2025 Tax Law Changes
As we approach the final weeks of 2025, I am writing to update you of key tax law changes enacted for 2025 in the OBBB (One Big beautiful Bill) that may affect you and provide actionable planning suggestions to help you optimize your tax position before year-end. The details of these new laws have now been (mostly) confirmed by the IRS, so there is now a good idea of the effects they may have.
Key 2025 Tax Law Changes Under the OBBB
Increased Standard Deduction For tax year 2025, the OBBB raises the standard deduction to $31,500 for married couples filing jointly and $15,750 for single filers (adjusted for inflation). This may reduce the benefit of itemizing deductions for some taxpayers.
Increased SALT Deduction Limit The OBBB raises the cap on the deduction for state and local taxes (SALT), allowing taxpayers to deduct up to $40,000 in combined state and local income, sales, and property taxes for married couples filing jointly, and $20,000 for single filers or married individuals filing separately. This is a significant increase from previous limits and may make itemizing deductions more beneficial for taxpayers in high-tax states. The increase applies for tax year 2025 and beyond, unless otherwise specified in the legislation.
New Senior Tax Deduction Individuals aged 65 and older are now eligible for an additional $6,000 deduction per person for tax years 2025 through 2028. Note there are income limitations for this deduction which may reduce or eliminate it.
New Deduction for Vehicle Loan Interest A new deduction is available for qualified interest paid on passenger vehicle loans originated in 2025. This applies to loans used to purchase new or used vehicles, subject to income limits and vehicle cost caps. Qualifying vehicles must have been assembled in the USA.
Accelerated Expiration of Energy Credits Several clean energy tax credits (including those under Sections 25C, 25D, 30C, and 30D) have been modified or terminated early under the OBBB. Notably, no credit will be allowed for property placed in service after December 31, 2025. If you are considering energy-efficient home improvements or electric vehicle purchases, completing these before year-end is essential.
New Deduction for Tips and Overtime Pay For tax years 2025 through 2028, the OBBB introduces a new deduction for individuals who receive qualified tips and qualified overtime compensation. Workers in occupations where tips are customarily received (e.g., hospitality, food service) may deduct the amount of qualified tips reported to their employer. Similarly, eligible taxpayers may deduct qualified overtime pay received during the year. These deductions are available regardless of whether you itemize.
Year-End Planning Suggestions
Maximize Energy Credits: If you plan to claim energy-related tax credits, ensure all qualifying property is placed in service by December 31, 2025.
Review Withholding: Consider using IRS Form W-4 to adjust your withholding, especially if you're benefiting from new deductions like the senior deduction or vehicle interest deduction.
Retirement and Charitable Planning: While not directly altered by OBBB, traditional strategies such as IRA contributions, charitable remainder trusts, and qualified charitable distributions remain valuable.
Vehicle Purchases: If financing a vehicle in 2025, document your loan and interest payments carefully to support your deduction claim.
For more in depth explanations of these changes refer to the IRS news here:
I am closely monitoring IRS guidance as it is released and will notify you of any significant updates. If you would like to schedule a personal consultation to review your specific situation, please contact me.
Max Cripe, EA
(240)997-2970