Medical Expense Exemption from OBBB Deduction Limits
The TCJA suspended the pre-existing Pease limitation that limited the value of itemized deductions for high income taxpayers. The Pease limitation did not apply to the medical expense deduction, which allows taxpayers to take an itemized deduction for medical expenses in excess of 7.5% of the taxpayer's adjusted gross income. The 2025 One Big Beautiful Bill Act (OBBB) did not restore the Pease limitation. However, the law did create a new cap on itemized deductions that will largely impact high-income clients. While the pre-existing Pease limitation is repealed, starting in 2026, a new limit reduces the itemized deductions (including the medical expense deduction) by 2/37 of the lesser of the taxpayer's (1) total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 QBI deduction.
We asked two professors and authors of Tax Facts with opposing political viewpoints to share their opinions about whether the medical expense deduction should be exempt from the OBBB's new overall limit on itemized deduction for higher income taxpayers.
Below is a summary of the debate that ensued between the two professors.
Their Votes:
Their Reasons:
Bloink: The medical expense deduction is already subject to its own discrete limitations: these critical expenses are already subject to the limitation that they're only deductible to the extent that they exceed 7.5% of the taxpayer's AGI. This is why the medical expense deduction was never subject to the pre-TCJA Pease limitation on itemized deductions for high-income taxpayers. It shouldn't be subject to the new OBBB limitations on deductions.
Byrnes: I see no reason that the medical expense deduction should have priority over any other itemized deductions when it comes to the wealthiest taxpayers out there. This limitation on the value of itemized deductions applies only to the wealthiest taxpayers who can fully afford to cover their own medical expenses without assistance from the federal government. This limitation helped offset some of the cost of the OBBB and we have to recognize the value of any provision that helped pass this critical tax legislation.
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Bloink: We also have to remember that medical expenses are inevitable--and they've been carved out and exempt from the Pease limitation for the reason that taxpayers typically have no choice but to incur medical expenses.That alone is one reason why the medical expense deduction shouldn't be limited even more than it was under pre-existing law.
Byrnes: Itemized deductions exist to motivate certain behaviors that we've deemed are desirable from a policy perspective--such as charitable giving and home ownership. Many high-income taxpayers only donate to charity because they're incentivized by these federal itemized tax deductions.Medical expenses simply aren't in the same category.
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Bloink: Yes, it makes absolute sense that the federal government shouldn't be subsidizing sky-high mortgages for the ultra-wealthy. Medical expenses don't carry the same risk. For the most part, taxpayers have no control over the cost of their medical care. Even with insurance, we all know that the cost of medical care can quickly skyrocket—which is why we allow for the medical expense deduction in the first place.
Byrnes: Higher income taxpayers are going to take care of their health.The government doesn't have to provide an incentive to convince them to pay their medical bills. Yes, we allow the deduction for those taxpayers who truly have excessive medical bills that they are likely to struggle with. The OBBB limitation applies only to the wealthiest taxpayers who simply don't need the assistance with medical costs.