Trump Tax Law Changes for Tax Year 2025 and Beyond.

With the passing of HR1, also known as One Big Beautiful Bill Act or OBBBA, there are several new tax items that may impact your clients in the coming year, there are changes to provisions from TCJA, all new provisions, and there are retroactive changes to current tax law.

One of the changes to a provision from Tax Cuts and Jobs Act is the permanent end to personal exemptions. Increasing the standard deduction per filing status is how they justified removing the personal exemptions. Previously this removal was temporary in TCJA, but HR1 (OBBBA) makes these changes permanent. (ITIN holder note: this permanent change removes the inherent tax purpose in being listed on a tax return as a dependent.)

There is a new $6,000 Senior Deduction for taxpayers who were over 65 years at the end of the tax year. This is a per taxpayer deduction. Both must have social security numbers in order to both receive it. If you have an ITIN, you are personally ineligible from getting this deduction, but if you are a US citizen married to an ITIN holder, you may still be eligible, while your spouse will not be. Taxpayers do not have to itemize to take advantage of this deduction. This will be beneficial to taxpayers who collect social security and pensions or other retirement benefits. Phase out for this deduction begins at 75,000 for Single filers and 150,000 for Joint filers. Married filing separately filers do not qualify.

Child tax credit has been increased and adjusted for inflation. It will continue to be adjusted for inflation for each year moving forward. A bigger change is that in order to qualify for the child tax credit inn 2025 and beyond, both the taxpayer AND the dependent must have social security numbers. Up to now, only the dependent was required to have a valid SSN for the return to qualify for the credit. This meant that if ITIN-holding taxpayers had US citizen children, then they would have been eligible for the child tax credit, but for tax year 2025 and moving forward, they will not.  

Dependent care credit has been updated to allow a larger credit based on percentage. The credit remains nonrefundable.

State and Local Tax (SALT) cap has increased to 40k for tax year 2025. However, the increase was not made permanent as it is set to decrease back down to 10k for tax pear 2029. MAGI threshold for this increased deduction starts at $500k MFJ, but the deduction will not be reduced below 10k.

“No Tax on Tips” has come to pass into law. This will be an individual deduction on the taxpayer’s tax return. The tax return MUST be single or married filing jointly. All allocated tips must be reported on a w-2 or 1099. The maximum deduction amount for “no tax on tips” is $25,000, and both taxpayers must have valid SSNs. ITIN-holding taxpayers are not eligible for the deduction. The taxpayer/s must have been working in a job that customarily received tips. The IRS will publish list of qualifying occupations, however, all specified service businesses or trades are disqualified. We do not yet currently know if this will negatively impact tax credits based on earned income. As of now, this is a federal tax deduction only, states may or may not follow suit so be sure to monitor your state for further guidance on this issue.

No tax on overtime pay is a new tax provision. Unfortunately, it seems to be in need of additional guidance from the IRS, but the maximum deduction would be $25,000 on a return where the filing status is Married Filing Jointly and both taxpayers have valid social security numbers. 

Deductible car loan interest is another new tax provision from the HR1 OBBBA. Deductible Vehicular loan Interest would be capped at 10k per tax year and would be phased out when MAGI is over 100k (200k MFJ). This is another deduction where taxpayers would NOT have to itemize to take advantage of this tax provision.

Tax Year 2025 Charitable contributions for non-itemizers is back and bigger than before as it has been increased to $1,000 ($2,000 MFJ). During the pandemic, a $300 ($600 MFJ) deduction was allowed but since expired. This provision has been reinstated and the amount increased.

Form 2106 gone permanently. While it was only able to be used by a few since TCJA, but it was going to sunset and come back into play.

There is a new deduction on the horizon for educator expenses with seemingly no cap as miscellaneous itemized deduction. The new verbiage says nothing about the current educator expense adjustment of $300 per qualifying taxpayer. More guidance will be needed to confirm if a taxpayer is eligible for both, but as of now, it does seem that a qualifying taxpayer could claim both on the same return assuming we are not using the same expenses.

Other changes that relate to itemized deductions would be the making permanent the suspension of various miscellaneous itemized deductions such as unreimbursed employee expenses, tax prep fees, hobby expenses, etc. that were all originally suspended with TCJA. Capping gambling losses at 90% of winnings is another itemized deduction change, but it is rumored to be not lasting. 

2025 will see sec. 529 tax provisions expanded to include eligible tuition and other related expenses for K-12 education and other post-secondary credentialing expenses. Qualifying credentials and qualifying programs are subject to requirements for eligibility.

“Trump Accounts” announced but not defined enough to provide any substantial tax planning. Changes to ABLE accounts and moving expense deduction. There are changes to HSAs and premium tax credit. The repayment limitation may be changed for premium tax credit and HSAs may now be able to be used for other lower health plan costs.

Clean car and clean energy credits repealed with effect repeal dates of Sept. 30, 2025 and Dec. 31, 2025, respectively. Another alternative-fuel vehicle refueling property credit and deductions for energy-efficient commercial buildings are set to sunset after June 30^th, 2026.

This is not an exhaustive list of tax law changes. As more guidance is released, more 2025 tax law updates will be published. Our 2025 Tax Law Updates course is currently available here: https://www.preparertraining.com/product/1-user-unlimited-credits-courses/