With the passage of the 2025 tax reform package under the Trump administration (i.e., One Big Beautiful Bill Act (OBBBA)), Americans are facing one of the most substantial shifts in federal tax policy since the Tax Cuts and Jobs Act of 2017 (TCJA). Whether you’re an individual taxpayer, small business owner, or high-net-worth filer, understanding these changes is critical for proper planning and compliance. Highlights include:
- Effective as of 2025
- Tax Bracket Adjustments: The tax brackets established by TCJA become permanent due to OBBBA.
- Standard Deduction Increase: The standard deduction is increased to $15,750 for single filers and $31,500 for joint filers. **Additional deduction of $6,000 for taxpayers 65 and older with modified adjusted gross income phase-outs.**
- State and Local Tax (SALT) Deduction Cap for Itemizers Increases: The SALT deduction limit increases to $40,000 for individuals and joint filers.
- Child Tax Credit (CTC) Increases and Becomes Permanent: The CTC has been expanded to $2,200 per qualifying child in 2025.
- Expanded 529 Plan Benefits for K–12 Education: Starting July 4, 2025, the OBBBA expands 529 plan benefits by broadening qualified expenses.
- No tax on tips with a $25,000 maximum deduction and a $150,000 MAGI phase-out ($300,000 for MFJ).
- No tax on overtime – that is, on pay that exceeds regular pay – with a maximum annual deduction of $12,500 ($25,000 for MFJ) and a $150,000 MAGI phase-out ($300,000 for MFJ).
- No tax on car loan interest for a new, personal use vehicle loan (lease payments do not qualify) originated after December 31, 2024; a maximum annual deduction of $10,000; a $100,000 MAGI phase-out ($200,000 for MFJ); a GVW rating of less than 14,000 pounds; and a vehicle that has undergone final assembly in the United States. (above-the-line deduction)
- Clean Energy Credits To Be Eliminated [effective dates vary]
- Previously-owned electric or clean vehicles: The $4,000 federal tax credit for purchasing a previously-owned electric or clean vehicle has been terminated for vehicles purchased after September 30, 2025. (The Massachusetts MOR-EV incentive lives on. See other states that offer EV credit.)
- New electric vehicles: The $7,500 Clean Vehicle Credit for new electric vehicles has been terminated for vehicles purchased after September 30, 2025. (The Massachusetts MOR-EV incentive lives on. See other states that offer EV credit.)
- Energy efficient home improvement: The Energy Efficient Home Improvement Credit for upgrades such as windows, insulation, and HVAC systems will expire for improvements placed in service after December 31, 2025, making 2025 the final year to claim it. (learn about Massachusetts energy rebates and incentives)
- Last Chance for 30% Residential Clean Energy Credit: Act Before 2025 Ends: If you’re planning to install solar panels, geothermal systems, or other clean energy upgrades at home, do it by December 31, 2025 to qualify for the 30% Residential Clean Energy Credit.
- Effective as of 2026
- Charitable Giving Deduction Returns for Non-Itemizers: The OBBBA permanently allows non-itemizers an above-the-line deduction of up to $1,000 ($2,000 for joint filers) in charitable donations, expanding access to charitable tax benefits beyond itemizers and is intended to encourage broader giving.
- New Floor on Charitable Contribution Deductions for Itemizers: Beginning in 2026, itemizers can deduct charitable gifts only to the extent they exceed 0.5% of AGI; standard AGI limits (e.g., 60% cash/30% appreciated property) still apply.
- More Help for Working Parents: Dependent Care Benefit Limit Increases: The OBBBA permanently raises the tax-free limit for employer-sponsored dependent care benefits from $5,000 to $7,500 per household.
- Expanded 529 Plan Benefits for K–12 Education: Starting January 1, 2026, the OBBBA expands 529 plan benefits by doubling the K–12 tuition withdrawal limit to $20,000 per student annually.
- Clean Energy Credits To Be Eliminated (in 2026) – Refueling or recharging property: The Alternative Fuel Vehicle Refueling Property Credit will be terminated for any property placed in service after June 30, 2026, making the first half of 2026 the final window to claim this tax credit.
