Tax News for Individuals

The One Big Beautiful Bill Act (OBBBA), signed into law July 2025, will change tax laws and impact taxpayers. Many of the changes extend provisions from the 2017 Tax Cuts and Jobs Act (TCJA), which were scheduled to expire at the end of 2025. Most of the new codes applying to individuals will become effective January 1, 2026, apart from two changes that could affect your 2025 tax filing.

2025 Change to State and Local Tax (SALT)

The SALT deduction (the itemized deduction of certain state and local taxes) was previously capped at $10,000 and scheduled to expire. Under the new law, the cap increases to $40,000, effective for 2025 returns. This cap will increase by 1% annually through 2029 and will revert to $10,000 in 2030. A phase- out applies to taxpayers with a modified adjusted gross income (MAGI) of $500,000 or more.

2025 New Tips and Overtime Wages Deduction: Up to $25,000 of income earned from tips is now eligible for a tax deduction. Eligibility phases out for single filers who make over $150,000 and married joint filers who make over $300,000. Individuals earning overtime are eligible to deduct up to $12,500, with similar phase outs. Taxpayers taking the standard deduction can use these deductions from 2025 through 2028.

2025 Child Tax Credit: Under the new bill, the Child Tax Credit increases to $2,200 per qualifying child, indexed annually for inflation. It also makes the refundable portion and higher phase out thresholds permanent.

For the 2026 tax year, there are over 35 changes affecting itemized deductions, saving accounts for children, charitable contributions and gift and estate exemptions. Some of the key changes include the following:

2026 Individual Income Taxes: The tax rates established in TCJA will remain in place, allowing most taxpayers to avoid the increase that would have taken effect at the end of 2025.

Standard Deduction: The new bill will make the TCJA’s standard deduction increase permanent and raise it even further. For the 2025 tax year, the standard deductions for individual returns will be as follows: $15,750 for single or married filing separately, $23,625 for head of household, and $31,500 for married and filing jointly. The deduction will continue to be adjusted for inflation.

Alternative Minimum Tax (AMT): The AMT exemption amounts have been permanently extended, with phase-out amounts increased by 25% to 50% with modification to the inflation adjustment.

Mortgage, Home Equity and Auto Loan Interest: Mortgage and home equity interest deductions have been permanently increased, and a new auto loan interest deduction has been implemented. The mortgage interest deduction is now permanently capped at $750,000. Individuals can deduct interest on a new car loan of up to $10,000 per year (with some phase outs), which will remain in effect through 2028, provided they meet the class and U.S assembly requirement.

Senior Deduction: The bill creates a new deduction category for seniors. Taxpayers aged 65 and older will be able to claim a $6,000 deduction for single filers and $12,000 for a joint filer for the 2025 through 2028 tax years. The deduction phases out at higher income levels: for single filers, the phase-out begins at a modified adjusted gross income (MAGI) over $75,000, and for joint filers, it begins at a combined MAGI over $150,000.

Gift and Estate Tax Exemption: Beginning in 2026 the federal exception for estate and gift taxes will increase to $15 million for individuals and $30 million for couples, up from the 2025 levels of $13.99 million for individuals and $27.98 million for married couples. This exemption will be adjusted for inflation beginning in 2027.

If you have any questions regarding these changes or other matters not mentioned in this article, please contact us at accounting@hvandpartners.com or 914-617-7620 and we will direct your call to better assist you.