07/10/2025
One Big Beautiful Bill!
We are pleased this bill has passed as it seems many taxpayers will benefit.
Tax changes included in the OBBB
By now most of you have been made aware by the media that this new bill was signed by President Trump on July 4th and it has some good changes for tax year 2025. Although the tax bill touched on many items I have outlined some key points that should be highlighted as it will affect you the taxpayer. I urge you to do some research on your own for more information on how this new bill may affect you.
Tax Rates
The reduced tax rates created in 2017 which were to sunset at the end of 2025 were made permanent.
Changes to the 2025 standard deduction
Increased standard deductions; $15,750 for single taxpayers, $31,500 for joint filers, and $23,625 for head of household.
Extra deduction for ages 65 or over tax years 2025-2029
Although there was some talk about making social security income non-taxable, this was not in the bill. Instead, an additional $6,000 above the line deduction for taxpayers ages 65 or older was made. This deduction for single filers this will phase out at $75,000 and $150,000 for married filing jointly. Married taxpayers who file separately will not get this added benefit. This is coming at a great time as many state and town employees who were limited on their social security benefits due to their state employment received some back pay and an increase in their monthly benefits.
Child Tax Credit
This credit increases from $2,000 to $2,200 beginning tax year 2025.
Limit on SALT deduction
The SALT deduction is state and local tax deduction. You may remember in 2017 a limit of $10,000 was put on this itemized deduction as the standard deduction was raised and the personal exemptions were eliminated. This deduction increases beginning tax year 2025 from $10K up to $40K. This means the deductions for all state and local taxes for purposes of itemized deductions increased which may allow for more taxpayers to itemize their deductions. Taxes paid for state income and local real estate taxes coupled with mortgage interest may mean more taxpayers will benefit from itemizing their deductions vs taking a standard deduction. This new increased deduction will be increased slightly each year until the year 2029 when the deduction will drop back down to $10K unless otherwise changed.
New Car Loan Interest Deduction
Effective for tax years 2025-2029. Taxpayers who itemize their deductions can claim a deduction for up to $10,000 of interest paid on a qualified passenger vehicle loan. The stipulations are for a new vehicle of less than 14,000 pounds, is applicable to car, minivan, van, sport utility vehicle, pickup truck, or motorcycle and has final assembly within the United States. The vehicle’s VIN is required to be shown on the tax return. Lenders will be providing a Form with the vehicle’s information.
Tax on tips
This provision begins tax year 2025 and allows individuals an adjustment to income for qualified tips received during the year that are included in income. . The deduction is limited to $25,000 (a married taxpayer must file joint) and is phased out based on modified AGI (MAGI). The phase-out is $100 for each $1,000 of a taxpayer’s MAGI that exceeds $150,000 ($300,000 for MFJ).
Tax on overtime
Up to $12,500 ($25,000 for MFJ) (a married taxpayer must file joint) can be claimed as an adjustment to income for overtime included on the tax return.
Other Changes to Mention
Increased 529 expense qualifications and maximum expense increased to $20K per year.
Refundable feature for the Adoption credit.
Dependent Care Assistance Program has increased from $5,000 to $7,500. A Dependent Care Assistance Program (DCAP) allows employees to set aside pre-tax money from their paycheck to pay for eligible dependent care expenses, such as childcare or elder care. This reduces taxable income, resulting in lower tax burdens and potentially lower out-of-pocket dependent care costs.
Now for the not so good news...
Educator Expenses
While this was an above-the-line deduction in prior years will now only be allowed if a taxpayer itemizes the deductions.
Charitable contributions
Deductions will now be subject to a 5% floor similar to medical expenses and will have to exceed 5% of Adjusted Gross Income.
Elimination of certain green energy tax breaks
The One Big Beautiful Bill gets rid of many green energy incentives. Several tax breaks created by the Inflation Reduction Act (passed by the Biden administration in 2022) will be eliminated soon, including:
The electric vehicle (EV) tax credit for new and used cars will expire after Sept. 30, 2025. If you’re thinking about purchasing an EV and want to take advantage of the credit, you’ll need to make your purchase before that deadline.
The tax credits for energy-efficient home improvements like upgrading windows, insulation, or HVAC systems will expire after Dec. 31, 2025.
While this bill contains much more information, I hope this small outline has helped you a little.
Continue to enjoy your summertime fun and stay cool!
Best,
Robin Wdowiak
