCJA provisions are set to expire at the end of 2025, meaning the 2026 tax year will see a reversion to the pre-TCJA standard deduction amounts, adjusted for inflation. According to the Tax Policy Center, without congressional action, the individual income tax provisions in the TCJA will expire after December 31, 2025. Source: Taxpolicycenter.org. This means that the standard deduction will likely be significantly lower than it has been in recent years. For context, the standard deduction for single filers in 2024 is $14,600 and $29,200 for married couples filing jointly. We estimate these numbers will drop significantly in 2026.

This reversion has major implications. Many taxpayers who previously found the standard deduction more advantageous may discover that itemizing their deductions will result in a lower tax liability in 2026. It's crucial to start planning now to understand how these changes will affect your individual tax situation. This includes gathering records of potential itemizable deductions throughout the year. As stated by the IRS, taxpayers should keep organized records throughout the year to make tax preparation easier. Source: IRS.gov. We encourage you to proactively assess your financial situation and consult with a tax advisor to explore potential itemized deductions.

Itemizing Deductions: What You Need to Know

Itemizing deductions involves listing out eligible expenses that can be subtracted from your adjusted gross income (AGI) to reduce your taxable income. Common itemized deductions include medical expenses (exceeding 7.5% of AGI), state and local taxes (SALT), mortgage interest, and charitable contributions. The threshold for deducting medical expenses is set at 7.5% of your AGI, according to IRS guidelines. Source: IRS.gov. For example, if your AGI is $100,000, you can only deduct medical expenses exceeding $7,500.

A crucial deduction to consider is the State and Local Tax (SALT) deduction. Currently, the SALT deduction is capped at $10,000 per household, thanks to the TCJA. This cap is set to expire along with the other TCJA provisions, potentially leading to a return to the pre-TCJA rules, which allowed for the full deduction of state and local taxes. However, there is a possibility that Congress could extend or modify the SALT cap. Stay updated on legislative changes, as they can significantly impact your tax strategy. According to a report by the Congressional Budget Office, the SALT deduction cap has disproportionately affected taxpayers in high-tax states. We believe it's vital to monitor any potential changes to this cap as they could significantly impact your tax liability in 2026. It may be prudent to consider making estimated state tax payments late in 2025 so that you can claim the deduction in 2025 since it’s unclear what will happen after. Taxpayers can use Schedule A (Form 1040) to itemize deductions.Source: IRS.gov

Mortgage Interest and the 2026 Tax Landscape

For homeowners, mortgage interest is often a significant itemized deduction. The amount of mortgage interest you can deduct depends on when you took out the mortgage and the loan amount. For mortgages taken out after December 15, 2017, you can generally deduct interest on the first $750,000 of debt ($375,000 if married filing separately). If your mortgage predates this, different rules may apply. According to the IRS, taxpayers can deduct mortgage interest reported on Form 1098. Source: IRS.gov

The reduced standard deduction in 2026 will make mortgage interest a more impactful deduction for many homeowners. If you have a substantial mortgage and other itemized deductions, you're more likely to benefit from itemizing. It’s essential to calculate your potential mortgage interest deduction and compare it to the standard deduction amount. This can be easily found on Form 1098 from your mortgage provider. Furthermore, it is also worth reviewing your investment portfolio with your financial advisor to assess whether paying off your mortgage sooner, or later, makes the most financial sense from a tax perspective. Also remember that for cross-border families, any property owned outside of the US must be reported annually on Form 8938, depending on value. The penalties for not complying are harsh so it is important to keep this in mind.

Who Should Consider Switching to Itemizing in 2026?

As the standard deduction shrinks in 2026, several groups of taxpayers should carefully consider switching to itemizing:

• Homeowners with Mortgages: As mentioned before, the mortgage interest deduction can be substantial, particularly in the early years of a mortgage.
• Taxpayers in High-Tax States: If the SALT cap expires, taxpayers in states with high property taxes and state income taxes could see significant benefits from itemizing.
• Individuals with High Medical Expenses: If your medical expenses consistently exceed 7.5% of your AGI, itemizing is likely the better option.
• Those with Significant Charitable Contributions: If you regularly donate to qualified charities, the charitable contribution deduction can be a substantial benefit.
• Self-Employed Individuals: Self-employed individuals often have business-related expenses that can be deducted, such as home office expenses or business travel. Although these are often taken “above the line” and are not itemized deductions, any other deductions can be combined with these to push them over the higher standard deduction amount.

It's important to note that this is not an exhaustive list, and your individual circumstances may vary. A consultation with a tax professional can help you determine whether itemizing is the right choice for you.