- Estate and Gift Tax Extension: Starting January 1, 2026, the federal estate and gift tax exemption is permanently set to $15 million per individual, up from today’s $13.99M. The annual gift exclusion remains separate (e.g., $19,000 in 2025), and portability still allows a surviving spouse to use a deceased spouse’s unused exemption.
- Mortgage Interest Deduction: Key Limits Made Permanent: The OBBBA locks in the $750,000 mortgage interest cap permanently (no reversion to $1M) and restores PMI as deductible interest on qualified residence loans, subject to income limits—providing broader relief for homeowners.
- Expanded Relief for Educators: Beginning with 2026 tax years, the OBBBA broadens the above-the-line educator deduction to cover more roles (including coaches, administrators, and interscholastic staff) and more supplies—such as certain health/PE materials—and applies to expenses incurred as part of instructional activity, even outside the traditional classroom.
- Trump Accounts – A New Savings Vehicle for American Children. [effective July 4, 2026]: The OBBBA creates government-seeded, tax-advantaged “Trump Accounts” for eligible children under 18—$1,000 initial deposit, parent contributions up to $5,000/year (indexed), and employer contributions up to $2,500/year—invested in broad U.S. stock index funds with withdrawals restricted until age 18. (The $1,000 initial deposit from the federal government is for every American child born after December 31, 2024 and before January 1, 2029.)
Overview of the 2025 Tax Law Changes
The 2025 tax legislation makes many of the provisions of the 2017 Tax Cuts and Jobs Act (TCJA) permanent (these were originally scheduled to expire at the end of 2025, increasing tax burden on about 62% of tax filers), while introducing new measures aimed at reducing the tax burden for certain groups and promoting investment. Key themes include middle-class relief, extended expiring provisions, and enhanced deductions for families and businesses. Find below an overview of many of the most impactful and relevant changes effective 2025 and beyond as a result of Trump’s One Big Beautiful Bill Act (OBBBA).
1. Tax Bracket Adjustments [effective 2025]
The number of federal income tax brackets remains at seven. Here’s a brief overview for the “Married Filing Joint” (MFJ) and “Qualifying Surviving Spouse” (QSS) filing statuses:
| Tax Bracket Thresholds for MFJ or QSS Based Upon Taxable Income | ||
| Federal Tax Bracket | 2024 | 2025* |
| 10% | <$23,200 | <$23,850 |
| 12% | $23,200 to $94,299 | $23,850 to 96,949 |
| 22% | $94,300 to $201,049 | $96,950 to $206,699 |
| 24% | $201,050 to $383,899 | $206,700 to $394,599 |
| 32% | $383,900 to $487,449 | $394,600 to $501,049 |
| 35% | $487,450 to $731,199 | $501,050 to $751,599 |
| 37% | $731,200+ | $751,600+ |
*The tax brackets established by TCJA become permanent due to OBBBA.
2. Standard Deduction Increase [effective 2025]
The standard deduction is increased to $15,750 for single filers and $31,500 for joint filers.
| Filing Status | 2025* |
| Married Filing Jointly (MFJ) | $31,500 |
| Single | $15,750 |
| Head of Household (HoH) | $23,625 |
| Married Filing Separately (MFS) | $15,750 |
| *Additional deduction of $6,000 for taxpayers 65 and older. (not available for those filing MFS; starts to decrease for taxpayers with a Modified Adjusted Gross Income (MAGI) over $75,000 (single) / $150,000 (joint); seniors’ Social Security number must be on the return) | |
3. State and Local Tax (SALT) Deduction Cap for Itemizers [effective 2025]
This is a federal deduction for income and property taxes paid at the local and state level. SALT was capped at $10,000 due to the 2017 Tax Cuts and Jobs Act (TCJA). The OBBBA temporarily increases the SALT deduction limit for tax years 2025 through 2029 before reverting to the previous $10,000 cap. Note that OBBBA did not restrict the pass-through entity workaround used by some owners (e.g., S corporations, partnerships) to bypass the individual SALT cap.
| Filing Status | 2025 Before Tax Law Changes | 2025 After Tax Law Changes* |
| Individual and joint filers | $10,000 | $40,000 |
| MFS | $5,000 | $20,000 |
*Increases by 1% annually for tax years 2026 through 2029. The $40,000 cap begins to phase down for taxpayers with a modified adjusted gross income (MAGI) above $500,000 (or $250,000 for those filing separately). The deduction cannot be reduced to below $10,000, even after phase-out. Note that Massachusetts maintains its elective Pass-Through Entity (PTE) excise tax. However, the increased federal cap could make the state PTE tax election less beneficial for some taxpayers.
