24 Jul 2025 2025 Ch-ch-changes

We recently had an internal team vote about whether Seinfeld or Schitt’s Creek did a better job humorously highlighting a common misunderstanding around how tax write-offs work (Seinfeld won). In both shows, characters very wrongly assume that a tax write off just means you spend money or buy something and the government just picks up the tab. If only it were that simple! It would be nice for tax deductions to be a little bit more straightforward but alas, that’s not the current landscape.

We’ve already written about the draft tax law a few times, so it should not be a surprise to anyone that the new final tax law adds a lot of complexity to the existing (and already complex enough) tax code. There are new rules and deductions that are all subject to various years in effect and income limitations and phase outs. Some changes are permanent and some would require future legislation to remain in effect past a designated time frame. With so many ideas tossed out over the past year, and the amount of misinformation all over the internet, it’s can be hard to know what became reality and how the new bill may impact you directly. And that’s where we can help.

In an effort to make the changes more digestible and actionable, I thought I’d highlight a few provisions that go into effect for this year and ways to potentially position yourself well before 2026.

Standard Deduction

The standard deduction slightly increased to $15,750 (S) and $31,500 (MFJ) for 2025. You need your itemized deductions to be higher than that threshold in order to itemize instead of the standard deduction. No real action item here.

Age 65+ Deduction

As Daniel highlighted in his brief two weeks ago, there is a new ‘below-the-line’ deduction for those age 65+, which is available regardless of whether you use the standard deduction or itemized deductions. This adds an additional $6k deduction per person age 65 and over, which reduces taxable income and thus reduces tax owed. However, this additional deduction is subject to an Modified Adjusted Gross Income (MAGI) phaseout so not every individual age 65 or older is eligible for this. If your income is under $75k (S) or $150k (MFJ), and you are 65+, this deduction will be in effect starting in 2025 (and ending in 2028). As income increases over those thresholds, the deduction phases out.

Itemized Deductions – SALT Deduction

Starting in 2025, taxpayers whose income is under $500k have a higher State and Local Tax (SALT) deduction limit of $40k (up from $10k). If income lands between $500-600k, there is a very quick drop in the amount of SALT deduction allowed. At the $600k income level and above, the deduction is back to the $10k amount we’ve been accustomed to. People whose income falls in that range AND have enough itemized deductions to exceed using standard deduction may have some planning opportunities here. As most taxpayers already use the standard deduction anyway, only individuals with enough other itemized deductions will be able to use this additional SALT deduction. This additional limit will sunset in 2029.

No Tax on Tips Deduction

Starting this year, there is a new deduction for up to $25k on voluntary tips paid to individuals in certain professions. The deduction starts to phase out when income reaches $150k (S) and $300k (MFJ). This is available regardless of whether one uses standard or itemized deductions. 

New Auto Loan Interest Deduction

For those who take out a new loan for a new vehicle that was assembled in the US, there is a new deduction for auto loan interest up to $10,000 per year. This deduction starts to phase out when income reaches $100k (S) and $200k (MFJ). This is also available regardless of whether one uses standard or itemized deductions. However, you would have to have quite the loan balance in order to be able to deduct $10k of interest… For example, imagine you buy a new car and take out a $50k 60-month loan with an interest rate of 5.25%. Your payment would be $949/month. In the first year you’d pay $2,410.95 in interest. If you assume you’re in the 22% tax bracket, you may save $530 on your taxes by deducting that interest. How to pay for a car is a separate brief topic, but generally, the math isn’t mathing for me on this tax deduction. 

Child Tax Credit 

Not much to say here other than the credit increases slightly instead of decreasing as originally planned. Nothing different for you to do! 

Clean Energy Credits Ending in 2025

If you are already planning on purchasing a clean vehicle, making energy efficient home improvements, or adding any residential clean energy equipment, you want to pay attention to these dates to make sure the work is complete by these new accelerated deadlines to remain eligible for credits. These are not things to rush out and do, but just keep in mind if these are already projects in your pipeline. 

• September 30, 2025: Must purchase a new or electric vehicle before this date to receive the Clean Vehicle Credit of up to $7,500 for new electric vehicle and up to $4,000 for used. 
• December 31, 2025: Must make energy efficient improvements before this date to receive up to $1,200 credit for things like windows, insulation, heating/cooling equipment, etc. 
• December 31, 2025: Expenses to purchase or install residential clean energy (like solar panels) are no longer eligible for a credit after the end of the year.

Finally, there are two new rules that go into effect in 2026 that may present opportunities to position yourself well before 2025 ends.

Itemized Deductions – New Charitable Floor in 2026

A new rule goes into effect in 2026 that adds a floor to the deductibility of charitable contributions. There will be a new 0.5% of AGI floor next year that limits the deductibility of charitable contributions. This means that individuals who itemize will only be able to deduct charitable contributions that exceed 0.5% of their AGI. There may be a case for those high-income taxpayers to accelerate giving into 2025. For example, if a person’s AGI is $100,000, they could only deduct the portion of their charitable donations that exceeds $500 (0.5% of $100,000). Or if AGI is $1,000,000, they could only deduct the portion of charitable donations that exceeds $5,000 (0.5% of $1,000,000).

Incentive Stock Options & AMT 

There will be some changes in the Additional Minimum Tax code starting in 2026, so if you have unexercised Incentive Stock Options, you may want to consider exercising them in 2025 before those rules go into effect. Your broader tax picture impacts this decision so would definitely require further analysis.

Hopefully, this helps focus attention on the items that matter most for this calendar year. As always, we are here to help you navigate through changes, alongside your CPA!

The content above is for informational and educational purposes only. The links and graphs are being provided as a convenience; they do not constitute an endorsement or an approval by Beacon Wealthcare, nor does Beacon guarantee the accuracy of the information.