New Tax Legislation Affecting Individuals
We summarize the significant new tax legislation affecting individuals that was signed into law on July 4, 2025. The Act is formally known as the One Big Beautiful Bill and informally as the OBBB. It includes numerous changes affecting individual taxation and is subject to clarification in the coming weeks and months.
Reduced Income Tax Rates
The Act makes the lower individual income tax rates and wider tax brackets introduced by the Tax Cuts and Jobs Act (TCJA) permanent, preventing a scheduled tax rate increase after 2025. For example, the top individual rate will remain at 37% (instead of reverting to 39.6%), and the marriage penalty relief for most brackets continues. This means that married couples filing jointly will typically not face higher taxes compared to filing as singles.
Increased Standard Deduction
The standard deduction has been permanently increased and enhanced for 2025 and beyond: $30,000 for joint filers, $22,500 for heads of household, and $15,000 for singles in 2025. There will be further increases to $31,500, $23,625, and $15,750, respectively, for 2026 and after. Because these higher amounts mean fewer taxpayers will benefit from itemizing, consider bunching itemized deductions into a single year to exceed the standard deduction, then take the standard deduction in alternate years.
Child Tax Credit
The Child Tax Credit (CTC) has been permanently increased to $2,200 per qualifying child for tax years after 2024 and will be indexed for inflation in future years. Omission of a correct SSN on a return under the Code Sec. 24 child and other dependent credit rules will be treated as a mathematical or clerical error that the IRS can summarily assess. To maximize these credits, ensure all dependents have the required identification numbers before year-end, and consider managing your income or accelerating deductions if your AGI is near the phase-out range.
E&G-Basic Exclusion Amount
The basic exclusion amount for federal estate and gift tax will increase to $15 million (indexed for inflation) for estates of decedents dying and gifts made after December 31, 2025. Review and update estate plans and consider making large lifetime gifts to take advantage of this higher exclusion.
Deduction for Taxpayers Age 65 or Older
For tax years 2025-2028, individuals age 65 or older (and their spouses, if filing jointly) can claim a new $6,000 deduction per qualified person. To maximize this benefit, seniors should aim to keep their adjusted gross income (AGI) below $75,000 (single) or $150,000 (joint), as the deduction is reduced by 6% of any excess. Be sure to include the correct Social Security Number for each qualifying individual to avoid disallowance of the deduction.
Car Loan Interest
For tax years 2025-2028, individuals can deduct up to $10,000 per year in interest paid on loans for new personal-use vehicles, even if they don’t itemize deductions. The deduction phases out for single filers with MAGI over $100,000 and joint filers over $200,000. To qualify, the loan must be for a new, U.S.-assembled car, SUV, van, pickup, or motorcycle (under 14,000 pounds), secured by a first lien, with the taxpayer as the original owner, and the vehicle’s VIN reported on the tax return. If you plan to buy a new vehicle, consider timing your purchase and loan to maximize deductible interest within the eligible years, and manage your income to stay below the phase-out thresholds for the largest benefit.
Child and Dependent Care Credit
Starting in 2026, the Child and Dependent Care Credit will be more valuable for many families. The maximum credit rate increases to 50% of eligible expenses, up to $3,000 for one qualifying individual or $6,000 for two or more. The full 50% rate applies to families with AGI up to $15,000 and gradually phases down to 35% for AGI up to $75,000 ($150,000 for joint filers).
Disaster-Related Personal Casualty Losses
If you suffered a loss due to a federally declared disaster, you can now claim a personal casualty loss deduction even if you don’t itemize.
Eligibility to Enroll in a Qualified Health Plan
Starting in tax years after 2027, you can only claim the premium tax credit (PTC) for months when the health insurance Exchange has verified that you are eligible to enroll in a qualified health plan (QHP) and to receive advance PTC payments. To avoid losing your credit, be sure to file your federal tax return on time each year. Promptly report any changes in income, family size, or other circumstances to the Marketplace within 30 days, and respond quickly to any requests for information.
Deduction for Qualified Residence Interest
The deduction for mortgage interest on home acquisition debt is now permanently capped at $750,000 ($375,000 if married filing separately).
