On July 4th, The OBBBA was signed and enacted by President Trump. A few key tax highlights included in the bill are summarized below:
- Effective for the 2025 tax year, the SALT deduction cap is increased to $40,000 with annual 1% increases through 2029. A phase-out begins once a taxpayer’s income exceeds $500,000. The cap reverts back to $10,000 beginning in 2030.
- The personal income tax rates that were reduced via the Tax cuts and Jobs Act of 2017 and that were scheduled to expire after 2025 were made permanent.
- A new tax deduction for auto loan interest paid in a year is available for qualified taxpayers. This deduction allows taxpayers to deduct up to $10,000 of auto loan interest paid annually. The new auto loan must pertain to an automobile purchased in 2025 – 2028. To qualify, the automobile must be new (used vehicle purchases do not qualify) with final assembly in the US, and be for personal use. Both itemizers and non-itemizers will qualify for the tax deduction. This new deduction phases out for income over $200,000 for joint filers and over $100,000 for other filers.
- Taxpayers age 65 or older as of the last day of the year will be allowed to claim a new “senior deduction” of $6,000 ($12,000 for joint filers with both spouses being age 65 or older). This new deduction is available for years 2025 – 2028. Both itemizers and non-itemizers will qualify for the tax deduction. The senior deduction phases out for joint filers with income above $150,000 and above $75,000 for other filers.
- Taxpayers that receive overtime pay will be allowed a new deduction allowing them to deduct up to $12,500 of the premium portion of the OT (the pay that exceeds their normal rate of pay – such as the “half” portion of time-and-a-half pay) paid out to them during the year. Both itemizers and non-itemizers will qualify for the tax deduction. This deduction is available for years 2025 – 2028 and begins to phase out for joint filers with income above $300,000 and other filers with income above $150,000.
- Taxpayers who do not itemize their tax returns will be allowed a charitable deduction capped at $2,000 for married filing joint filers and $1,000 for all other tax filers. This deduction is effective beginning in 2026.
- For children born in the years 2025 – 2028 the government will fund $1,000 into a newly established “Trump Account” for the newborn child. To open the account, the child must be a US citizen with a valid social security number and at least one parent must have a valid social security number as well.
- The tax credits for energy efficient improvements made to a taxpayer’s home (costs that include solar panels, geothermal heat pumps, windows, boilers, and heat pumps) have been repealed. This federal tax credit will no longer be available after December 2025. To claim the credit in 2025, before this credit is repealed, the qualified improvement must be installed and placed into service by December 31, 2025.
- The tax credit available to taxpayers who purchase a qualified electric vehicle has also been repealed. This tax credit will no longer be available for EV purchases made after September 30, 2025.