Our goal at DeLong and Brower is to keep you informed of all news that may affect your financial planning. In light of this, we would like to address the significant new tax legislation (the Act) signed into law July 4, 2025 (formally known as One Big Beautiful Bill or, informally, the OBBB). The Act includes numerous changes affecting individual taxation.
Navigating these changes can be complex, and their impact on your specific tax situation will vary. We encourage you to review this list, which highlights some of the key provisions.
- Reduced Income Tax Rates: The Act makes the lower individual income tax rates and wider tax brackets introduced by the Tax Cuts and Jobs Act “TCJA” permanent, preventing a scheduled tax rate increase after 2025. For example, the top individual rate will remain at 37% (instead of reverting to 39.6%), and the marriage penalty relief for most brackets continues. This means that married couples filing jointly will typically not face higher taxes compared to filing as singles.
- Increased Standard Deduction:The standard deduction has been permanently increased and enhanced for 2025 and beyond: $30,000 for joint filers, $22,500 for heads of household, and
$15,000 for singles in 2025, with further increases to $31,500, $23,625, and $15,750, respectively, for 2026 and after. Because these higher amounts mean fewer taxpayers will benefit from itemizing, consider bunching itemized deductions into a single year to exceed the standard deduction, then take the standard deduction in alternate years. - No Tax on Tips: The Act creates a new, temporary deduction of up to $25,000 per taxpayer for individuals who receive qualified cash tips. The deduction will be available for tax years 2025 through 2028. The deduction phases out when modified adjusted gross income (MAGI) exceed $150,000 (or $300,000 for joint filers).
- No Tax on Overtime: The Act creates a new, temporary deduction of up to $12,500 (or $25,000 for joint filers) for qualified overtime compensation received. Qualified overtime compensation is wage compensation received in excess of the regular rate at which the individual is employed. The deduction will be available for tax years 2025 through 2028. The deduction phases out when modified adjusted gross income (MAGI) exceeds $150,000 (or $300,000 for joint filers).
- Child Tax Credit:The Child Tax Credit has been permanently increased to $2,200 per qualifying child for tax years after 2024 and will be indexed for inflation in future years.
Estate & Gift Tax-Basic Exclusion Amount: The basic exclusion amount for federal estate and gift tax will increase to $15 million in 2026 and index the exemption amount for inflation after that. Review and update estate plans and consider making large lifetime gifts to tax advantage of this higher exclusion. - Deduction for Taxpayers Age 65 or Older:For tax years 2025–2028, individuals age 65 or older (and their spouses, if filing jointly) can claim a new $6,000 deduction per qualified person. To maximize this benefit, seniors should aim to keep their adjusted gross income (AGI) below $75,000 (single) or $150,000 (joint), as the deduction is reduced by 6% of any excess.
- Car Loan Interest:For tax years 2025–2028, individuals can deduct up to $10,000 per year in interest paid on loans for new personal-use vehicles even if they don't itemize deductions. The deduction phases out for single filers with MAGI over $100,000 and joint filers over $200,000. To qualify, the loan must be incurred after December 31, 2024 and must be for a new, U.S.-assembled car, SUV, van, pickup, or motorcycle (under 14,000 pounds), secured by a first lien, with the taxpayer as the original owner, and the vehicle's VIN reported on the tax return.
- Child and Dependent Care Credit: Starting in 2026, the Child and Dependent Care Credit will be more valuable for many families. The maximum credit rate increases to 50% of eligible expenses, up to $3,000 for one qualifying individual or $6,000 for two or more. The full 50% rate applies to families with AGI up to $15,000 and gradually phases down to 35% for AGI up to $75,000 ($150,000 for joint filers). To maximize your benefit, be sure to keep thorough records of all qualifying expenses and coordinate with any employer-provided dependent care benefits to avoid missing out on the full credit potential.
- Charitable Contribution Deduction:The Act creates a charitable contribution deduction for taxpayers that do not itemize, allowing non-itemizers to claim a deduction for up to $1,000 for single filers or $2,000 for married taxpayers filing jointly. To qualify for the non-itemizers’ charitable deduction, contributions must be made in cash to a public charity. In addition, for itemizers, the Act imposes a 0.5% floor on the charitable contribution deduction. The amount of an individual’s charitable contribution deduction is reduced by 0.5% of the taxpayer’s contribution base (generally their Adjusted Gross Income) for the tax year. Therefore, an individual will only be able to deduct the portion of their donations that exceeds 0.5% of their AGI. Both the floor provision and the deduction for non-itemizers are effective for tax years beginning after December 31, 2025.
