The 2025 Tax Law (OBBBA): What Changed for Individuals

By Tom, CPA · Updated October 27, 2026

Part of: Tax Planning

TL;DR: The 2025 law made 2017 rates and the larger standard deduction permanent, added four temporary deductions for 2025-2028, raised the SALT cap to $40,000 and ended EV and home energy credits.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

In July 2025, Congress passed a tax law officially called the One Big Beautiful Bill Act, a name that sounds like it was chosen by a toddler with naming rights. The IRS now often calls its individual provisions the "Working Families Tax Cuts." Whatever you call it, it made some old rules permanent, added several new temporary deductions, ended a handful of green credits, and tweaked dozens of thresholds. The tax code is 4 million words long, and this law added a lot more. You need about 400 of them to know which changes affect you.

This guide summarizes the main individual changes, as of Oct 2026, based on IRS guidance. It is a map, not the territory: each new deduction has detailed eligibility rules covered in its own guide, linked below. For how these pieces fit a broader plan, see the tax planning guide.

CPA Warning Label: The new deductions phase out with MAGI and expire after 2028. Model income moves like Roth conversions against the phaseouts.

What became permanent

The 2017 Tax Cuts and Jobs Act individual rules were scheduled to expire after 2025. The 2025 law made most of them permanent:

• Tax brackets of 10%, 12%, 22%, 24%, 32%, 35% and 37%, indexed for inflation. For 2026, the 37% rate starts above $640,600 single and $768,700 married filing jointly.
• A larger standard deduction: $16,100 single, $32,200 joint and $24,150 head of household for 2026, per the IRS.
• No personal exemptions, permanently.
• The 20% qualified business income deduction under Section 199A, made permanent with a wider phase-in range; see our QBI guide.
• Higher AMT exemptions: $90,100 single and $140,200 joint for 2026, with phaseouts beginning at $500,000 and $1,000,000.
• Estate and gift exclusion of $15,000,000 per person for 2026, indexed after that.
• Mortgage interest limit of $750,000 of acquisition debt stays.
• Miscellaneous itemized deductions, including unreimbursed employee expenses, remain disallowed permanently.

New temporary deductions (2025 through 2028)

Four new deductions are claimed on the new Schedule 1-A and are available whether you itemize or take the standard deduction, per the IRS:

Each requires a valid Social Security number, and married taxpayers must file jointly to claim the tips, overtime and senior deductions. Because they are below-the-line deductions, they reduce taxable income but not AGI, so they do not help with AGI-based limits elsewhere on the return.

Details: tips and overtime, car loan interest, and the $6,000 senior deduction.

SALT, charitable and itemizing changes

• SALT cap raised. The cap on state and local tax deductions rose from $10,000 to $40,000 for 2025, with 1% annual increases through 2029, then a return to $10,000 in 2030. The higher cap phases down for higher incomes (starting at $500,000 of MAGI for 2025), but not below $10,000.
• Non-itemizer charitable deduction. Starting in 2026, up to $1,000 ($2,000 joint) of cash gifts to qualifying charities is deductible without itemizing.
• Itemizer charitable floor. Starting in 2026, itemizers can deduct charitable gifts only to the extent they exceed 0.5% of AGI.
• Itemized deduction value cap. Starting in 2026, taxpayers in the 37% bracket see the tax benefit of itemized deductions limited, roughly to a 35% rate.
• Mortgage insurance premiums become deductible again as mortgage interest starting in 2026.

Whether to itemize is now a closer call for many households; see itemized vs standard deduction.

Credits: some up, some gone

• Child Tax Credit increased to $2,200 per child starting in 2025, indexed for inflation, with an SSN requirement for the child and at least one parent.
• Child and dependent care credit becomes more generous from 2026, with a top rate of 50% of eligible expenses for lower incomes.
• Adoption credit: up to $17,670 for 2026, with up to $5,120 refundable, per the IRS.
• Clean vehicle credits ended for vehicles acquired after September 30, 2025.
• Home energy credits ended: the energy efficient home improvement credit (25C) and the residential clean energy credit (25D) are not available for property placed in service after December 31, 2025.
• Premium tax credit: starting with 2026, the cap on repaying excess advance credits is removed, so an income surprise can mean repaying the full excess.

