A major new tax bill is making waves, and if you are an individual taxpayer, there is a lot to unpack. There’s some good news, some adjustments and a few new wrinkles. Here is a digestible look at how it might affect your personal financial picture starting in 2025.
Tax Rates & Deductions: Some Things Are Here to Stay
First off, the bill locks in the lower tax rates from the 2017 Tax Cuts and Jobs Act (TCJA), so those brackets will not expire as originally planned. You will also see a bump in the standard deduction — $15,750 for singles, $23,625 for heads of household and $31,500 for joint filers — starting in 2025, with inflation adjustments going forward.
SALT Cap Relief (Sort Of)
The cap on state and local tax (SALT) deductions goes up from $10,000 to $40,000 in 2025, which is a big deal for high-tax states. It’s temporary, though the cap begins phasing out for high earners with modified adjusted gross income (MAGI) over $500,000 and reverts back to $10,000 in 2030. Notably, the bill does not clamp down on current SALT workarounds like pass-through entity taxes (PTETs), which many business owners use.
Boosts for Families
- The nonrefundable Child Tax Credit increases to $2,200 per child beginning in 2025 and stays refundable up to $1,400. It also makes permanent the $500 nonrefundable credit for each dependent of the taxpayer other than a qualifying child.
- Child and dependent care tax credit permanently goes up to 50% of qualifying expenses, and the income thresholds for phaseouts are more generous.
- The child and dependent care exclusion through workplace programs increases from $5,000 to $7,500.
- A portion, up to $5,000, of the adoption credit will be refundable.
Support for Seniors
There’s a temporary $6,000 deduction (2025-2028) for those age 65 and older, with a phaseout for incomes above $75,000 (single) or $150,000 (joint). The personal exemption remains at zero for others.
Making the QBI Deduction Permanent
If you own a small business, the 20% QBI deduction for pass-through entities (Sec. 199A) is here to stay. There’s also a new minimum deduction of $400 for taxpayers who have at least $1,000 of qualified business income for those actively involved in their business.
Estate & Gift Taxes
Starting in 2026, the estate and lifetime gift tax exemption will become permanent and will rise to $15 million per person ($30 million for couples), adjusted for inflation. That’s a significant planning opportunity for high net worth families.
Mortgage & Casualty Deductions
- The $750,000 mortgage interest deduction limit becomes permanent, meaning only the first $750,000 of home mortgage acquisition debt is eligible for the related interest deduction.
- Deductions for home equity loan interest stay off the table.
- Personal casualty loss deductions will only apply to federal declared disaster related losses, but now include certain state-declared disasters.
What You Can No Longer Deduct
- Moving expenses are out unless you are in the military or intelligence services.
- Unreimbursed employee expenses remain non-deductible, except for teachers.
- Bicycle commuting benefits and miscellaneous itemized deductions are also mostly gone.
New Temporary Deductions
- No tax on tips: Workers who earn tips could deduct up to $25,000 from income (2025-2028). The deduction would be available for taxpayers who claim the standard deduction or itemize deductions. The deduction begins to phaseout when modified adjusted gross income (MAGI) exceeds $150,000 (single) and $300,000 (married filing joint).
- No tax on overtime: Up to $12,500 (single) or $25,000 (joint) of overtime pay could be deducted during the same years (2025-2028). The deduction begins to phaseout when modified adjusted gross income (MAGI) exceeds $150,000 (single) and $300,000 (married filing joint).
- Car loan interest: For vehicles made in the U.S., you can deduct up to $10,000 in interest for tax years (2025-2028).
Introducing “Trump Accounts”
These are tax-deferred savings accounts for kids under 18, modeled after IRAs. Contributions are capped at $5,000 annually, and accounts can only be tapped after the child turns 18. The government can even create accounts automatically for eligible kids and offer a $1,000 tax credit for opening an account for children born between January 1, 2025 and December 31, 2028.
Education & Student Loans
- 529 plans now cover more K-12 and credentialing costs.
- Discharged student loans due to death or disability are permanently excluded from income.
- Contributions to scholarship-granting organizations earn a $1,700 tax credit, and the scholarships themselves are excluded from income.
Charitable Contributions
Even if you do not itemize, you can now deduct up to $1,000 (single) in donations or $2,000 (for joint filers). But if you do itemize, there is now a 0.5% floor, meaning you will only be able to claim a deduction to the extent that the contributions exceed 0.5% of your adjusted gross income (AGI). For example, a couple with an AGI of $300,000 could only deduct charitable contributions in excess of $1,500.
The Bottom Line?
This bill is packed with both permanent and temporary provisions that could benefit many taxpayers, especially families, small business owners and those with estate planning needs. While it does not solve every issue, it certainly locks in many of the TCJA’s tax cuts and introduces some creative new deductions.
This summary highlights some of the most impactful provisions, but additional changes and implementation details are still developing. Stay tuned as we continue to break down specific elements of the bill and provide more in-depth guidance throughout the year.
Need Help?
If you’re not sure how this affects you, now is a great time to connect with a tax advisor and plan ahead for 2025 and beyond.
Contact us online or call 800.899.4623 to discuss your situation.
