TEMPORARY PROVISIONS
The legislation introduced several new TEMPORARY provisions and one TEMPORARY modification for individuals for tax years 2025 and later. The first four new provisions are available whether individuals itemize or use the standard deduction and are subject to certain income limitations. The fifth provision is a modification of the TCJA and is also subject to certain income limitations.
There is a temporary exclusion for qualified personal tip income for tax years 2025-2028. The annual deduction allowed is up to $25,000. Self-employed taxpayers as well as employees may qualify for the qualified tip exclusion. .
Another temporary exclusion is for qualified overtime compensation for tax years 2025-2028. The annual deduction allowed is up to $12,500 (or up to $25,000 for married filing jointly).
There is a temporary deduction provided for car loan interest paid for tax years 2025-2028. The annual deduction allowed is up to $10,000.
Another temporary deduction provides for an increased senior deduction for tax years 2025-2028 for qualified individuals age 65 and older. The annual deduction allowed is up to $6,000 (or up to $12,000 if both taxpayers qualify and file jointly).
A final temporary provision is the State and Local Tax (SALT) deduction. For tax years 2025-2029 the deduction cap increases from up to $10,000 to up to $40,000. Due to the large potential deduction allowed now, it may be more beneficial for more taxpayers to itemize their deductions rather than use the standard deduction.
PERMANENT PROVISIONS
The legislation made PERMANENT some provisions of the 2017 Tax Cuts and Jobs Act (TCJA), which had been set to expire on December 31, 2025.
The seven individual income tax rate brackets under the TCJA became permanent. Thus, the reduced marginal rates of 10%,12%, 22%, 24%, 32%, 35% and 37% continue providing tax relief to taxpayers.
While the standard deduction became permanent, the bases were increased for 2025. Single or married filing separately is $15,750. Head of Household is $23,625. Married filing jointly or qualifying surviving spouse is $31,500. These will adjust for inflation annually beginning in 2026, providing direct tax savings to most taxpayers.
The personal exemption for individuals is permanently eliminated. Inflation-adjusted amounts remain for specific definitions (e.g., those relating to dependants under the qualifying relative rules). A temporary exception for qualified seniors was added as an additional deduction (see above).
The child tax credit is now permanent. Increased from $2,000 to $2,200 per child for 2025, it will adjust for inflation annually beginning in 2026. The refundable portion remains capped at $1,400 (adjusted for inflation). The modified adjusted gross income phaseout remains capped at $400,000 for married filing jointly (or $200,000 for any other filing status), but is not indexed for inflation.
The other dependents credit of $500 is also permanent.
Up to $5,000 of the adoption tax credit becomes refundable. The total credit remains up to $17,280 in 2025, adjusted for inflation thereafter.
The timing of disaster-related personal casualty losses is extended to federally declared disasters on or before July 4, 2025, and to those declared within 60 days of July 4, 2025. Now made permanent, a loss is subject to a $500 deduction (rather than a $100 deduction and amounts in excess of 10% of AGI requirement). Losses may be claimed as an additional standard deduction rather than itemized.
Permanently eliminated are some of the green energy tax credits. The clean vehicle credits are repealed after September 30, 2025. The energy-efficient home improvement credit and residential energy credit are repealed after December 31, 2025.
For 529 plan distributions after July 4, 2025, the definition of qualified higher education expenses is expanded to include certain postsecondary credentialing expenses. The definition of eligible K-12 expenses is expanded to include certain expenses which only certain states allowed previously (such as tutoring and dual enrollment fees).
