The One Big Beautiful Bill Act makes provisions for individuals that will take effect in 2025 and extend beyond 2025. Based on our understanding of this new law, we’ve collected the following information. Our interpretation of these provisions will continue to evolve as more details are revealed.
The following items will affect individuals in 2025 returns:
1. Tips deduction. A deduction of up to $25,000 in qualified tips received in certain occupations is allowed. The deduction is phased out by $100 for every $1,000 of modified adjusted gross income (MAGI) above $150,000 ($300,000 married filing jointly). Qualified tips are to be reported on Form W-2, Form 1099 or another specified statement furnished to the taxpayer, or reported by the individual on Form 4137. The deduction is not available to self-employed individuals in a Specified Service Trade or Business (SSTB) nor to employees whose employer is an SSTB. Taxpayers must include their Social Security Number (SSN) on the return and if married, file jointly to claim the deduction. The legislation modified IRC § 63(b), making this temporary deduction available whether or not the taxpayer itemizes. A list of occupations that “customarily and regularly” received tips on before Dec. 31, 2024, must be published by the IRS no later than Oct. 2, 2025.
2. Overtime deduction. A deduction of up to $12,500 ($25,000 MFJ) for qualified overtime amounts in excess of the taxpayer’s regular rate of pay is allowed; however, tips are excluded. This deduction is subject to the same phaseout and reporting requirements, as well as the SSN and MFJ requirements, as the tips deduction. It is also temporary (2025–2028) and is available whether or not the taxpayer itemizes.
3. Car loan interest deduction. A deduction of up to $10,000 of qualified interest paid on qualified passenger vehicles. The deduction is phased out by $200 for every $1,000 of MAGI above $100,000 ($200,000 MFJ). To qualify, the passenger vehicle (car, minivan, van, SUV, pickup truck or motorcycle) must be purchased after Dec. 31, 2024 (leases do not qualify) for personal (not business) use, must be new (used vehicles do not qualify), weigh less than 14,000 pounds and has final assembly in the U.S. The loan on the vehicle must be secured by a lien on the vehicle for the interest to be qualified, and lenders must report the interest to the taxpayers. The vehicle identification number (VIN) of the qualified vehicle must be included on the return to claim the deduction, which is available whether or not the taxpayer itemizes.
4. Deduction for seniors. A deduction of $6,000 per taxpayer aged 65 or older is allowed ($12,000 on a MFJ return if both spouses qualify). This temporary (2025–2028) special personal exemption phases out by 6% of the amount that MAGI exceeds $75,000 ($150,000 MFJ). To claim the deduction, SSNs are required and married individuals must file jointly.
5. Standard deduction. The 2025 standard deduction will be $15,750 for single filers, $31,500 for married filing jointly and $23,625 for head of household, an increase of the previously announced amounts of $15,000, $30,000 and $22,500, respectively.
6. State and Local Tax (SALT) deduction limitation. The SALT deduction limitation is $40,000 ($20,000 MFS). This limit is reduced by 30% of the excess by which MAGI exceeds $500,000 ($250,000 MFS) but not below $10,000.
7. Child tax credit (CTC). The maximum CTC is increased from $2,000 to $2,200 per child under age 17, with the refundable amount remaining at $1,700. SSNs for the child and the taxpayer (at least one spouse if MFJ) are required to claim the credit.
8. Adoption credit. The legislation makes up to $5,000 of the adoption credit refundable. In addition, Indian tribal governments are allowed to determine if a child has special needs for purposes of the credit.
9. Energy credits. Both the previously-owned clean vehicle credit (§ 25E(g)) and the new clean vehicle credit (§30D) are eliminated for vehicles acquired after Sep. 30, 2025.
10. Qualified small business stock (QSBS) gain exclusion. Although this provision does not affect 2025 returns directly, it does affect the taxation of the gains on QSBS acquired after July 4, 2025. For those QSBS, a tiered gain exclusion applies. The exclusion is 50% for stock held for three years, 75% for stock held for four years and 100% for stock held for five years. 529 account distributions. The legislation expanded the list of expenses eligible for payments from 529 accounts for elementary and secondary tuition (§ 529(c)(7) to include not only tuition, but also books and materials; certain tutoring; fees for certain standardized tests, advanced placement tests and college entrance exams; fees for dual enrollment at higher education institutions; and certain educational therapies for students with disabilities. In addition, certain postsecondary credentialing expenses (under new § 529(f)) may be paid with 529 funds, including tuition, fees, books and supplies; fees for testing; and fees for continuing education. These provisions are effective for 529 account distributions made after July 4, 2025.
The following items will affect individual returns after 2025:
1. Tax rates. The seven tax rates are permanent. The income thresholds for the tax brackets continue to be adjusted annually for inflation, with an adjustment for the base year for the 10% and 12% brackets.
2. Wagering losses. The definition of what is included in wagering losses is permanent and is expanded to include any deduction otherwise allowable related to a wagering transaction. In addition, the deduction for losses is limited to 90% of the losses for the year, further limited to wagering gains.
