Understanding the New Tax Rules: Highlights from the 2025 Big Beautiful Bill
The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4th, 2025. This extends the provisions of the 2017 Tax Cuts and Jobs Act (TCJA), which were set to expire at the end of 2025. This law has implemented some permanent, significant tax changes, including the extension of the TCJA’s tax brackets, an increased standard deduction, and higher gift and estate tax exemption thresholds. While the bill includes other significant changes affecting areas like Medicaid and student loans, this post will focus on the individual tax provisions most relevant to taxpayers today. Future articles will delve into the broader impacts in greater detail.
Standard Deduction Permanently Increased
Starting in 2025, the standard deduction will increase by a slight amount. The following amounts, adjusted for inflation, will be permanent going forward.
| Filing Status | 2025 (TCJA) | 2025 (OBBA) |
|---|---|---|
| Single; Married Filing Separately | $15,000 | $15,750 |
| Married Filing Jointly | $30,000 | $31,500 |
| Head of Household | $22,500 | $23,625 |
Temporary Additional Deduction for Seniors Age 65+
When you turn 65, you become eligible for an additional deduction on top of the regular
standard deduction. However, the amount of this extra deduction will vary based on factors such as filing status and whether you or your spouse is 65 or older. Whether you or your spouse is blind is another factor. Here are the original deductions prior to OBBBA being passed:
- For 2025, the additional standard deduction is $2,000 if you are single or file as head of household. If you are also blind, this amount increases to $4,000.
- If you’re married, filing jointly or separately, the extra standard deduction amount is $1,600 per qualifying individual. If you or your spouse is also blind, this amount increases to $3,200 per qualifying individual.
The new bonus will provide an additional reduction in taxable income for qualifying individuals, up to $6,000, in addition to the existing standard deduction. However, this deduction does come with phase-out ranges. The full benefit phases out at a rate of 6% for every dollar above the following:
- Single filers with a MAGI above $75,000.
- Joint filers with a MAGI above $150,000.
- Phases out entirely at $175,000 (single filers) and $250,000 (joint).
Expanded Child Tax Credit (CTC)
The TCJA was initially scheduled to sunset at the end of 2025, which would have reduced the CTC from its current level of $2,000 per qualifying child to $1,000. Instead, OBBBA has permanently increased this credit to $2,200 beginning in 2025. Additionally, the credit will be indexed to inflation beginning in 2026.
Out of the $2,200 credit, $1,700 of that is considered a refundable credit. If a refundable credit reduces your tax bill below zero, you will receive the remaining credit amount as a refund. Whereas if you are claiming a nonrefundable credit that reduces your tax bill below zero, you will receive no refund.
New Below-the-Line Deductions
Tax deductions can be thought of as either “above-the-line” or “below-the-line”, with the “line” referring to Adjusted Gross Income (AGI). Above-the-line deductions are available to any eligible taxpayer. While below-the-line deductions are typically only available if you itemize deductions and don’t take the standard deduction.
OBBBA has introduced several new below-the-line deductions that both itemizers and non-itemizers can claim. These include:
- Charitable contribution deductions for non-itemizers.
- Qualified tips deduction.
- Qualified overtime compensation deduction.
- New auto loan interest deduction.
In the past, to deduct charitable contributions, taxpayers had to itemize their deductions. Since most people take the standard deduction and don’t itemize, there has been little incentive from a tax perspective to make charitable donations in recent years. Starting in 2026, the maximum deduction for single filers is $1,000, and for joint filers, it is $2,000. This means taxpayers can take this new deduction regardless of whether they itemize or not.
The” No Tax on Tips” provision still subjects tips to payroll tax and potentially state income tax. However, up to $25,000 of “qualified tip” income will be deductible starting in 2025 through 2028.
The deduction limit for overtime compensation is different from the limit for tips. For joint filers, up to $25,000 is deductible; for all other filers, the limit is $12,500. There is a phase-out range that applies to tips and overtime compensation. The phase-out begins once Modified Adjusted Gross Income (MAGI) reaches $150,000 for single and head-of-household filers and $300,000 for joint filers. This deduction is reduced by $100 for every $1,000 of MAGI above these limits.
The new auto loan interest deduction applies to interest on loans used to purchase certain vehicles for personal use. Specifically, this includes new cars, vans, SUVs, pickup trucks, and motorcycles with a gross vehicle weight of less than 14,000 pounds. Additionally, the vehicle must be assembled in the U.S. to be eligible for this deduction. This deduction only applies to interest on new loans taken after December 31st, 2024. The number of auto loans is not restricted for eligibility, but the total deductible interest is capped at $10,000 per year.
The new tax law introduces complexity to the tax code, particularly between 2025 and 2028, when several temporary deductions are in effect. These changes make it more difficult to plan without specialized tools that can model how one decision may impact another part of your tax picture. As a result, proactive tax planning is more important than ever. Working with an advisor who can translate these changes into clear, personalized strategies will be key to making the most of the new rules.