Before the 2017 tax overhaul, the Pease limitation served to limit the value of itemized deductions. While that legislation merely suspended the Pease limitation, the recent tax and spending megabill made the repeal permanent.
The law, however, created a cap on itemized deductions. Starting in 2026, a new limit reduces the itemized deductions by 2/37 of the lesser of the taxpayer’s (1) total itemized deductions or (2) amount of taxable income exceeding the 37% rate bracket. The new limit does not apply when calculating the Section 199A qualified business income deduction, which was also made permanent under the 2025 legislation.
We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the new limitation on the ability to take full advantage of itemized deductions.
Below is a summary of the debate that ensued between the two professors.
Their Votes:
Their Reasons:
Byrnes: This new limitation serves to reduce the benefits of itemized deductions only for the very wealthiest Americans. With this new limitation, we managed to reduce the cost of this vital tax cut legislation significantly to get it across the finish line. It was a cost reduction that was both necessary and important. We have to weigh some of the burdens created against the benefits of passing this tax cuts law that provides key benefits for all Americans across the board.
Bloink: We've already limited the applicability of the charitable contributions deduction so significantly that we have to wonder whether taxpayers have any incentive to give to charity. Now, we've created a new arbitrary limitation on the ability to take advantage of itemized deductions to their fullest merely as a way for the GOP to manage to get this legislation passed without an ounce of bipartisan support. Two thirty-sevenths is an entirely arbitrary number that serves no purpose other than to get this legislation passed.
Byrnes: Democrats in Congress are always searching for ways to ensure that wealthy Americans pay their fair share. The new limitation on itemized deductions only affects the wealthy taxpayers who continue to itemize even after the standard deduction was enhanced even further under the One Big Beautiful Bill Act.
Bloink: Notably, this deduction limits the value of the state and local tax deduction even further for taxpayers in high-tax states. The 2025 OBBBA made changes to allow taxpayers to deduct a larger portion of their state and local taxes. This was one of the most contested changes in the legislation, and it was negotiated for a reason. With this new limitation, taxpayers in high-tax states will see their itemized SALT deduction further limited in order to pay to continue tax cuts that primarily benefit the wealthiest Americans.
Byrnes: The government made concessions to reduce the cost of the OBBBA so that they could provide the promised powerful benefits that this tax legislation creates for all Americans. The law also created a new charitable contribution deduction for non-itemizers, so we also must take that into consideration when evaluating the impact of this limitation on charitable giving specifically. The impact of the limitation for most taxpayers is going to be minimal when it comes to influencing their spending decisions.
Bloink: All available itemized deductions exist for a reason. When we create deductions in the tax law, we're doing it in order to encourage some type of behavior — or add fairness to the tax code, in the case of the SALT deduction. With this new limitation, we're merely raising revenue and yet again limiting the benefits of itemizing deductions (so further reducing the incentive to give to charity). Yes, many provisions in the OBBBA will benefit lower and middle-income taxpayers — but by and large, the largest benefits are going to the wealthiest Americans.
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