Starting in 2026, high-income taxpayers will once again face the Pease limitation on itemized deductions. This tax rule, which had been suspended under the Tax Cuts and Jobs Act (TCJA), reduces the value of deductions for wealthier households. Here’s what the return of the Pease limitation means for your federal income tax return and how it effectively cuts your top deduction benefit from 37% to about 35%.
What Is the Pease Limitation?
The Pease limitation, named after Congressman Donald Pease, was originally enacted in 1990 and limited the value of itemized deductions for higher-income taxpayers. It phases out a portion of deductions once income exceeds a certain threshold. The TCJA suspended it from 2018 through 2025, but the rule is set to return in 2026 unless Congress acts again.
Who Will Be Affected in 2026?
The Pease limitation applies to taxpayers with adjusted gross income (AGI) above specified thresholds. These thresholds are expected to be around $400,000 for single filers and $500,000 for married couples filing jointly (inflation-adjusted). If your AGI exceeds these limits, your itemized deductions (such as mortgage interest, state and local taxes, and charitable contributions) will be reduced.
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How the 37%→35% Deduction Cut Works
Before 2026, a taxpayer in the 37% top tax bracket saves $37 in tax for every $100 of deductions. With Pease back in place, deductions are reduced once AGI exceeds the threshold, effectively cutting the benefit so that each $100 deduction only saves around $35 in tax. This creates a stealth tax hike on high earners without directly raising tax rates.
Example Calculation
Suppose a married couple earns $750,000 AGI in 2026 and has $100,000 of itemized deductions. Under the Pease limitation, they could lose up to 3% of the amount their AGI exceeds the threshold. That means a $7,500 haircut on deductions, reducing their benefit significantly.
Key Itemized Deductions Affected
- Mortgage interest deduction
- State and local tax (SALT) deduction
- Charitable contributions
- Medical expenses (if eligible)
While deductions aren’t eliminated entirely, the overall tax savings shrink for those above the AGI thresholds.
Planning Strategies for 2026
- Bunch deductions: Accelerate charitable contributions or medical payments before the Pease rule resets.
- Maximize retirement contributions: Lower AGI to stay below the Pease thresholds.
- Use donor-advised funds: Frontload giving in 2025 for multi-year benefits.
- Review income timing: Defer or accelerate income depending on your 2026 projections.
Takeaways for High-Income Taxpayers
- The Pease limitation is scheduled to return in 2026.
- It impacts taxpayers with AGI above roughly $400k–$500k.
- Deduction savings fall from 37% to about 35%.
- Proactive tax planning in 2025 can help mitigate the impact.
