🧠 What Expenses Can Be Deducted on U.S. Taxes in 2026?

Complete Guide with IRS Rules and OBBB

Understand which deductions are allowed, what changed with the OBBB, and how to legally reduce your tax burden in the United States.

Understanding which expenses can be deducted on U.S. income taxes is essential to legally reduce your tax liability.

With the recent changes introduced by the OBBB (One Big Beautiful Bill), new opportunities have emerged — especially with the increase in the SALT deduction limit and the creation of the auto loan interest deduction.

In this complete guide, you will understand:

• which deductions the IRS actually allows

• the difference between standard deduction and itemized deductions

• what changed with the new legislation

• how to apply these rules to your tax planning

What are deductions in the U.S. tax system

Deductions reduce taxable income, meaning the amount on which your tax is calculated.

The IRS allows two main methods:

• Standard Deduction

• Itemized Deductions

You must choose only one — the one that provides the greatest tax benefit.

Standard Deduction: when it makes sense

The standard deduction is the simplest way to reduce taxes in the U.S.

Key characteristics:

• fixed amount adjusted annually by the IRS

• does not require proof of expenses

• used by most taxpayers

However, with recent changes, more individuals may benefit from itemizing.

Itemized Deductions: which expenses can be deducted

When choosing to itemize, you can deduct specific expenses allowed by the IRS.

Below are the main updated deductions.

SALT Deduction (state and local taxes)

One of the most significant recent changes.

It is now possible to deduct up to:

$40,000 per year in state and local taxes

This includes:

• state income tax

• property tax

Important:

• there are limitations for high-income taxpayers (phase-out)

• the benefit varies depending on the taxpayer’s profile

This change makes itemizing much more relevant, especially in states like California, New York, and New Jersey.

Mortgage Interest

You can deduct interest paid on:

• primary residence

• qualified second residence

Limit:

• up to $750,000 of eligible debt

The deduction applies only to interest — not to principal.

Auto Loan Interest Deduction (new OBBB rule)

One of the major updates in the tax system.

Taxpayers can now deduct:

up to $10,000 per year in auto loan interest

Main rules:

• valid for new vehicles

• personal use (does not need to be business-related)

• final assembly in the United States

• subject to income limits (phase-out)

• valid from 2025 to 2028

Key advantage:

• does not require itemizing

• can be used together with the standard deduction

• directly reduces AGI

Difference for self-employed individuals

If you are self-employed, vehicle treatment is different.

The IRS allows two methods:

Standard Mileage Rate

• deduction per mile driven

• already includes operating costs

• does not allow separate interest deduction

Actual Expenses Method

• deduction of actual expenses

• proportional to business use

Includes:

• fuel

• maintenance

• insurance

• depreciation

• loan interest (proportional)

Important:

• double benefits are not allowed

• you must choose the most advantageous method

Charitable Contributions

Donations are deductible when made to IRS-qualified organizations.

Requirements:

• proper documentation

• limits based on AGI

Medical Expenses

You may deduct medical expenses that exceed:

7.5% of AGI

Includes:

• health insurance

• medical consultations

• prescribed medications

Deductions for self-employed individuals in the U.S.

If you are self-employed, you have access to additional deductions.

These include:

• operating expenses

• marketing and advertising

• software and tools

• professional fees

• vehicle use

• home office

These deductions are essential for reducing taxes for those who are self-employed.

Other deductions that reduce AGI

Even without itemizing, you may deduct:

• student loan interest

• HSA contributions

• IRA contributions (when eligible)

Comparison: before and after OBBB

BEFORE:

SALT Deduction: $10,000

Itemized deductions: less utilized

Auto loan interest: not deductible

Type of deduction: N/A

Tax planning: simpler

AFTER:

SALT Deduction: up to $40,000 (with limitations)

Itemized deductions: more relevant

Auto loan interest: up to $10,000/year

Type of deduction: above-the-line

Tax planning: more strategic

What changed in U.S. income tax with the OBBB

The main changes include:

• increase in the SALT deduction limit

• new auto loan interest deduction

• greater relevance of itemization

• more opportunities for tax planning

Common mistakes when claiming deductions with the IRS

• attempting to deduct non-allowed personal expenses

• not respecting legal limits

• lack of documentation

• failing to review strategy annually

Conclusion: how to legally pay less tax in the U.S.

Deductions are one of the most important tools for reducing taxes in the United States.

With the changes introduced by the OBBB, the system has become more strategic — and also more complex.

To legally reduce your tax burden, it is essential to:

• understand which expenses are truly deductible

• choose correctly between standard and itemized deductions

• apply the new rules with proper planning