Here is a condensed breakdown of income tax changes as a result of the 2025 One Big Beautiful Bill Act. The following breakdown focuses on changes applicable to individual taxpayers and small businesses that I typically serve. This information has been aggregated from various articles and resources. Since this major tax reform is recent and the public is still learning the details, the information below may require some corrections that I’ll be sure to make as additional information is discovered.
Individual Income Tax Changes
Lower Tax Rates made Permanent
The personal income tax brackets that you are familiar with from the last several years under the 2017 Tax Cuts and Jobs Act have been made permanent. The income ranges are adjusted annually for inflation.
Here’s a link to an article with the 2025 personal federal income tax brackets: https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets
Larger Standard Deduction made Permanent
The 2017 Tax Cuts and Jobs Act nearly doubled the standard deduction, but was set to return to the lower amount. However, the OBBB made the increased standard deduction permanent.
Additionally, the standard deduction for tax year 2025 for all filing statuses has increased:
| Single and MFS | $15,750 ($750 increase) |
| Married Filing Jointly | $31,500 ($1,500 increase) |
| Head of Household | $23,625 ($1,125 increase) |
Deduct Interest on Personal Vehicles
For tax years 2026 through 2028, interest paid on car loans for qualifying vehicles is tax deductible.
This deduction applies to personal use vehicles, not vehicles used for business.
Only new vehicles (not used) purchased in 2025 through 2028 qualify.
Only vehicles that have final assembly in the US qualify.
The deduction is limited to up to $10,000 of interest per year.
There is an income limit phaseout starting at $100k for single filers and $200k for married couples filing jointly. The phaseout is $200 for every $1k your income exceeds the starting phaseout range. The deduction is fully phased out if your modified AGI exceeds $149k for single filers or $249k for married couples filing jointly.
This is not an itemized deduction. Eligible taxpayers that make qualifying purchases can claim this deduction regardless of whether they elect to itemize or claim the standard deduction.
SALT Cap Temporarily Raised from $10k to $40k
The SALT deduction refers to an itemized deduction for state and local taxes, which includes state income taxes, property taxes on a home, and property taxes on the value of vehicles (if applicable for where you live).
This is a temporary change that applies to tax years 2025-2029.
The SALT cap has been temporarily raised from $10k to $40k.
The SALT cap reverts to $10k permanently after 2029.
The $40k cap is increased by 1% annually until it reverts back to $10k.
There is an income limit phaseout starting at $500k. The increased cap is fully phased out at $600k of income.
Taxpayers with incomes that exceed the phaseout range will be limited to deducting $10k for their state and local income taxes.
Home Mortgage Interest Deduction
The $750k principal mortgage limit was made permanent. You can continue to deduct interest on a home loan with a principal balance up to $750k. For loans with balances greater than $750k, a pro-rata portion of the interest is deductible.
Private Mortgage Insurance
Starting in tax year 2026, private mortgage insurance premiums are tax deductible as home interest expense as an itemized deduction again.
Previously, PMI was not tax deductible in recent years.
Charitable Contributions
Starting in tax year 2026: If you itemize deductions, there is a 0.5% floor on charitable contributions. For example, if your income is $200k, the first 0.5% (or $1,000) of charitable contribution deductions is disallowed.
Starting in tax year 2026: if you take the standard deduction, you can claim a deduction for charitable contributions up to $1k (up to $2k for married couples).
Tax Exemptions for Overtime Pay
Applicable for tax years 2025 through 2028, taxpayers are able to claim a deduction for overtime pay. The deduction is limited to $12,500 (or $25k for married couples filing jointly).
There is an income limit phaseout starting at $150k ($300k if married filing jointly). The deduction is fully phased out for incomes over $275k ($550k if married filing jointly)
Tax Exemptions for Tip Income
Applicable for tax years 2025 through 2028, taxpayers are able to claim a deduction for cash tips. The deduction is limited to $25k per return (no increase for married couples).
