Key Tax Provisions Impacting 2025 & 2026 Returns

The One Big Beautiful Bill Act (OBBBA) of 2025, also known as the Working Families Tax Cut, includes legislation to stop most of the expiring tax laws from The Tax Cut and Jobs Act (TCJA) passed in 2017, while making some additional changes.  Most of the changes in the OBBBA take effect on January 1, 2026, but some are retroactive and could impact your 2025 tax returns. Many of the changes have certain requirements such as adjusted gross income limits, and some are temporary, only lasting for a few years.  

Temporary updates beginning in 2025:

• No Tax on Tips (2025 through 2028) - employees and self-employed individuals may deduct qualified tips received in certain qualified occupations that customarily and regularly receive tips. The deduction is up to $25,000 per taxpayer with a phaseout for Modified Adjusted Gross Income (MAGI) over $150,000 (over $300,000 for Married Filing Jointly).

  
  

• No Tax on Overtime (2025 through 2028) - individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay, generally, the “half” portion of “time-and-a-half” compensation, that’s required by the Fair Labor Standards Act. The deduction is up to $12,500 per taxpayer with a phaseout for MAGI over $150,000 (over $300,000 for Married Filing Jointly).

  
  

• Additional Senior Deduction (2025 through 2028) - additional $6,000 deduction for taxpayers 65 and older with phaseout for MAGI over $75,000 (over $150,000 for Married Filing Jointly). The deduction is fully phased out at $175,000 for single filers and $250,000 for joint filers. 

  
  

• Increased State and Local Tax (SALT) Itemized Deduction (2025 through 2029) - increased to $40,000 for 2025 and adjusted annually thereafter for 2026 through 2029. The more generous SALT deduction cap is paired with an income limit starting at $500,000, which phases out the deduction back down to $10,000 for taxpayers with incomes over $600,000.

  
  

• Deduction for Interest Payments on Certain Vehicles (2025 through 2028) - interest paid on a financed new automobile will be deductible for amounts up to $10,000 from 2025 through 2028, phasing out at a 20 percent rate when income exceeds $100,000 for single filers and $200,000 for joint filers. The automobile must have been finally assembled in the U.S. to qualify.

  
  

• Trump Savings Accounts for Children (2025 through 2028) - Trump accounts are a new type of IRA for children. Form 4547 can be filed with your 2025 return to have the IRS create a Trump account for an eligible child (U.S. Citizen, under 18). The U.S. Government will contribute the initial $1,000 for children born between 1/1/25 and 12/31/28. Additional contributions can begin on 7/4/26.

Expired Tax Credits:

• The Electric Vehicle Credit - the EV credit has expired as of Sep 30, 2025.

  
  

• Residential Energy Credits - the 30% Clean Energy Credit and Energy Efficient Home Improvement Credit expired on Dec 31, 2025.

  
  

• Enhanced ACA Premium Tax Credit – expired Dec 31, 2025. Beginning in 2026, subsidy eligibility and benefit levels revert to those set under the original ACA law. Some states, including California, are offering state-funded premium subsidies to help offset the increase in insurance costs.

Other notable updates impacting 2025 returns:

• Miscellaneous Deductions - the repeal of misc. itemized deductions is now permanent.

  
  

• New Tax Forms - Form 1099-DA for crypto transactions (new for 2025) and Form 1098-VLI for car loan interest (new for 2026, optional for 2025). Taxpayers can use their car loan statements in 2025.

  
  

• Mortgage Interest Deduction - certain mortgage insurance premiums are now considered qualified mortgage interest and are deductible. The $750K mortgage cap is now permanent.

  
  

• Depreciation & Expensing - 100% bonus depreciation is back for qualifying property and domestic R&D costs can now be expensed.

  
  

• Section 179 Deduction - the limit has increased to $2.5M and is indexed for inflation for future years.

  
  

• Partially Refundable Adoption Credit - the max credit is $17,280 per child, up to $5,000 is refundable.

  
  

• Increased Child Tax Credit - increased from $2,000 to $2,200 for qualified taxpayers.

  
  

• Form 1099-K - issuance threshold increases back to $20,000 or 200 transactions

  
  

• 529 Plans (2025 & 2026 update) - starting in 2025, qualified expenses now include college entry exams, vocational studies, homeschool curricula, tutoring, educational therapy for diagnosed learning differences. In 2026, the $10,000 annual limit for K-12 expenses will increase to $20,000.

Notable 2026 updates:

• Charitable Deductions – only the portion of total charitable contributions above 0.5% of your AGI is deductible.  Non-itemizers can now deduct contributions up to $1,000 ($2,000 for joint filers). The tax savings for taxpayers in the 37% tax bracket is capped at 35%.

  
  

• Educator Deduction - qualified educators are allowed a new itemized deduction for educator expenses. This deduction is in addition to the existing $300 above-the-line deduction.

  
  

• Wagering Losses - the deduction for gambling losses is now limited to 90% of total winnings. Taxpayers who breakeven or have net losses will pay tax on 10% of their winnings.

  
  

• Child and Dependent Care Credit - the maximum credit rate increases to 50% of eligible dependent care costs (max expense of $3k for one dependent, $6k for two or more).

  
  

• Estate and Gift Tax Exemption - the base exemption amount will increase in 2026 to $15 million for individuals and $30 million for married couples (indexed for inflation thereafter).

  
  

• Alternative Minimum Tax (AMT) - the AMT exemption amount now automatically adjusts with inflation, allowing many taxpayers to avoid the tax.

  
  

• QBI Deduction - the 20% QBI deduction for pass-through entities is now permanent, with expanded phase-in income ranges for specified service businesses starting in 2026.