4. Child Tax Credit Increases and Becomes Permanent [effective 2025]
The Child Tax Credit (CTC) introduced in the TCJA has been made permanent by the OBBBA along with an increased credit amount per qualifying child. (e.g., under 17 years old at the end of 2025; be your child, stepchild, foster child, sibling, stepsibling, or a descendant of one of these (e.g. a grandchild); claimed as dependent on your IRS tax return; not provide more than half of their own support during the year; lived with you for more than half of 2025; be a U.S. citizen, national, or resident alien; and have a valid Social Security number issued before the tax deadline) The CTC has been expanded to $2,200 per qualifying child in 2025. The phase-out thresholds remain at $200,000 for single filers and $400,000 for married filing jointly. Above those incomes, the credit begins to reduce. [Form 8812]
5. Expanded 529 Plan Benefits for K–12 Education (effective dates vary)
529 plans are tax-advantaged savings accounts designed to help families pay for qualified education expenses. Previously, tax-free withdrawals were largely limited to higher education and capped K–12 tuition at $10,000 per year.
The OBBBA broadens the scope of qualified expenses (effective for distributions after July 4, 2025) and doubles the K–12 tuition withdrawal limit from $10,000 to $20,000 per student annually (effective as of January 1, 2026).
Newly qualified 529 expenses now include:
- Tuition for public, private, or religious elementary/secondary schools
- Books, curricula, online learning, and instructional materials
- Qualified tutoring and educational classes
- Standardized test fees (e.g., AP, SAT)
- Dual enrollment fees for college-level courses
- Educational therapies for students with disabilities
This expansion gives families greater flexibility and financial support in tailoring education to their children’s needs earlier in life.
6. No Tax on Tips [effective 2025]
Starting in 2025 and available through the end of 2028, a new deduction allows employees and self-employed individuals to write off certain tip income. To qualify, the tips must be earned in occupations that the IRS has identified as regularly and customarily receiving gratuities – Qualified Tips. Examples of occupation categories include: Beverage and Food Service, Entertainment and Events, Hospitality and Guest Services and Home Services. Additionally, the tips must be properly reported, either through a Form W-2, a Form 1099, another official document from a third party, or directly by the individual on IRS Form 4137.
Only voluntary tips—whether given in cash, by credit card, or shared through a tip pool—count as “qualified tips” for this purpose.
The maximum amount deductible each year is $25,000. For self-employed individuals, this deduction cannot exceed the net earnings (excluding the deduction itself) from the business activity where the tips were received.
The deduction begins to phase out for taxpayers whose modified adjusted gross income (MAGI) exceeds $150,000 (or $300,000 for those filing jointly).
This benefit is available regardless of whether you itemize deductions or take the standard deduction. However, certain limitations apply: self-employed individuals engaged in a Specified Service Trade or Business (SSTB) under Section 199A are excluded from claiming this deduction. Employees who work for employers classified as SSTBs are also ineligible.
Reporting requirements: Employers and other payors must submit information to the IRS or Social Security Administration and provide recipients with documentation listing cash tips received and the related job classification.
7. No Tax on Overtime [effective 2025]
Per the Bill: “Effective for 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay – such as the “half” portion of “time-and-a-half” compensation — that is required by the Fair Labor Standards Act (FLSA) and that is reported on a Form W-2, Form 1099, or other specified statement furnished to the individual.
- Maximum annual deduction is $12,500 ($25,000 for joint filers).
- Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
Employers and other payors are required to file information returns with the IRS (or SSA) and furnish statements to taxpayers showing the total amount of qualified overtime compensation paid during the year.”
