Good morning & happy Monday!
“I’m proud to pay taxes in the United States; the only thing is, I could be just as proud for half the money.”
– Arther Godfrey, comedian
My friends, I know you’ve had so much fun reading my last 2 weeks’ messages about the new tax package, The One Big Beautiful Bill Act, that I thought I’ll go one more round today. 😉 I promise this will be my last one on this, at least for a while. I’m trying to balance keeping you informed, but also not putting you to sleep. 😉
Ok, first, here’s the same disclosure: I am not a CPA (and none of what I discuss here should be interpreted as tax advice, consult a CPA for tax guidance), and I am not a politician (thank God!). I have done my best to gather all the data I could and consolidate it here for your reference, but I cannot promise everything is 100% correct. This is a fluid situation and I’m spending hours doing my best to sort through everything, but I may have inadvertently missed something or oversimplified something. Thank you in advance for your patience and understanding.
Two of the terms that can be quite confusing about taxes are tax-deductible and standard deduction. I will use the first half of this memo to address that matter.
The standard deduction for a single tax filer for 2025 is now $15,750 (up from $15,000 before the passing of the bill), and for joint tax filers the standard deduction is $31,500 (up from $30,000 before the bill’s passing).
A majority of taxpayers (roughly 90%) take the standard deduction. With the new tax package, the percentage of people who itemize will likely increase.
As a general rule, there are 3 things that if added together will determine if you will benefit from itemizing your taxes:
- State and property taxes – this was previously capped at $10,000, but with the new tax codes it’s increased to $40,000 cap (through 2029)
- Mortgage interest paid
- Charitable giving
If those 3 items listed above are greater than the standard deduction then you would itemize, if they were less than the standard deduction you would simply take the standard deduction.
So, let’s look at a couple examples to illustrate this:
Example 1: Let’s say I’m a joint tax filer and I paid $8,000 in property taxes, $8,000 in interest on my mortgage, and $8,000 in charitable giving then my total itemized total would be $24,000 ($8,000 + $8,000 +$8,000). Since $24,000 is less than the standard deduction of $31,500 I would simply take the standard deduction of $31,500 and not benefit from any of those itemized figures.
Example 2: Let’s say I’m a joint tax filer and I paid $12,000 in property taxes, $12,000 in interest on my mortgage, and $12,000 in charitable giving then my total itemized total would be $36,000 ($12,000 + $12,000 + $12,000). Since $36,000 is greater than the standard deduction of $31,500 I would opt to itemize and would be able to take a $36,000 reduction of my income (which is $4,500 greater than the standard deduction of $31,500).
Now, let’s get into some strategy. 😊
Let’s look at example #2 where property taxes, mortgage interest, and charitable giving are all $12,000 each. Some of those items are not controllable (mortgage interest), but some of them are controllable (charitable giving). Also, some jurisdictions allow you to pay property taxes in different years, so you may have control over the timing of those tax payments.
So … a potential strategy that I really like (and do myself, in full disclosure) is stacking years to maximize itemized deductions. Here’s how that may look:
2025:
- $12,000 in mortgage interest = $12,000 write off in 2025
- Pay 2025 & 2026 property $12,000 tax bills in 2025 = $24,000 write off in 2025
- Double give to charity in 2025 and skip 2026 charitable giving = $24,000 write off in 2025
- Total itemized deductions = $60,000. This means that I would write off $60,000 from my income using itemized deductions in 2025.
2026:
- $12,000 in mortgage interest
- No property tax bill (prepaid in 2025)
- No charitable giving (pre-gave in 2025)
- Total itemized deductions = $12,000, so I would take the standard deduction of $31,500.
So, if I’m in the 24% tax bracket here how this shakes out
- No strategy – just simply itemizing $36,000/year then my tax savings would be $8,640 each year ($36,000 x 24%). Over 2 years it would be $17,280 ($8,640 x 2 years)
- Using this strategy in 2025 I can write off $60,000 from my income for a tax savings of $14,400 ($60,000 x 24%) and then I take the standard deduction in 2026 of $31,500 for a tax savings of $7,560 ($31,500 x 24%). Over 2 years my tax savings would be $21,960 ($14,400 + $7,560). This equates to $4,680 tax savings over 2 years. The higher your charitable giving (and if you can pick the year to pay your property taxes) the more impactful this strategy is.
Ok, let me rapid fire a few other time-sensitive tax things to consider with this package and I’ll bring us to the finish line today:
- September 30, 2025 – the EV (electric vehicle) credit ($7,500 for new & $4,000 for used) goes away – so if you are considering an EV purchase and want a significant tax benefit for that purchase you only have a couple of months to take advantage of that
- June 30, 2026 – the up to $1,000 tax credit for alternative fuel vehicle refueling property expires – the property much be placed in service by 6/30/2026 to tax advantage of this credit
- December 31, 2025 – the energy efficient home improvement credit (up to $2,000) goes away – the property must be in place and in service by 12/31/2025 to tax advantage of this credit – so, if you are looking to upgrade windows, doors, HVAC systems, etc. and want a tax benefit for that, you better get moving.
- December 31, 2025 – also ends the up to 30% credit for solar panels – this one is different as the solar panels must be paid for by 12/31/2025, but not necessarily installed or in use – if this is on your radar the clock is ticking
I know this is not the most exciting of reading, but I hope you have found the last 3 weeks of content to be useful even if boring. Next week I’ll try to find something a bit less nerdy … but it’s still me, so there will be a nerd component for sure 😉
Thank you for the great honor of being your financial planner. Anything my team or I can do to support you further, just say the word.
Make it a great week ahead.