The Potential Tax Savings: A Real-World Example

Let's look at a hypothetical example to illustrate the potential tax savings. Consider a married couple, John and Jane, who own a home with a mortgage and live in a state with high property taxes. In 2024, they take the standard deduction of $29,200.

In 2026, if the standard deduction decreases significantly and the SALT cap expires, their situation could change dramatically. Let's assume they have the following itemized deductions:

• Mortgage Interest: $15,000
• Property Taxes: $12,000
• State Income Taxes: $8,000
• Charitable Contributions: $5,000

Their total itemized deductions would be $40,000. If the standard deduction in 2026 is, for example, $24,000, John and Jane would save $16,000 in taxable income by itemizing. This could translate to significant tax savings depending on their tax bracket.

It's important to remember that this is just an example, and your actual tax savings may vary. However, it highlights the potential benefits of switching to itemizing in 2026.

Planning Ahead: What You Should Do Now

The time to start planning for the 2026 tax year is now. Here are some steps you can take:

1. Gather Your Financial Records: Start collecting receipts and documentation for potential itemized deductions, such as medical expenses, charitable contributions, and property tax bills.
2. Estimate Your Itemized Deductions: Use prior-year tax returns and current financial information to estimate your potential itemized deductions for 2026.
3. Monitor Legislative Changes: Stay informed about any potential changes to the tax laws, particularly regarding the SALT cap and the standard deduction.
4. Consult a Tax Professional: A tax advisor can help you assess your individual situation and develop a tax strategy that minimizes your tax liability. We at Zenith Financial Advisors are here to help you navigate these complex changes and make informed decisions.

Navigating Cross-Border Tax Implications

For US citizens and green card holders living abroad, cross-border tax issues add another layer of complexity to the decision of whether to itemize. The Foreign Earned Income Exclusion (FEIE), for instance, allows qualifying individuals to exclude a certain amount of their foreign-earned income from U.S. taxes (for 2023, this amount was $120,000). Source: IRS.gov. However, understanding how the FEIE interacts with itemized deductions is crucial.

Tax treaties between the U.S. and other countries can also affect your tax situation. These treaties often provide rules to prevent double taxation and can impact the deductions you're eligible to claim. According to the IRS, these treaties are complex and require careful interpretation. Source: IRS.gov. Further, citizens and residents living abroad must remember to file a Report of Foreign Bank and Financial Accounts (FBAR) if the aggregate value of all foreign financial accounts exceeds $10,000 at any point during the calendar year. According to FinCEN data, penalties for non-compliance with FBAR regulations can be severe. Source: FinCEN.gov.

Navigating these complexities requires specialized knowledge. We, at Zenith Financial Advisors, have extensive experience in cross-border tax planning and can help you optimize your tax strategy while ensuring compliance with all applicable laws and regulations. Form 2555 is used to calculate the Foreign Earned Income Exclusion. Keeping accurate records of your time spent outside of the US is critical.

Common Mistakes to Avoid

When deciding whether to itemize or take the standard deduction, it's important to avoid these common mistakes:

• Failing to accurately track potential itemized deductions: Many taxpayers underestimate their potential itemized deductions because they don't keep good records.
• Not considering the impact of state and local taxes: The SALT deduction can significantly impact your tax liability, especially if you live in a high-tax state.
• Ignoring the Foreign Earned Income Exclusion: For expats, understanding how the FEIE interacts with itemized deductions is crucial.
• Waiting until the last minute to plan: Tax planning should be an ongoing process, not something you do right before the filing deadline.

Frequently Asked Questions (FAQ)

Will the standard deduction really decrease in 2026?

Yes, the provisions of the Tax Cuts and Jobs Act (TCJA) that increased the standard deduction are set to expire at the end of 2025, meaning the standard deduction will likely be significantly lower in 2026.

What happens if the SALT cap is removed?

If the SALT cap is removed, taxpayers in high-tax states could see significant benefits from itemizing, as they would be able to deduct the full amount of their state and local taxes.

How do I know if itemizing is right for me?

The best way to determine if itemizing is right for you is to estimate your potential itemized deductions and compare them to the standard deduction amount. You can also consult with a tax professional.

What if I live abroad? How does this impact me?

For US citizens and green card holders living abroad, the decision of whether to itemize is even more complex. Factors such as the Foreign Earned Income Exclusion (FEIE) and tax treaties can impact your tax situation. Consult with a cross-border tax expert to determine the optimal strategy.

Where can I find the most up to date numbers on deductions?

The IRS website, irs.gov, is the most reliable place for up to date information on deductions, tax rates, and any legislative changes.