8. No Tax on Car Loan Interest [effective 2025]
Per the Bill: “Effective for 2025 through 2028, individuals may deduct interest paid on a loan used to purchase a qualified vehicle, provided the vehicle is purchased for personal use and meets other eligibility criteria. (Lease payments do not qualify.)
- Maximum annual deduction is $10,000.
- Deduction phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers).
To qualify for the deduction, the interest must be paid on a loan that is:
- originated after December 31, 2024;
- used to purchase a vehicle, the original use of which starts with the taxpayer (used vehicles do not qualify); and
- for a personal use vehicle (not for business or commercial use) and secured by a lien on the vehicle.
If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction.
A qualified vehicle is a car, minivan, van, SUV, pick-up truck or motorcycle, with a gross vehicle weight rating of less than 14,000 pounds, and that has undergone final assembly in the United States. (refer to the National Highway Traffic Safety Administration’s VIN Decoder website)
Lenders or other recipients of qualified interest must file information returns with the IRS and furnish statements to taxpayers showing the total amount of interest received during the taxable year.”
9. Deduction for Seniors [effective 2025]
Per the Bill: “Effective for 2025 through 2028, individuals who are age 65 and older (on or before the last day of the taxable year) may claim an additional deduction of $6,000. This new deduction is in addition to the current additional standard deduction for seniors under existing law.
- The $6,000 senior deduction is per eligible individual (i.e., $12,000 total for a married couple where both spouses qualify).
Deduction phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers).
10. Most Clean Energy Credits Have Been Eliminated [effective dates vary]
(The Massachusetts MOR-EV incentive lives on. See other states that offer EV credit.)
Elimination of clean energy credits:
- Previously-owned electric or clean vehicles: The $4,000 federal tax credit for purchasing a previously-owned electric or clean vehicle has been terminated for vehicles purchased after September 30, 2025.
- New electric vehicles: The $7,500 Clean Vehicle Credit for new electric vehicles has been terminated for vehicles purchased after September 30, 2025.
- Refueling or recharging property: The Alternative Fuel Vehicle Refueling Property Credit will be terminated for any property placed in service after June 30, 2026, making the first half of 2026 the final window to claim this tax credit. (Up to 30% of the cost of new EV charging equipment, maximum $1,000 per location.) “The credit is available to businesses and individuals who install qualified refueling or recharging property, including electric vehicle charging equipment, in an eligible location.” (additional details from the IRS)
- Energy efficient home improvement: The Energy Efficient Home Improvement Credit for upgrades such as windows, insulation, and HVAC systems will expire for improvements placed in service after December 31, 2025, making 2025 the final year to claim it. The maximum home efficiency tax credit is $3,200 per year, which is a combination of two categories: a $1,200 credit for general energy-efficient upgrades and a $2,000 credit for certain heat pumps and biomass stoves. The credit equals 30% of the cost of qualified expenses and is available for improvements made through December 31, 2025. (additional details from the IRS) Also, learn about Massachusetts energy rebates and incentives.
- Last Chance for 30% Residential Clean Energy Credit: Act Before 2025 Ends: If you’re planning to install solar panels, geothermal systems, or other clean energy upgrades at home, do it by December 31, 2025 to qualify for the 30% Residential Clean Energy Credit — this popular credit is ending a full year early. To qualify, your system must be completely installed and placed into service before 2026. Merely paying for the system is not enough.
11. Charitable Giving Deduction Returns for Non-Itemizers [effective 2026]
Historically, only taxpayers who itemized deductions could deduct charitable contributions. A temporary change during the pandemic allowed a limited deduction for those claiming the standard deduction — and now, that benefit is back for good.
The OBBBA permanently reinstates and expands the above-the-line deduction for charitable donations made by taxpayers who do not itemize. Non-itemizers can now deduct up to $1,000 (single) or $2,000 (married) above the standard deduction.
This change encourages broader charitable giving by making deductions accessible to millions of taxpayers who claim the standard deduction.
