Rule Atlas
IRC § 224: Individual Tax Planning: Navigating Deductions and the OBBBA Landscape
Under IRC § 224 (AICPA / FASB / IRS), individual Tax Planning: Navigating Deductions and the OBBBA Landscape establishes the authoritative rules tested on the CPA Exam. This lesson provides a comprehensive guide to individual tax planning strategies, focusing on the impact of the One Big Beautiful Bill Act (OBBBA) on standard and itemized deductions, particularly the SALT cap and its phase-out., verified against VoraPrep's CPA Exam blueprint.
Current Statutory Thresholds & Limits in Effect
Single & MFS: $15,750; Head of Household (HOH): $23,625.
Phases down by 30% of MAGI above $500,000 ($250,000 MFS), never below $10,000 floor.
Strategic Decision: Standard vs. Itemized Deductions in 2026
| Deduction Method | Key Characteristics for 2026 | Strategic Consideration |
|---|---|---|
| Standard Deduction | A fixed, inflation-adjusted amount. For MFJ, it is $32,200. | The default choice. Use if your total allowable itemized deductions do not exceed this amount. Simple and requires no recordkeeping for specific expenses. |
| Itemized Deductions | The sum of specific, allowable expenses. Key deductions include SALT (up to the new cap), mortgage interest, charitable contributions, and medical expenses exceeding 7.5% of AGI. | Requires careful recordkeeping. The goal is to accumulate enough deductible expenses to surpass the standard deduction threshold. The new SALT cap makes this easier for many. |
David and Sarah Chen are married and file a joint tax return. For 2026, they have a modified adjusted gross income of $300,000. They anticipate the following itemized deductions annually for 2026 and 2027: State income taxes: $18,000 Mortgage interest: $10,000 Charitable contributions: $6,000 The standard deduction for married couples filing jointly in 2026 is $32,200, and the state and local tax (SALT) deduction is capped at $40,400. Which of the following strategies would be MOST effective for the Chens to maximize their deductions over the two-year period (2026-2027)?
Practitioner Application: Individual Tax Planning: Navigating Deductions and the OBBBA Landscape
Imagine your new clients, the Riveras, are high-earning consultants living in New York. For years, they've felt constrained by the $10,000 State and Local Tax (SALT) deduction cap. They come to your office in early 2027 to prepare their 2026 return, having heard about major tax law changes. They ask a simple, high-stakes question: 'With the new laws, how much can we finally deduct, and what should we have done differently in 2026?' Your answer will not only determine their tax liability but also showcase your value as a forward-looking tax planner. This lesson equips you to answer that question with precision and confidence.
- To understand the new landscape, we must first recognize the baseline set by the Tax Cuts and Jobs Act (TCJA) of 2017. TCJA dramatically altered individual tax planning by:
- Nearly Doubling the Standard Deduction: This made it much more attractive for taxpayers to skip itemizing altogether. Capping the SALT Deduction: It imposed a strict $10,000 limit on the deduction for state and local taxes (including property, income, and sales taxes). This was a major blow to taxpayers in high-tax states. Modifying Other Itemized Deductions: For example, it limited the mortgage interest deduction to interest on up to $750,000 of acquisition indebtedness and suspended miscellaneous itemized deductions.
Common CPA Exam Distractors on IRC § 224
- 1Use this systematic approach to solve any individual deduction scenario on the exam.
- 2Step 4. Compare Total Itemized Deductions to the Standard Deduction. The taxpayer's deduction is the larger of their calculated total itemized deductions or the standard deduction for their filing status. This is the core decision point.
- 3Step 5. Check for Above-the-Line Deductions. Finally, scan the facts for any of the new OBBBA deductions (tips, overtime, car-loan interest). These reduce AGI before the standard vs. itemized deduction choice is made and are available to all taxpayers.
- 4H.R. 1 (OBBBA) is Testable: For exams on or after July 1, 2026, you must know the new individual tax rules for the 2026 tax year.
- 5New SALT Cap: The SALT deduction cap is increased to $40,400 but is phased out for taxpayers with MAGI over $505,000. The floor is $10,000.
Frequently Asked Questions: IRC § 224
What is the core rule under IRC § 224 (Individual Tax Planning: Navigating Deductions and the OBBBA Landscape)?
Under IRC § 224 (AICPA / FASB / IRS), individual Tax Planning: Navigating Deductions and the OBBBA Landscape establishes the authoritative rules tested on the CPA Exam. This lesson provides a comprehensive guide to individual tax planning strategies, focusing on the impact of the One Big Beautiful Bill Act (OBBBA) on standard and itemized deductions, particularly the SALT cap and its phase-out., verified against VoraPrep's CPA Exam blueprint.
How is IRC § 224 tested on the CPA Exam?
Use this systematic approach to solve any individual deduction scenario on the exam. Step 4. Compare Total Itemized Deductions to the Standard Deduction. The taxpayer's deduction is the larger of their calculated total itemized deductions or the standard deduction for their filing status. This is the core decision point.
Where can I practice CPA Exam questions on Individual Tax Planning: Navigating Deductions and the OBBBA Landscape?
Test yourself instantly with the free playable CPA Exam question on this page, or launch VoraPrep's full CPA Exam adaptive question bank, interactive lessons, and 1:1 exam simulator at voraprep.com/cpa.