There is an income limit phaseout starting at $150k ($300k if married filing jointly). The deduction is fully phased out for incomes over $400k ($550k if married filing jointly)
Seniors Receive an Additional $6k Deduction
Applies to tax years 2025-2028.
Applies regardless of whether you itemize or take the standard deduction.
This is a new tax deduction of $6k for each qualifying individual that is 65 years of age or older.
There is an income limit phaseout that starts at $75k (or $150k for married couples filing jointly). The deduction is completely phased out for incomes that reach $175k (or $250k for married couples filing jointly).
Social Security Benefits
No changes have been made to the calculation of the taxable amount of Social Security benefits. However, there is an additional deduction of $6k for taxpayers 65 years of age or older that is included on this list, which may indirectly lower the taxable portion of Social Security benefits for some taxpayers.
90% Gambling Loss Limit
Starting in 2026, there is a 90% limit on deducting gambling losses. Previously, gambling losses could be deducted as an itemized deduction up to 100% of winnings. This change limits the deduction to the lesser of 90% of winnings or the amount of the losses.
Credit for Electric Vehicles Being Eliminated
After September 30, 2025, taxpayers will no longer be able to claim a credit for purchasing an electric vehicle. Previously, the credit was up to $7,500 for a new electric vehicle or up to $4k for a used electric vehicle.
Since 2024, car buyers have been able to claim this credit at the point of sale, rather than waiting until they file their income tax returns. The credit was introduced as part of the Inflation Reduction Act of 2022 and was expected to be in effect through 2032.
There are income limits of $150k ($300k for married couples). Car buyers can qualify based on their federal AGI for the year of purchase or their federal AGI in the tax year immediately prior to the year of purchase.
Credit for Electric Vehicle Charging Equipment Being Eliminated
The credit for installing electric vehicle charging equipment at your home is being eliminated for equipment placed into service after June 30, 2026
Credit for Residential Energy Products Being Eliminated
Starting in 2026, the Energy Efficient Home Improvement Credit is eliminated. Since 2023, homeowners have been able to claim a tax credit worth up to $3,200 for making energy efficient home improvements. Though initially set to expire after 2032, taxpayers will no longer be able to claim the credit after December 31, 2025.
This IRS page has information on the Energy Efficient Home Improvement Credit: https://www.irs.gov/credits-deductions/energy-efficient-home-improvement-credit
Credit for Solar Panels on a Home Being Eliminated
Additionally, the credit for installing solar panels on your home will be eliminated after December 31, 2025.
Trump Accounts
This is an entirely new type of incentive.
Trump Accounts are a tax advantaged investment account. Earnings grow tax-free. Withdrawals are taxable, even when used for qualified expenses.
Starting January 1, 2026, parents of any child under 18 (by the end of the year) may open a Trump Account for their child.
The accounts allow contributions up to $5k/year that can grow tax-free until the beneficiary turns 18, at which point the account becomes an IRA account
Contributions from parents are allowed after July 5, 2026.
There will be a $1k payment from the federal government to Trump Accounts for children born from January 1, 2025 through December 31, 2028.
Withdrawals for qualified expenses are taxed at the long-term capital gains tax rate.
There will be a 10% penalty and income tax on withdrawals taken before 59 ½ years of age, unless the funds are used for higher education, a disability, or natural disaster costs. Beneficiaries can also withdraw up to $10k for a new home purchase and $5k for a baby of their own.
Normally, for contributions to an IRA account, the child would have to have earned income, such as wages or self-employment income. Trump Accounts allow parents to contribute to their child’s Trump Account without the child needing to have earned income.
Child and Dependent Care
Starting in 2026: the limit for dependent care (a reduction to taxable wages) is $7,500. This is an increase of $2,500 from the previous limit of $5k.
Child Tax Credit
Starting in 2026, the Child Tax Credit is increased from $2k to $2,200
The refundable portion of the credit remains at $1,700.
