One Big Beautiful Bill
The One Big Beautiful Bill (#) was signed into law on July 4, 2025 and is over 940 pages and some of the changes to the tax code are effective as of January 1, 2025 and yet other provisions are not effective until January 1, 2026.
Tax Rates Made Permanent
The Tax Cut and Jobs Act (TCJA) of 2017 reduced the existing tax brackets but was due to phase out as of January 1, 2026. The BGG made the TCJA rates and brackets permanent and slightly increased the standard deduction.
State and Local Income Tax (SALT)
Under the TCJA, the deduction for real estate taxes and other state and local income taxes was capped at $10,000 as an Itemized deduction on your Schedule A. Under the BGG, this SALT amount has increased to $40,000 but the deduction can be reduced for higher income. If your Adjusted Gross Income is over $500,000, then the SALT deduction of $40,000 is reduced by 30% of modified AGI on the amount over $500,000 but does not reduce it down below $10,000.
New Senior Exemption
Starting on January 1, 2025, there is a NEW personal exemption for individuals who are 65 or older. This new personal exemption is $6,000 and is available to taxpayers who either take the itemized deduction or the standard deduction. This senior exemption does phase out and is reduced by 6% of the amount of Modified AGI that exceeds $75,000 for a single filer and $150,000 for a married filing joint filer.
No Tax on Tips
Starting on January 1, 2025, there will be an above the line deduction for ‘qualified tips’ in the amount up to $25,000. The tips are still subject to social security and medicare tax. To be considered ‘qualified tips’, it must be related to a specific type of service such as food service and the IRS will be publishing further guidelines. If a couple is married, then they must file married filing joint for this deduction.
Charitable Deductions
Starting on January 1, 2026, there will be an above the line deduction for charitable contribution of $1,000 for a single filer and $2,000 for married filing joint. For taxpayers who itemize their charitable contributions, there is a new .5% floor of the taxpayer’s contribution to be deductible.
Car Loan Interest
Starting on January 1, 2025, there is an above the line deduction for auto loan interest of up to $10,000 for passenger vehicles that have their “Final Assembly” in the United States. This deduction is limited to new vehicles only and is subject to phase out based upon Modified Adjusted Gross Income. The deduction is reduced by $200 for each $1,000 that Modified Adjusted Gross Income is over $100,000.
The passenger vehicle must be at least two wheels and be manufactured for primarily use on public roads. This above the line deduction does not include fleet sales, leases, or interest on loans to a related party. Finally, further guidance will be published as to what is considered ‘final assembly’ in the US.