Deductions

Deductions are the primary mechanism through which high earners reduce taxable income — and the deduction landscape changed significantly with the Tax Cuts and Jobs Act of 2017, which took effect for 2018 and fundamentally restructured which deductions are available at what levels. Understanding the current framework is the prerequisite for tax planning that actually reduces what you owe rather than optimizing for deductions that no longer exist in their prior form.

The SALT (state and local tax) deduction cap at $10,000 is the most impactful change for high earners in high-tax states. A California or New York household paying $60,000 in state income and property taxes can only deduct $10,000 federally — a $50,000 reduction in deductibility that, at the 37% marginal rate, represents $18,500 in lost federal tax benefit annually compared to the pre-2017 rules. This cap is set to expire after 2025, making its legislative status worth monitoring.

Mortgage interest deduction is now limited to interest on acquisition debt up to $750,000 (for loans originated after December 15, 2017). A $2 million mortgage generates interest on only $750,000 of principal as deductible — the rest produces non-deductible interest from a federal tax perspective. Charitable deductions remain fully available for cash gifts up to 60% of AGI, and contributions of appreciated securities (directly or via donor-advised fund) generate a deduction at fair market value while avoiding capital gains tax — among the most tax-efficient charitable strategies available.

The qualified business income (QBI) deduction — up to 20% of qualified business income for pass-through businesses — is available to high earners in qualifying industries, subject to income thresholds and business type restrictions. The interaction between QBI and income levels is one of the more complex areas of current tax law. For the full picture of how deductions interact with income tax planning, see income tax. The Tax & Wealth pillar covers the complete set of strategies for reducing tax liability legally and effectively.