Overview of Changes in Tax Law from the One Big Beautiful Bill Act
ATLANTA — The One Big Beautiful Bill Act, which became law in July, introduces various new tax provisions effective this year. As you gear up for your 2025 tax return, it might be wise to familiarize yourself with these key changes.
Your tax payments could be lower, or you might find your refund has increased. Still, navigating eligibility and documents required for filing might feel more complicated this time around.
As highlighted in an analysis by the Tax Foundation, “US tax laws are not simple; they are complex. Unfortunately, OBBBA has made tax filing even more intricate.”
Here are the ten most significant changes for individual filers:
1. Increase in Basic Deduction Amount
The standard deduction for 2025 has risen to $15,750 for single filers, up from $15,000. For married couples filing jointly, the amount is now $31,500, up from $30,000. Heads of households will see an increase from $22,500 to $23,625.
Most people opt for the standard deduction since it generally exceeds the itemized deductions they can claim, which include mortgage interest and charitable contributions.
2. Personal Deduction for the Elderly
Individuals born before January 2, 1961, with a valid Social Security number can now claim a $6,000 deduction ($12,000 for married couples filing jointly, if both qualify). This addition is supplementary to the standard or itemized deductions.
However, if your modified adjusted gross income (MAGI) exceeds $75,000 ($150,000 for joint filers) but is below $175,000 ($250,000), the deduction starts to phase out. No relief is provided beyond these thresholds.
3. Increased State and Local Tax Deductions
The limit for state and local tax deductions for itemizers has jumped from $10,000 to $40,000 ($20,000 for those filing separately). This SALT deduction allows taxpayers to deduct state and local income taxes or sales taxes, with property taxes possibly also deductible, provided they stay under the limits.
If you earn a very high income, limitations apply, particularly for those with a MAGI exceeding $500,000 ($250,000 for married filers separately).
4. Auto Loan Interest Deduction
If you purchased a new vehicle this year with a loan, you might be able to deduct some interest—provided the vehicle’s final production stage occurred in the U.S. Just check the details when buying. However, you’re capped at a maximum deduction of $10,000 per year, which decreases if your MAGI is above $100,000 ($200,000 for joint filers). No deduction is permitted if your MAGI exceeds $149,000 ($249,000 for joint filers).
Additionally, while lenders normally report interest paid, they’re not required to do so this year. So keeping track of your interest payments will be essential.
5. Tax Deduction for Tips
The new system framed by the Trump administration as “tax-free” for tips is partly misleading. There’s a possible deduction for “qualified” tips, yet it comes with income limitations.
Qualified tips are defined as voluntary cash or paid tips received from customers. Eligible workers can deduct up to $25,000 in tip income, but full deduction applies only if MAGI is less than $150,000 ($300,000 for joint filers). Many low-income tipped workers might not benefit due to their low earnings.
6. Tax Deduction for Overtime Pay
Similarly, the claim of “tax-free” overtime is misleading. It refers to a deduction for a portion of “qualified” overtime pay exceeding regular wages but capped at no more than half of hourly wages. For instance, if you’re making $20 per hour but earn $30 in overtime, only $10 is deductible.
Qualified overtime is determined by federal labor standards, which typically means over 40 hours worked in a week. You can only deduct up to $12,500 ($25,000 for joint filers) in eligible overtime pay. Full deductions are available for those with MAGI under $150,000 ($300,000 for joint filers), but above $275,000 ($550,000 for married couples), no deduction is permitted.
7. Expansion of Child Tax Credit
The One Big Beautiful Bill Act raises the child tax credit cap to $2,200 for each eligible child, up from $2,000. It also mandates that parents and children possess Social Security numbers.
8. Clean Car Tax Credit Expiration
This law hastens the expiration date for new clean vehicle tax credits, valued up to $7,500, and used clean vehicle credits worth up to $4,000. The credits will not be accessible for plug-in electric vehicles or fuel cell vehicles purchased after September 30, 2025.
If you acquired a vehicle before that date or are qualified for the credit, be sure to fill out Form 8936 and include it with your tax return.
9. “Trump Account” for Babies
Beginning in 2025, the federal government will contribute $1,000 to investment accounts for infants born between January 1, 2025, and December 31, 2028. Both parents and the newborn must have Social Security numbers to qualify.
The easiest way to notify the Treasury about a newborn’s eligibility for federal aid is to file Form 4547 with this year’s e-filed tax return.
10. New Virtual Currency Tax Reporting
For the first time, cryptocurrency transactions on centralized exchanges like Coinbase will be reported to the IRS. If you sell or exchange your crypto holdings in 2025, expect to receive a 1099-DA form by mid-February. However, not all crypto activity will be reported.