- Contributions to Scholarship-Granting Organizations: New for tax years ending after Dec. 31, 2026, individual taxpayers can claim a federal income tax credit of up to $1,700 per year for cash contributions to qualifying scholarship-granting organizations (SGOs) in participating states. To maximize this benefit, confirm your state's participation and ensure the SGO is on the IRS-approved list before contributing.
- Deduction for Qualified Residence Interest:The deduction for mortgage interest on home acquisition debt is now permanently capped at $750,000 ($375,000 if married filing separately). If you are considering buying a home, refinancing, or taking out a new mortgage, be aware that interest on debt above $750,000 will not be deductible.
- Educator Expense Deduction: The Act adds a new itemized deduction for educators, allowing K–12 teachers, counselors, coaches, and aides working at least 900 hours per year to deduct unreimbursed classroom expenses (like books, supplies, and equipment) starting in 2026.
- State and Local Tax (SALT) Itemized Deduction:The Act retroactively increases the individual deduction cap for state and local taxes from $10,000 to $40,000 for 2025. It increases the cap by an additional 1% for tax years 2026 through 2029. The Act phases out the deduction for taxpayers with modified adjusted gross income (MAGI) greater than $500,000 in 2025. For higher-income taxpayers, the cap is reduced by 30% of the excess of the taxpayer's MAGI over the threshold amount. The Act provides, however, that the deduction will not be reduced below $10,000.
- New Tax-Deferred Investment Accounts for Children:Beginning in 2026, taxpayers will be able to open a new tax-deferred investment account for children, called a “Trump account” for each eligible child. Taxpayers can contribute up to $5,000 per year in after-tax dollars for each child, and funds must be invested in a diversified U.S. equity index fund. For children born between Jan. 1, 2025, and Dec. 31, 2028, the federal government will automatically contribute $1,000 to each account.
- Adoption Credit:Starting in 2025, the adoption credit is enhanced to include a refundable portion of up to $5,000 per child (indexed for inflation). This means eligible taxpayers can receive up to
$5,000 as a refund even if they owe no tax, making the credit more valuable for lower-income families. To maximize this benefit, keep detailed records of all qualified adoption expenses, ensure you have a taxpayer identification number for the child, and file Form 8839 in the year the adoption is finalized. - Limitation on Casualty Loss Deduction:Starting in 2026, personal casualty loss deductions are permanently limited to losses from federally declared disasters (and certain state-declared disasters).
- Wagering Losses:Starting in 2026, only 90% of your wagering losses can be deducted against your winnings, even if your losses equal or exceed your winnings.
- Qualified Higher Education Expenses:Changes to 529 savings plans allow families to use tax- free distributions for a much broader range of K-12 education expenses including not just tuition, but also curriculum, books, online materials, tutoring, standardized test fees, dual enrollment, and educational therapies for students with disabilities. Starting in 2026, the annual limit for K-12 distributions doubles from $10,000 to $20,000 per beneficiary. Withdrawals for tuition expenses at a public, private or religious elementary, middle, or high school, can be withdrawn free from federal taxes. For Michigan taxpayers, these withdrawals are subject to recapture of Michigan income tax deduction and state income tax on the earnings.
- Higher Education Expenses for 529 Accounts:529 plan distributions can now be used tax-free for a wider range of education expenses, including not only college costs but also "qualified postsecondary credentialing expenses." This means you can use 529 funds for tuition, fees, books, supplies, and equipment required for enrollment in recognized certificate, licensing, or apprenticeship programs even if they are not traditional degree programs.
- Deduction and Exclusion for Moving Expenses:Moving expenses are now permanently nondeductible for most taxpayers, and any employer reimbursement for moving costs is fully taxable as income. If you expect to relocate for work, consider negotiating with your employer to cover the additional taxes you'll owe. Only active-duty military members moving under orders and, starting in 2026, certain intelligence community employees remain eligible to deduct or exclude qualified moving expenses, so these individuals should track and document all eligible costs for tax purposes.
- ABLE Accounts: The Act permanently provides for additional contributions to Achieving a Better Life Experience (ABLE) accounts for employed individuals with disabilities. The Act also permanently allows beneficiaries who make qualified contributions to their ABLE account to qualify for the Saver's Credit. To maximize tax benefits, ensure the designated beneficiary personally makes contributions by year-end to qualify for the Saver's Credit, which is now permanently available for ABLE contributions and will increase to a maximum of $2,100 starting in 2027.
- Energy Efficient Home Improvement Credit: The energy efficient home improvement credit is terminated for property placed in service after 2025.
- Clean Vehicle Credits:The credits for new and previously owned electric vehicles terminate for vehicles acquired after Sept. 30, 2025. The credit for qualified commercial electric vehicles also terminates for vehicles acquired after Sept. 30, 2025.