3. Dependent care assistance program. The maximum exclusion is increased to $7,500 ($3,750 MFS).
4. Student loans. The exclusion from income for loans discharged due to death or disability is permanent, and a requirement to include SSNs on the return is added. The exclusion for employer payments for student loans (considered educational assistance) is also permanent and the amount will be adjusted for inflation after 2026.
5. Moving expenses. The suspension of the deduction for moving expenses and exclusion for moving expense reimbursements for all except members of the military, previously scheduled to expire at the end of 2025, is permanent. Certain members of the intelligence community will also qualify for the deduction and exclusion.
6. Excess business losses. The limitation, previously scheduled to expire after 2028, is permanent. The base year used for the calculation of the inflation adjustment has changed for 2026 and beyond.
7. 529 account distributions. The limit for distributions for eligible elementary and secondary expenses in §529(c)(7) is increased from $10,000 to $20,000.
8. Standard deduction. The higher standard deduction is permanent. The 2025 amounts listed above will be adjusted for inflation.
9. SALT deduction limitation. The SALT deduction limitation, as well as the phaseout threshold, are increased by 1% for tax years 2026–2029. For 2026, the deduction limit is $40,400 ($20,200 MFS), and the threshold is $505,000 ($252,500 MFS). The reduction is the same as in 2025. The SALT limitation reverts to $10,000 ($5,000 MFS) in 2030.
10. Mortgage interest. Qualified residence interest, limited to interest on loans of up to $750,000, was scheduled to revert to the previous $1 million loan limit after 2025. The legislation made the lower limit permanent. In addition, mortgage insurance premiums are deductible as mortgage interest.
11. Charitable contributions deduction for itemizers. The 60% of AGI limitation on cash contributions, previously scheduled to expire at the end of 2025, is permanent. A 0.5% floor applies to contributions, which are added to the contributions carryforward if the contributions exceed the contribution limitations.
12. Charitable contributions deduction for non-itemizers. The legislation includes a permanent contributions deduction for non-itemizers of $1,000 ($2,000 MFJ).
13. Educator expenses. These expenses have been removed from the list of miscellaneous itemized deductions subject to 2% of AGI, making these expenses once again deductible. The legislation makes no changes to the above-the-line deduction in § 62; however, for purposes of the itemized deduction (§67), the legislation expands the definition of “educator” to include interscholastic sports administrator and coaches and broadens the expenses to include non-athletic supplies for courses of instruction in health or physical education and those used by the educator as a part of instructional activity (not just in the classroom.)
14. Personal casualty losses. The inability to deduct personal casualty losses other than those in a federally declared disaster area is permanent and is expanded to include state declared disasters.
15. Limitation on itemized deductions. For taxpayers in the 37% tax bracket, itemized deductions are reduced by 2/37 of the lesser of the itemized deductions or the taxable income in the 37% bracket.
16. Child tax credit (CTC). The higher amount of the CTC as well as the $500 credit for other dependents, scheduled to expire at the end of 2025, have been made permanent. The amount of the CTC and its refundable portion will be adjusted annually for inflation.
17. Child and dependent care credit. The legislation increases the maximum credit rate from 35% to 50% for taxpayers with an AGI of $15,000 or less. The credit is reduced by 1% for each $2,000 or fraction thereof by which the taxpayer’s AGI exceeds $15,000, but not below 35%. The credit is further reduced by 1% for each $2,000 ($4,000 MFJ) or fraction thereof by which the taxpayer’s AGI exceeds $75,000 ($150,000 MFJ), but not below 20%.
18. Adoption credit. The refundable portion of the credit will be adjusted for inflation.
19. Premium tax credits. The limit on the amount of excess advance premium tax credits that must be repaid is removed.
20. Energy credits. The energy efficient home improvement credit (§ 25C) is eliminated for property placed in service after 2025. The residential clean energy credit (§ 25D) is eliminated for expenditures made after 2025.
21. Alternative minimum tax (AMT). The higher amount of the AMT exemption, scheduled to expire at the end of 2025, is permanent. The legislation modifies inflation adjustments and the phaseout thresholds.
22. Estate and gift tax exemption. The higher estate and gift tax exemption, scheduled to expire at the end of 2025, is permanent. The amount for 2026 is the base amount of $15 million, adjusted for inflation.
23. Trump savings accounts. Beginning in 2026, an IRA account may be established for eligible children under 18. Contributions to the account, which are not deductible and are excluded from income of the beneficiary, cannot be made until after July 4, 2026, and are limited to $5,000 per year, adjusted for inflation after 2027. Distributions are not generally allowed before the beneficiary turns 18. For eligible children born between Jan. 1, 2025, and Dec. 31, 2028, parents may elect to receive a $1,000 refundable tax credit which will be deposited into the child’s account. The child must be a U.S. citizen and the child’s SSN must be included on the return.
24. Suspended items scheduled to expire at the end of 2025 made permanent. Certain items that were suspended through 2025 would have returned in 2026 absent Congressional action. The legislation made permanent that no deduction is allowed for personal exemptions (other than the senior deduction discussed above) or miscellaneous itemized deductions subject to 2% of AGI. Payments for bicycle commuting are no longer considered a qualifying fringe benefit, making reimbursements taxable.