The 2/37 limit on itemized deductions for top-bracket clients

Itemized deductions otherwise allowable are reduced by 2/37 of the lesser of two amounts:

The rule is applied after every other limit on a particular itemized deduction, so the SALT cap and the charitable percentage limits come first and the 2/37 cut works on what is left. The amendment applies to tax years beginning after December 31, 2025.

• the itemized deductions themselves, or
• taxable income figured without this section and with those itemized deductions added back, to the extent it exceeds the point where the client’s 37% bracket begins.

For a client whose income sits well inside the 37% bracket, trimming 2/37 of each deduction means a dollar of itemized deductions saves about 35 cents of tax instead of 37. A client who crosses into the bracket only slightly loses much less, because the second amount above is small.

IR-2025-103 puts the 2026 start of the 37% bracket at $640,600 for single filers and $768,700 for joint filers, so the limit only bites near and above those levels.

The IRS draft of the 2026 Schedule A, marked not for filing, adds line 18. It asks whether Form 1040 line 11b, minus lines 13a and 13b, is more than $384,350. If not, the deductions are not limited. If so, the deductions may be limited and the filer goes to an Itemized Deductions Worksheet in the instructions.

Treat line 18 as a screening question, not the limit itself. This page does not reproduce the worksheet, and draft figures can change before the final form is released.

Clients who bunch charitable gifts or prepay deductible taxes should see projections that include the 2/37 cut. The rule does not remove the benefit of itemizing, but it shrinks the gap between a large gift in a high-income year and the same gift spread out.