Miscellaneous Itemized Deductions
The Act permanently eliminates miscellaneous itemized deductions for individual taxpayers. However, this doesn’t apply to itemized deductions under Code Sec. 67(b). The Act adds a new deduction thereunder for educators, allowing K-12 teachers, counselors, coaches, and aides working at least 900 hours per year to deduct unreimbursed classroom expenses (like books, supplies, and equipment) starting in 2026.
New Tax-Deferred Investment Accounts for Children
Taxpayers can open a new tax-deferred investment account for children, called a “Trump account” for each eligible child. Taxpayers can contribute up to $5,000 per year in after-tax dollars for each child, and funds must be invested in a diversified U.S. equity index fund. For children born between Jan. 1, 2025, and Dec. 31, 2028, the federal government will automatically contribute $1,000 to each account.
Adoption Credit
Starting in 2025, the adoption credit is enhanced to include a refundable portion of up to $5,000 per child (indexed for inflation). This means eligible taxpayers can receive up to $5,000 as a refund even if they owe no tax, making the credit more valuable for lower-income families.
Qualified Higher Education Expenses
Changes to 529 savings plans allow families to use tax-free distributions for a much broader range of K-12 education expenses, including tuition, curriculum, books, online materials, tutoring, standardized test fees, dual enrollment, and educational therapies for students with disabilities. Starting in 2026, the annual limit for K-12 distributions doubles from $10,000 to $20,000 per beneficiary. To maximize tax savings, consider timing 529 withdrawals to match qualified expenses within the same tax year and coordinate with other education tax credits to avoid overlap.
Higher Education Expenses for 529 Accounts
529 plan distributions can now be used tax-free for a broader range of education expenses, including college costs and “qualified postsecondary credentialing expenses.” This means you can use 529 funds for tuition, fees, books, supplies, and equipment required for enrollment in recognized certificate, licensing, or apprenticeship programs, even if they are not traditional degree programs.
Individuals’ Charitable Deductions
Beginning in 2026, the Act makes permanent the 60% ceiling for cash gifts to 50% charities. It provides that a contribution of cash to a 50% charity is deductible to the extent that the total amount of contributions of cash to 50% charities doesn’t exceed the excess of: (a) 60% of the taxpayer’s contribution base for the tax year, over (b) the total amount of contributions to 50% charities for the tax year. To maximize your deduction, prioritize cash donations to 50% charities.
Limitation on Casualty Loss Deduction
Starting in 2026, personal casualty loss deductions are permanently limited to losses from federally declared disasters (and certain state-declared disasters). If you experience a loss due to a qualifying disaster, be sure to keep detailed records.
Wagering Losses
Starting in 2026, only 90% of your wagering losses can be deducted against your winnings, even if your losses equal or exceed your winnings. To maximize your deductions, consider realizing wagering losses in 2025 before the new rule takes effect, and keep detailed records of all activity.
ABLE Accounts
The Act permanently provides for additional contributions to Achieving a Better Life Experience (ABLE) accounts for employed individuals with disabilities. It also adjusts the base limit amount by one year for inflation. The Act also permanently allows beneficiaries who make qualified contributions to their ABLE account to qualify for the Saver’s Credit. To maximize tax benefits, ensure the designated beneficiary personally makes contributions by year-end to qualify for the Saver’s Credit, which is now permanently available for ABLE contributions and will increase to a maximum of $2,100 starting in 2027.
Energy Efficient Home Improvement and New Energy Efficient Home Credits
The energy efficient home improvement credit under Code Sec. 25C is terminated for property placed in service after 2025. The new energy efficient home credit under Code Sec. 45L terminates for any qualified new energy efficient home acquired after June 30, 2026.
Residential Clean Energy Credit
The residential clean energy expenditures credit is terminated for any expenditures made after 2025.
Clean Vehicle Credits
The credits for new and previously owned clean vehicles terminate for vehicles acquired after Sept. 30, 2025. The credit for qualified commercial clean vehicles also terminates for vehicles acquired after Sept. 30, 2025.
Alternative Fuel Vehicle Refueling Property Credits
The credit for “alternative fuel vehicle refueling property” (such as an EV charger) terminates for property placed in service after June 30, 2026.
Note: This article only summarizes the more significant new tax legislation affecting individuals.