For a brief period last summer, tax legislation made national headlines when the President signed the One Big Beautiful Bill Act (OBBBA) into law. This sweeping budget act permanently extends the 2017 tax cuts, introduces several new tax breaks for individuals, and repeals most clean-energy tax incentives.
Because many of these changes first apply to the 2025 tax year, they should be factored into year-end and forward-looking tax planning. Below is a practical overview of what’s new, followed by key planning considerations that may help reduce your overall tax liability.
New Tax Breaks Under the OBBBA
Most of the new deductions introduced by the OBBBA are available whether you itemize or take the standard deduction, although many are subject to income-based phaseouts. These provisions can be quite valuable, so it’s worth reviewing whether any apply to your situation.
Increased SALT Deduction Limit
The cap on the state and local tax (SALT) deduction has increased significantly—from $10,000 to $40,000 for 2025. To benefit, you must itemize deductions.
- The increased limit begins to phase out when AGI exceeds $500,000.
- Married individuals filing separately are subject to lower limits and phaseouts.
Even if you haven’t itemized in recent years, the higher SALT cap may now make itemizing worthwhile.
Deduction for Car Loan Interest
A new deduction allows up to $10,000 of interest on car loans used to purchase a new personal-use vehicle assembled in the U.S.
- Applies to loans taken out after 2024
- Available through 2028
- Phases out above $100,000 AGI ($200,000 joint)
- Available whether or not you itemize
Deduction for Tip Income
Individuals working in occupations that customarily receive tips may deduct up to $25,000 of tip income.
- Applies to both employees and independent contractors
- Phases out above $150,000 AGI ($300,000 joint)
- Available through 2028
- No itemizing required
Deduction for Overtime Pay
Taxpayers may deduct up to $12,500 ($25,000 joint) of federally mandated overtime pay.
- Phases out above $150,000 AGI ($300,000 joint)
- Available through 2028
- No itemizing required
Deduction for Seniors
Individuals age 65 or older by year-end qualify for a new $6,000 per-person deduction.
- Similar in concept to the former personal exemption
- No itemizing required
- Phases out above $75,000 AGI ($150,000 joint)
Charitable Deduction for Non-Itemizers (Effective 2026)
Beginning in 2026, taxpayers who do not itemize may deduct up to $1,000 in cash charitable contributions ($2,000 joint).
Planning note: If you expect to take the standard deduction in 2025, it may make sense to delay certain charitable contributions until 2026.
Itemized Deduction for Educator Expenses (Effective 2026)
K-12 educators will be able to claim an unlimited itemized deduction for qualifying classroom expenses.
- Complements the existing above-the-line educator deduction
- Includes certain athletic and physical education expenses
- Requires itemizing deductions
Standard Deduction vs. Itemizing
The OBBBA permanently retains the higher standard deduction amounts originally enacted under the TCJA. For 2025:
- $15,750 – Single
- $23,625 – Head of Household
- $31,500 – Married Filing Jointly
If your itemized deductions are close to these thresholds, strategic planning—such as bunching deductions into one year—may yield meaningful tax savings.
The expanded SALT deduction alone may now tilt the analysis back in favor of itemizing for many taxpayers.
Key Itemized Deduction Refresher
State and Local Taxes (SALT)
You may deduct up to $40,000 (subject to phaseout) of:
- State and local income taxes
- Real estate property taxes
- Personal property taxes (e.g., vehicle taxes based on value)
- Sales taxes (in lieu of income taxes)
Medical Expenses
Medical expenses are deductible to the extent they exceed 7.5% of AGI. Qualified expenses include insurance premiums, long-term care costs, and transportation for medical care.
Strategic timing of elective medical expenses can improve deductibility.
Charitable Contributions
Donating appreciated assets (such as stock) can provide a double benefit—a fair-market-value deduction while avoiding capital gains tax.
Beginning in 2026, itemized charitable deductions will be reduced by 0.5% of AGI, making 2025 an especially favorable year for larger contributions.
IRA Charitable Distributions
Taxpayers age 70½ or older may donate directly from an IRA to charity. While not deductible, the distribution is excluded from income, potentially reducing AGI-based taxes and phaseouts.
Mortgage-Related Deductions
- Mortgage interest is generally deductible on up to $750,000 of acquisition debt ($1,000,000 for pre-12/16/2017 loans).
- Home equity loan interest is deductible only if funds were used to substantially improve the home.
- Mortgage insurance premiums become deductible again in 2026, subject to income limits.
Tax Credits for 2025
Tax credits reduce tax dollar-for-dollar and are often more valuable than deductions. Key credits include:
- Child Tax Credit
- Earned Income Credit
- Dependent Care Credit
- Premium Tax Credit (ACA)
- American Opportunity & Lifetime Learning Credits
- Savers Credit
Several clean-energy credits expire at the end of 2025, including the Residential Clean Energy Credit and the Energy Efficient Home Improvement Credit.
Education & Savings Enhancements
529 Plans
- Expanded uses now include:
- Broad K-12 expenses (limit increases to $20,000 in 2026)
- Vocational training and professional credentialing
Retirement Accounts
Maximizing retirement contributions remains one of the most effective tax-planning tools. Contribution limits have increased across 401(k)s, IRAs, HSAs, and SIMPLE plans.
Trump Accounts (Effective 2026)
New accounts for children will allow up to $5,000 annually, growing tax-free and invested in broad-based equity index funds.
Life Events Matter
Changes such as marriage, divorce, retirement, a job change, the birth of a child, or the loss of a loved one can significantly affect your tax situation. It’s important to address these events proactively to avoid surprises and missed opportunities.
Final Thoughts
The OBBBA introduces meaningful planning opportunities—but also new complexity. A tailored strategy can make a significant difference in your overall tax outcome.
If you have questions about any of the items above or would like help determining how these changes apply to your situation, please don’t hesitate to reach out.