12. New Floor on Charitable Contribution Deductions for Itemizers [effective 2026]
Starting in tax year 2026, the OBBBA introduces a 0.5% minimum floor for charitable contributions. If you itemize deductions, your total charitable contributions must now exceed 0.5% of your Adjusted Gross Income (AGI) before any portion becomes deductible.
Key Changes:
- Only the portion above 0.5% of AGI is deductible.
- Applies to all types of charitable gifts, with standard AGI limits (e.g., 60% for cash, 30% for capital gains property) still in effect.
- Ordering rules apply to determine which gifts count first toward exceeding the floor.
- Unused deductions (due to the floor or AGI limits) may be carried forward for up to 5 years, but only if the original year’s giving exceeded the floor.
Example:
If your AGI is $100,000 and you are itemizing deductions, you must contribute more than $500 in qualifying charitable donations to deduct anything. If you donate $4,000 in cash to a public charity $3,500 may be deductible this year. (subject to other AGI limits) Any amount that cannot be used in the current year may be carried forward up to 5 years, but each year’s eligibility will again depend on exceeding the 0.5% floor and the limits for types of charitable gifts.
13. More Help for Working Parents: Dependent Care Benefit Limit Increases [effective 2026]
This is an employer-sponsored benefit that lets you set aside pre-tax dollars from your paycheck to pay for eligible child or dependent care expenses. Key features include:
- You don’t pay federal income tax, Social Security, or Medicare tax on contributions
- Used through payroll deductions and reimbursement
The OBBBA brings a welcome boost for working families by increasing the amount of tax-free dependent care benefits employees can receive through these employer-sponsored Dependent Care Assistance Programs (DCAPs). Starting in tax year 2026, the annual exclusion limit rises from $5,000 to $7,500 per household — and from $2,500 to $3,750 for married individuals filing separately. This permanent change provides greater tax savings for families juggling childcare costs and supports workforce participation for parents and caregivers.
14. Estate and Gift Tax Extension [effective 2026]
For 2025, the federal estate and gift tax exemption is $13.99 M per individual or $27.98 M as a combined exemption for a married couple. For example, this means an individual can transfer up to $13.99 million in assets during their lifetime or at death without triggering federal estate or gift tax.
Under OBBBA, the exemption is scheduled to increase permanently to $15 million per person (indexed for inflation) starting on January 1, 2026. (increased from the approximately $7 million that it would have been in 2026 absent this law) Note that the Annual Gift Exclusion for 2025 is $19,000 per donee. You can give this amount to as many people as you want each year without touching your lifetime exemption. For example, give $19,000 to each of your three children in 2025 → $57,000 total, and none of it reduces your $13.99M lifetime exemption. If you give more than $19,000 to one person in a single year, the excess reduces your lifetime exemption.
TIP – Electing portability for a surviving spouse through an Estate Tax Return: The unused portion of a deceased spouse’s exemption can be transferred to the surviving spouse, which allows a married couple to protect a combined $27.98 million in 2025.
15. Mortgage Interest Deduction: Key Limits Made Permanent [effective 2026]
The OBBBA brings clarity and finality to a deduction many homeowners rely on: mortgage interest on qualified residence loans. Under the 2017 Tax Cuts and Jobs Act (TCJA), the maximum loan amount eligible for the mortgage interest deduction was reduced from $1 million to $750,000. That cap was originally set to expire after 2025—but under the new law, it’s now permanent.
This means taxpayers won’t see a reversion to the old $1 million limit. The $750,000 cap remains in place going forward, ensuring consistency for those purchasing or refinancing homes.
In addition, the bill reinstates a popular but previously limited benefit: mortgage insurance premiums (PMI) are once again treated as deductible interest on qualified residence loans. The OBBB removes prior restrictions that had disallowed PMI from being included in the interest deduction, making this tax break permanently available for those who pay mortgage insurance—typically common for borrowers with lower down payments. Note that there are annual income limits: In general, homeowners who earn less than $100,000 (adjusted gross income) will be able to deduct their mortgage insurance premiums. ($50,000 for married filing separately) The benefit phases out once you cross that AGI threshold.
Together, these changes solidify a more streamlined—and slightly more generous—approach to the mortgage interest deduction for years to come.