Both the total credit and the refundable portion of the credit will be indexed for inflation, starting in 2026.
529 College Savings Plans
Starting in 2026, more types of expenses are eligible to be paid out of a 529 plan.
Starting in 2026, the annual limit for qualifying withdrawals from a 529 plan for kindergarten through high school has been increased to $20k. This is an increase of $10k from the previous $10k limit.
Credit for Private School Scholarship Donations
Beginning in tax year 2027, taxpayers can claim a credit worth up to $1,700 for qualified donations to nonprofit organizations that support scholarships for K-12 private school education.
Alternative Minimum Tax
The increase to the AMT exemption has been made permanent.
The AMT exemption phaseout thresholds revert to $500k ($1 million for joint filers), indexed for inflation.
Eliminated Deductions that were Set to Return
The deduction for moving expenses is now permanently eliminated for most people, other than members of the armed forces and certain members of the intelligence community. 2017 Tax Cuts and Jobs Act temporarily suspended the deduction, but now it’s permanent.
The personal exemption has been permanently eliminated.
The miscellaneous itemized deductions category has been permanently eliminated.
1% Remittance Tax on Overseas Transfers
This is not directly tied to income taxes, but I’m including this on the list nevertheless.
Starting in 2026, there is a 1% Remittance Tax on transfers of money that people in the US send to people abroad. This is for non-commercial transfers of money.
Business Income Tax Changes
100% Bonus Depreciation
Effective for tax year 2025, businesses are able to claim an upfront deduction on qualifying asset purchases for up to 100% of the cost.
For example, an SUV or truck with a gross vehicle weight of 6,000 pounds or more can be deducted in full in the year of purchase, limited to the extent the vehicle is used for business based on mileage (e.g. if the vehicle is used 80% for business based on mileage, up to 80% of the purchase price can be deducted via depreciation).
Section 179 Expense
The Section 179 expense cap increased to $2.5 million with phasedown starting when the cost of qualifying property exceeds $4 million.
Qualified Business Income Deduction
The Qualified Business Income Deduction has been made permanent.
Additionally, the income phaseout limits have been raised.
An overly simplified explanation of the QBI deduction is: business owners (of businesses other than those taxed as C-Corps), can deduct up to 20% of the net income of their business to reduce their federal taxable income.
FICA Tip Credit
Starting in 2026, the FICA tip credit will also apply to beauty service establishments. Previously, the FICA credit was limited to the restaurant industry (providing, serving, or delivering food or beverages).
1099-K Threshold
Starting in 2026, the threshold that requires filing a form 1099-K reverts to $20k and 200 transactions. The threshold was supposed to be $2,500 for 2025 and was set to drop to $600 for 2026 and beyond.
I often see this incorrectly reported as the threshold at which you need to report the income on your income tax returns, however you’re supposed to report the income on your income tax return no matter the amount and no matter whether a form 1099-K is issued to you. The only change here is whether the form 1099-K is required to be issued based on the total of the payments and the number of transactions.
Pass-Through Entity Elective Tax Payments Remain
Business owners of pass-through entities, such as those taxed as s-corporations and partnerships, can continue opting-in to pay state income taxes on the profits of their businesses at the business level, thereby reducing their federal taxable income and avoiding the itemized deduction limit for state and local taxes.
Estate and Gift Tax Changes
While this is not a change to income taxes, I’m including this change on the list nevertheless.
For 2025, the federal estate tax exemption for someone that passes away is $13.99 million. The exemption is raised to $15 million in 2026 and is indexed for inflation.
Contact me to discuss this topic in further detail
Please note: the information on this website is intended to provide general advice to start the discussion with your tax professional. The information on this website may not apply to your specific situation. Only an experienced professional with the details of your specific situation can advise you on making the best decision. Contact me or your tax professional to discuss the information on this site to make an informed decision.