If you knew how to potentially save hundreds or even thousands of dollars in taxes, would you do it? If yes, then I would recommend looking into bunching your deductions.
The concept of bunching your deductions has been around for a long time, but it became much more useful after the 2017 tax law. The One Big Beautiful Bill Act (OBBBA), signed in 2025, changed the math again starting with the 2026 tax year, so it is worth taking a fresh look.
Standard deduction or itemize? The 2026 numbers
Each year, taxpayers either itemize their deductions or take the standard deduction, whichever is greater. The 2017 Tax Cuts and Jobs Act eliminated personal exemptions and roughly doubled the standard deduction, and OBBBA made those changes permanent.
For 2026, the standard deduction is $32,200 for married couples filing jointly and $16,100 for single filers. If you are 65 or older, you add $1,650 per married spouse ($2,050 if single), and from 2025 through 2028 you can also take the new senior deduction of up to $6,000 per person whether or not you itemize. I cover the rest of the new law in the impact of the Big Beautiful Bill on federal employees.
Three of the most popular itemized deductions are state and local taxes (SALT), mortgage interest and charitable giving. Mortgage interest can easily amount to $5,000 to $10,000 a year, and many families give anywhere from 3% to 10% of their income to charities annually.
What changed in 2026: the SALT cap, a charitable floor and a deduction for non-itemizers
The SALT cap is now $40,400
From 2018 through 2024, SALT deductions were capped at $10,000. SALT stands for state and local taxes, and two of the biggest are state income taxes and real estate taxes. If you live in Illinois in a house appraised at $300,000 or more, you will likely have real estate taxes of at least $7,000 a year. Add your state income taxes and you could easily reach the old $10,000 cap.
For 2026, the SALT cap is $40,400. It is reduced for households with modified adjusted gross income over $505,000, it rises 1% a year through 2029, and it is scheduled to drop back to $10,000 in 2030. For most federal employees, even in high-tax states, the full state and local tax bill is deductible again, so more households will find it worthwhile to itemize.
Itemizers lose the first 0.5% of AGI in charitable gifts
Starting in 2026, if you itemize, only the charitable gifts above 0.5% of your adjusted gross income (AGI) are deductible. With an AGI of $180,000, the first $900 of gifts each year you itemize produces no deduction.
Non-itemizers can deduct up to $1,000 or $2,000 of cash gifts
Also starting in 2026, people who take the standard deduction can deduct up to $1,000 of cash gifts to charity ($2,000 on a joint return). The gift has to be cash to a public charity. Gifts of stock and contributions to a donor advised fund do not count toward this deduction.
So what does this mean for bunching? These changes cut both ways. A higher SALT cap pushes some families over the standard deduction without any bunching at all. The non-itemizer deduction gives modest givers a benefit in years they don’t itemize. And the 0.5% floor means each year you itemize you give up a small slice of your gifts, which slightly favors bunching several years of gifts into one.
A bunching example with 2026 numbers
Let’s look at a practical example of a middle-class family.
Joe and Jane are married, file jointly and have an AGI of $180,000. They are in the 22% tax bracket (for 2026, taxable income between $100,800 and $211,400 for married couples) and pay about 5% in state income tax. They have the following deductions in 2026:
- SALT: $16,000 (about $9,000 of state income tax plus $7,000 of real estate tax)
- Mortgage interest: $7,000
- Charitable giving: $8,000, all cash gifts to public charities
After the 0.5% floor ($900), their itemized deductions come to $30,100 ($16,000 + $7,000 + $7,100). That is below the $32,200 standard deduction, so they take the standard deduction. Because their gifts are cash, they also get the new $2,000 non-itemizer deduction, for a total of $34,200 each year.
Could they do something different to save money that they would otherwise pay in taxes? Let’s look at the numbers. Joe and Jane give their 2027 gifts in December 2026 along with their 2026 gifts. The only thing that changes is their charitable giving goes up to $16,000 in 2026 and down to zero in 2027. Their 2026 itemized deductions rise to $38,100 ($16,000 + $7,000 + $16,000 − $900), and in 2027 they take the standard deduction.
Here is the difference between what they are currently doing and bunching, using 2026 figures for both years:
| Year 1 deduction | Year 2 deduction | Two-year total | |
|---|---|---|---|
| Standard deduction plus $2,000 non-itemizer deduction each year | $34,200 | $34,200 | $68,400 |
| Bunching: itemize in year 1, standard deduction in year 2 | $38,100 | $32,200 | $70,300 |
| Extra deductions from bunching | $1,900 | ||
| Federal tax saved at 22% | $418 |
Bunching still saves Joe and Jane money, about $418 every two years, or roughly $2,090 over ten years if they keep it up. Not a ton of money, I’ll grant you. That is a lot less than it used to be. Under the old $10,000 SALT cap and with no deduction for non-itemizers, the same family saved far more by bunching.
When does bunching deductions still make sense?
Bunching tends to pay off when:
- Your itemized deductions land close to the standard deduction most years.
- You give well beyond the $1,000 or $2,000 non-itemizer limit.
- You can make several years of gifts at once, for example through a donor advised fund.
If your deductions are well above the standard deduction every year, which is more common now that SALT is deductible up to $40,400, bunching adds little. The main gain is paying the 0.5% floor once instead of twice.
Another way to bunch your deductions is to look into paying your real estate taxes ahead of time, as long as you stay under the SALT cap. Many municipalities will allow you to prepay.
Donor advised funds (DAFs) are another option that can help with bunching. A DAF allows you to contribute large sums to a fund, get an immediate tax deduction if you itemize, and control when the funds are disbursed to the charities you choose. Keep in mind that DAF contributions do not qualify for the non-itemizer deduction. December is when most of these decisions get made, so bunching belongs on your list of year-end tax planning ideas.
If you are 70½ or older, a qualified charitable distribution (QCD) from your IRA is often better than bunching, because the gift never shows up in your income at all. QCDs can’t be made from the TSP, which is one of the things federal retirees can’t do with TSP. For more ideas, see how to reduce your retirement tax bill by strategic giving.
If your financial plan doesn’t include any tax planning, you are missing out. Understanding tax law gives you a good opportunity to save money in taxes each year, and it is a core part of the planning services I offer. If you would like to have a conversation about how we can help, you are welcome to schedule an introductory call.
Always consult your CPA prior to implementing any tax advice.
Brad Bobb, CFP®, Bobb Financial, is an expert in federal benefits and retirement planning for federal employees.
This article is for educational purposes only and is not individualized financial advice. Figures are illustrative.