The One Big Beautiful Bill Act (OBBBA) introduces a 0.5% AGI “floor” on itemized deductions—an important shift for taxpayers and advisors alike. This blog explores what this new threshold means, who it affects, and how tax professionals can leverage AI tax research and planning tools, including agentic AI in tax, to recalibrate client strategies under the updated law. Stay compliant and ahead of the curve—read on to understand the tax implications and planning opportunities.
Understanding the 0.5% AGI Floor for Itemizers
Under the One Big Beautiful Bill Act (OBBBA), a new provision imposes a 0.5% Adjusted Gross Income (AGI) “floor” on all itemized deductions. This rule limits deductions by requiring taxpayers to reduce the deductible amount of certain expenses by 0.5% of their AGI. It acts similarly to the old 2% miscellaneous itemized deduction floor eliminated by the TCJA, but with broader application.
Key Highlights of the New Rule
- Effective Date: Applies beginning in tax year 2025.
- Threshold: Only the portion of total itemized deductions that exceeds 0.5% of AGI is deductible.
- Scope: Applies to all itemizers, regardless of the category—this includes charitable contributions, medical expenses, state and local taxes (SALT), and mortgage interest.
- No income phase-out: Unlike Pease limitations under pre-TCJA law, this floor applies universally without phasing in at higher income levels.
Planning Considerations for Advisors
1. Charitable Contribution Strategies
Clients considering large donations may want to bunch charitable gifts or use donor-advised funds (DAFs) to exceed the new AGI threshold and retain full deductibility.
2. Medical Expense Planning
If medical expenses are borderline above 7.5% AGI (the traditional medical floor), the 0.5% overall floor further reduces the benefit. Advising clients on timing or accelerating qualifying treatments into a single year can help.
How Agentic AI in Tax Can Help
Hive’s AI tax research and AI tax planning tool can instantly adjust calculations and surface strategies to maximize deduction value under the new OBBBA rule. Tax professionals using agentic AI in tax can:
- Run dynamic comparisons between standard deduction vs. itemizing under the new 0.5% AGI rule.
- Auto-identify opportunities to bunch deductions or time expenses for better tax outcomes.
- Stay updated with real-time law changes from primary sources such as the IRS, Congress.gov, and the final OBBBA bill text .
Action Steps
- Review 2025 tax projections for all itemizing clients and assess the impact of the 0.5% AGI floor.
- Re-evaluate planned charitable contributions or medical expenses with the updated deduction limits in mind.
- Use Hive AI Tax Planning Tool to generate a personalized, compliant strategy based on each client’s return.
Final Thoughts
The 0.5% AGI itemized deduction floor under OBBBA is a subtle but significant shift in tax policy. It reinforces the need for ongoing, personalized planning—especially for higher-income clients navigating complex deductions. With the help of AI tax research and planning tools, tax professionals can stay ahead, optimize outcomes, and deliver unmatched advisory value.👉 Try our AI tax tool today or book a free demo and see how you can serve your clients with confidence, accuracy, and speed.