Last year’s federal tax law gave more taxpayers reason to itemize, but income-based phaseouts and state decoupling have complicated year-end planning, and temporary provisions call for caution, a CPA told Checkpoint.
Brian Schultz, a partner and CPA at Plante Moran and a member of the firm’s wealth management tax practice, said the One Big Beautiful Bill Act (OBBB), P.L. 119-21, “opened up opportunities for people to have more deductions or deduct more items.” The flip side, he said, is that “it did make things a lot more complicated,” because almost every new deduction has an income-based phaseout, and the phaseouts start at different income levels.
More clients can itemize under higher SALT cap
Before the OBBB, many of Schultz’s clients did not itemize. With the state and local tax (SALT) deduction capped at $10,000, a married couple needed more than $20,000 in other deductions, such as mortgage interest and charitable gifts, to exceed the standard deduction, he said.
The law raised the SALT cap to $40,400 for 2026 under IRC § 164(b)(7), phasing it down, but not below $10,000, for taxpayers with modified adjusted gross income above $505,000. Below that threshold, the higher cap alone opens the door for “a lot more clients to itemize than maybe they would have in the past, especially if they live in a state that has an income tax,” Schultz said.
Timing matters, too. Taxpayers who make quarterly estimated payments should consider paying fourth-quarter state and local taxes before the end of December, even though they aren’t due until January 15, Schultz said. Those who have already reached the cap might push the payment into January.
Utilizing donor-advised funds
Starting in 2026, non-itemizers can deduct up to $1,000 in cash charitable gifts, or $2,000 on a joint return, under IRC § 170(p), but many donors give more, Schultz said.
Itemizers can face a different problem. Schultz described a client who donates $6,000 a year to charity but whose itemized deductions exceed the standard deduction by only $2,000. That client is “really only getting a tax benefit for $2,000,” he said.
One solution is to bunch giving into every other year or every third year using a donor-advised fund (DAF). The client could give the usual $6,000 to charity in 2026 and, liquidity permitting, put another $12,000 in a DAF, raising the client’s 2026 giving to $18,000. The DAF money is earmarked for the next couple of years of giving, but “you get the charitable deduction when you put the money in the fund,” Schultz said.
Loss harvesting
Harvesting losses can bring income below OBBB phaseout thresholds, but after recent market gains, many buy-and-hold investors may have few losses to harvest, Schultz said. Another option is what he said his firm calls a “dividend skip” internally.
Mutual funds commonly make year-end distributions of dividends and capital gains and declare the amount in advance. An investor with a modest gain in a fund that announces a sizable distribution could sell beforehand and buy back in right after the distribution.
“You’re not really booking losses there,” Schultz said. “You’re just avoiding booking unnecessary gains and dividends that would otherwise hit your tax return.” Unlike a sale at a loss, which is subject to the wash sale rule under IRC § 1091, a sale at a gain carries no waiting period before repurchasing, he said.
For clients well below the phaseout ranges, the planning can run the other way. A married couple with $20,000 of room left in the 0% capital gains bracket could sell stock worth $50,000 with a $30,000 basis and immediately rebuy it, raising the basis to $50,000 with no federal tax owed, Schultz said.
Temporary provisions
The higher SALT cap is scheduled to revert to $10,000 after 2029. Schultz said he is not confident the current law will hold, but “it could just as easily stay the same as change.”
He said he is hesitant to have a client “make a significant change that’s more permanent in their financial situation to take advantage of something that’s set to expire.” Splitting one trust for three children into three, for example, could give each its own SALT cap. But that is “a pretty permanent change” to an estate plan that would almost surely require a legal process to undo, Schultz said, and he hasn’t seen clients “have much appetite” for it.
For some clients, he said, “their time … is their most precious commodity.” Schultz said he presents ideas and lets clients tell him how large a benefit must be to interest them, since “they’ve got to pay me to help advise them on those things.”
States break from federal rules
Schultz, who has practiced for about 25 years, said he has seen more decoupling since the OBBB’s enactment in July 2025 “than I’ve ever seen in my career.” Following federal tax cuts can cost states revenue, which he said is prompting many to question whether to conform.
Michigan, Schultz’s state, “almost exclusively followed the federal law” throughout his career, he said, but for the first time it decoupled in meaningful ways on bonus depreciation and research and development expenses. The Tax Cuts and Jobs Act, P.L. 115-97, did not produce the same level of state nonconformity, he said.
Describing a hypothetical in which he owns a small stake in a partnership or S corporation operating in three states, Schultz said “the accountant for that business might have to calculate state income three different ways and report that to me three different ways.” It can be “almost mind-numbingly complicated really fast,” he said.
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