16. A Final Goodbye to Miscellaneous Deductions — But Expanded Relief for Educators [effective 2026]
One of the more permanent shifts in the OBBBA is the official elimination of most miscellaneous itemized deductions, which had already been suspended temporarily under the 2017 Tax Cuts and Jobs Act (TCJA). Now, that suspension becomes permanent starting in the tax year 2026.
Under prior rules, certain expenses—like unreimbursed employee costs, tax preparation fees, union dues, and investment-related expenses—were only deductible if they exceeded 2% of adjusted gross income (AGI). The TCJA suspended those deductions for 2018–2025. The OBBB removes the expiration date from that suspension, effectively ending the 2% miscellaneous deduction category altogether.
However, there’s good news for teachers and school staff. The OBBB preserves and expands the educator expense deduction, which allows eligible educators to continue deducting classroom-related costs as an above-the-line deduction—meaning it reduces taxable income, even for those who don’t itemize.
Starting in 2026, the definition of qualifying expenses is broadened:
- Supplies used in health and physical education classes (if nonathletic in nature) are now eligible;
- Coaches, school administrators, and interscholastic sports staff can now claim relevant out-of-pocket expenses; and
- The deduction applies to expenses incurred as part of instructional activity, not just those used directly in the classroom.
These changes take effect for tax years beginning after December 31, 2025, providing lasting relief for educators while closing the door on several lesser-known deductions for other taxpayers.
17. Trump Accounts: A New Savings Vehicle for American Children [effective July 4, 2026]
The OBBBA introduces Trump Accounts — government-seeded investment accounts designed to help American children build long-term wealth from birth. Trump Accounts are essentially tax-deferred savings accounts created for children under 18. Eligible children receive an initial federal deposit, and parents and employers can contribute annually, with all funds invested in broad U.S. stock market index funds.
Key Highlights
- Eligibility: American children born between Jan 1, 2025 and Dec 31, 2028 (under age 18) qualify when a Trump Account is established.
- Government Seed Money: Each American child born after December 31, 2024 and before January 1, 2029 receives a $1,000 initial deposit from the federal government.
- Older Children: Those born before 2025 but under 18 can also open a Trump Account, but won’t receive the $1,000 government deposit.
- Parent Contributions: Parents may contribute up to $5,000 per year (indexed to inflation).
- Employer Contributions: Employers can contribute up to $2,500 per year, and these contributions are not counted as taxable income for the employee.
- Investment Rules: Funds must be invested in U.S. stock index funds (e.g., S&P 500 mutual funds or ETFs).
- Withdrawal Restrictions: No withdrawals are allowed before age 18; after that, accounts function like a traditional IRA with standard withdrawal rules.
- You can initiate and contribute to a Trump Account for your child starting on July 4, 2026.
Projected Growth:
- If maximum contributions are made, a baby born in 2026 could have about $303,800 by age 18 and $1,091,900 by age 28.
- If no contributions are made, balances are estimated at $5,800 by age 18 and $18,100 by age 28.
Plan Ahead for the 2025 Tax Season
The One Big Beautiful Bill Act (OBBBA) represents one of the most sweeping updates to the U.S. tax code in nearly a decade. With dozens of new deductions, phaseouts, and deadlines coming into play for 2025 and beyond, advance planning will make a major difference in how much you keep versus how much you owe.
At Gerard Tax & Accounting, we help individuals, business owners, and high-income filers navigate these changes with proactive strategies to reduce taxes, stay compliant, and position for the future. Whether you need help preparing your 2025 return, planning under the new 2025 rules, or ensuring your business entity is structured for maximum benefit, we can help.
📅 Now booking for the 2025 tax season. Schedule a consultation or secure your tax prep slot today to get ahead of the curve. Click Here.
Disclaimer: The information contained in this post represents a general summary of current federal tax provisions as of the date of publication and may not reflect subsequent changes in law or guidance. It is not intended as, and should not be construed to be, tax or legal advice. Reading or relying on this content does not create a CPA-client relationship. You should consult your own tax advisor regarding your specific facts and circumstances.