Business and investment changes

• 100% bonus depreciation restored for qualifying property acquired after January 19, 2025.
• Section 179 expensing limit increased to $2,500,000 (indexed to $2,560,000 for 2026).
• Domestic research costs can again be expensed.
• Excess business loss limit made permanent.
• Health savings accounts: bronze and catastrophic marketplace plans are HSA-eligible starting in 2026, and direct primary care arrangements gained HSA-friendly treatment.
• "Trump accounts": a new type of tax-advantaged account for children, with a $1,000 federal seed contribution for babies born 2025 through 2028.

Who wins, who should check

• Service workers with tips or overtime below the phaseouts: likely a meaningful new deduction.
• Retirees 65+ with moderate income: the senior deduction stacks with the existing additional standard deduction.
• High-tax-state homeowners below the SALT phasedown: itemizing may be back on the table.
• Early retirees on marketplace coverage: the end of the repayment cap makes income estimates more important; see ACA subsidy planning.
• EV and solar buyers: the credits are gone for new purchases.
• Big charitable itemizers: the 0.5% floor and the 35% cap shave the benefit; bunching and appreciated stock matter more.

Planning moves under the new law

1. Manage MAGI around the new phaseouts. The senior deduction phases out at 6% of MAGI above $75,000 single. Roth conversions, capital gains and IRA withdrawals all raise MAGI, so a conversion can quietly cost you part of the deduction. Model the interaction.
2. Reconsider itemizing. With a higher SALT cap, mortgage insurance deductibility and the new charitable rules, run both ways.
3. Time charitable giving. Large gifts might have been better in 2025, before the 0.5% floor took effect. From 2026, bunch into years with high income.
4. Keep new records. VINs, overtime pay statements, tip reports and lender interest statements are now tax documents.
5. Remember the sunset. The four Schedule 1-A deductions expire after 2028 unless extended. Do not build a 10-year plan around them.
6. Update withholding. The IRS Tax Withholding Estimator reflects the new deductions.

Myths the new law inspired

• "Tips are now tax-free." Not quite. Tips are still subject to Social Security and Medicare tax and usually state income tax. The deduction reduces federal income tax only, up to $25,000, and phases out at higher incomes.
• "All overtime is tax-free." Only the premium portion, the extra half in time-and-a-half, is deductible, up to $12,500 ($25,000 joint).
• "Social Security is no longer taxed." The law did not change the taxation of Social Security benefits. The senior deduction can offset some income for people 65+, which may reduce or eliminate tax for some retirees, but the benefit-taxation rules are unchanged.
• "Any car loan counts." Only loans after 2024 for new, U.S.-assembled personal vehicles under 14,000 pounds, with the VIN on the return. Leases and used cars do not qualify.
• "Everything expires in 2028." Only the four Schedule 1-A deductions are scheduled to; the brackets, standard deduction and QBI deduction are permanent (until a future Congress says otherwise, which is the only permanence tax law offers).

Illustration:

Pat and Lee, both 67, married filing jointly, have $110,000 of MAGI in 2026 from pensions and IRA withdrawals and take the standard deduction.

• Standard deduction: $32,200, plus the existing additional deduction for being 65+.
• Senior deduction: $6,000 each, or $12,000. Their MAGI is below $150,000, so no phaseout.
• Non-itemizer charitable deduction: $2,000 for cash gifts they already make.
• At a 12% marginal rate, the senior and charitable deductions together save about ($12,000 + $2,000) x 12% = $1,680.

If they convert $60,000 to Roth, MAGI rises to $170,000. The senior deduction shrinks by 6% of $20,000 = $1,200 for each spouse, or $2,400 for the couple, and the conversion is taxed at higher rates. Still possibly worth it, but no longer "free." Illustrative only.