The Big Beautiful Bill Tax Changes

Notes:

1. This is an EARLY and quick look. Some things below may not be fully accurate. If it ends in a question mark, I am not sure about it and am looking further. There will also be typos.
2. When I say Adjusted Gross Income or AGI I mean Modified AGI which for 99% of people is the AGI from their tax return (just before the standard deduction and QBI deduction).
3. I may use MFJ and MFS for married Filing Joint and Married Filing Separately and QSS/HH for Qualified Surviving Spouse/Head of Household.

Changes from the Original Trump Tax Bill and subsequent bills that are extended (no or minor changes):

1. Reduced Tax Rates and Tables
2. Doubled Standard Deduction (as increased since passage plus a kicker for 2025)
3. No Personal Exemption (which means kids don’t lose anything when claimed by parents)
4. Increased Child Tax Credit ($2000) and Additional (refundable) Child Tax Credit
5. Mortgage interest deduction limitation of $750,000 and restrictions about using to buy build or improve personal residence.
6. Casualty Loss Limitations.
7. Elimination Miscellaneous Itemized Deductions such as employee expenses.
8. Moving Expense Deduction still only allowed for active military.
9. ABLE accounts extended.
10. Can exclude student loan discharge for death or disability.
11. Employer provided student loan payments up to $5250 still excludable from income and this amount is inflation adjusted.
12. Disaster Loss rules extended.

Changes and Additional Credits/Deductions:

1. Child Tax Credit
   1. Child Tax Credit increased to $2200 and indexed for inflation going forward.
   1. Additional Child Tax Credit maximum (refundable portion available after taxes hit zero) reset to $1700 for 2025 and indexed for inflation.
2. Qualified Business Income Deduction:
   1. Increased the phaseout range by $50,000 ($75,000 for MFJ). Thus the maximum income you can receive from the deduction is increased.
   1. Set a minimum deduction of $400 if calculated deduction is less than this and the taxpayer has at least $1000 of net business income? These numbers are inflation adjusted every year.
3. Increased Alternative Minimum Tax exemptions extended and increased.
4. Itemized Deductions:
   1. Impact of Itemized Deductions reduced for those in the 37% tax bracket.
5. Saver’s Credit
   1. Allowed for ABLE account contributions of up to $2100 (2026 or later?)
6. Standard Deduction Increase for 2025:
   1. Single/Married Filing Separately increased from planned $15,000 to $15,750
   1. Married Filing Jointly increased from planned $30,000 to $31,500
   1. Head of Household will be $23,625.
7. Senior’s Deduction:
   1. Additional $6000 deduction per senior over age 65.
   1. Joint filers can each get $6,000
   1. This means a married filing joint couple both over age 65 would get total deductions of $46,700 when the normal over 65 increases are taken into account.
   1. Reduced by 6% of any AGI above $75,000 ($150,000 for joint return).
   1. Must have a SSN.
   1. Not allowed for Married Filing Separate?
   1. Part of Standard deduction?
8. State and Local Income Tax Deduction Limit:
   1. Raised the maximum deduction for State and Local Taxes to $40,000
   1. Increases by 1% per year until 2030 when it drops back to $10,000
   1. $40,000 is reduced by 30% of the amount AGI exceeds $500,000 ($250,000 for Married Filing Separate) but not below $10,000. The AGI limit increases to $505,000 in 2026 and then increases by 1% each year until 2030.
   1. This is a possible area where filing separately may be advantageous.
9. No Tax on Tips
   1. No tax on the first $25,000 of qualified tips
   1. This maximum is reduced by $100 for every $1000 AGI exceeds $150,000 ($300,000 for MFJ filers)
   1. Tips are designed in a way to ensure only real tips are deducted in trades that normally receive tips and to prevent recharacterizing regular income as tips.
   1. The IRS is tasked with writing regulations for this and ensuring they are reported by the employer to both the IRS and the employee (I assume on a W-2). This will include identifying businesses and professions to which this applies.
   1. Looks like businesses such as self-employed beauticians/barbers can take advantage of this.
   1. Must have SSN
   1. Not allowed when filing MFS
   1. Lots of details not currently known about this but it should be easy for the obvious employees who regularly get tips.
10. No Tax on Overtime
    1. No tax on the first $12,500 ($25,000 on a MFJ return)
    1. This maximum is reduced by $100 for every $1000 AGI exceeds $150,000 ($300,000 for MFJ filers)
    1. Overtime defined by Federal Law on Labor Standards.
    1. The IRS is tasked with writing regulations for this and ensuring they are reported by the employer to both the IRS and the employee on a W-2.
    1. Must have SSN
    1. Not allowed when filing MFS
    1. Lots of details not currently known about this but it should be easy for the obvious employees who regularly get overtime.
    1. You do not need to itemize to deduct overtime.
11. No Tax on Car Loan Interest
    1. Applies to cars purchased in 2025 until the deduction expires.
    1. Rules to ensure it only applies to personal, non-business vehicles not on a salvage title or bought to sell parts.
    1. Need a VIN, must be less than 14,000 pounds weight, can be a motorcycle, must meet motor vehicle definition.
    1. Must be assembled in U.S.A.
    1. Can be refinanced debt as long as vehicle otherwise qualifies (bought in 2025 or later).
    1. Maximum of $10,000 per return/per year.
    1. This maximum is reduced by $100 for every $1000 AGI exceeds $100,000 ($200,000 for MFJ filers).
    1. Finance company will provide a tax form in the same timeframe as mortgage 1098’s are provided (IRS to define).
    1. You do not need to itemize for this deduction.
    1. ATV’s, Campers and Trailers not eligible.
12. Bonus Depreciation and Expensing extended and expanded.
13. Adoption Credit changes:
    1. $5000 of the credit made refundable (available after taxes reach zero).
    1. This will increase with inflation.
    1. Tribal governments can determine if a child qualifies as “special needs”. For clarification, for the purposes of the adoption credit, special needs does not mean what it implies. It is based on difficulty of adoption and can simply be due to the child being older. It is a state designation, and this change gives tribal governments that same authority.
14. Child and dependent Care:
    1. Daycare Flexible Spending Account maximum increased to $7500 from $5000 starting in 2026.
    1. The incomes at which the percentage of costs available for the Child and Dependent Care Credit drop from 35% to 20% were increased to $75,000 ($150,000 for joint filers).
    1. This is a BIG increase. Most taxpayers got 20% of the first $3000 ($6000 for 2 or more children under age 13) spent on daycare because the percentage dropped to 20% at $43,000.
15. Elementary and Secondary School Scholarship Contribution Credit.
    1. Can get a dollar for dollar credit for qualifying contributions of up to $1700.
    1. This is reduced if you also get a state credit such that the combined credits can’t exceed the amount contributed.
    1. There are lots of requirements for this but the organization you contribute to should be able to provide details.
16. College Savings Plan (529 Plan) changes.
    1. These have different names in different states but they are state plans.
    1. You can use funds for new things related to elementary and secondary school (looks like these apply to homeschool expenses?) and the limit is now $20,000 vice $10,000 (2026 and later):
       1. Private school tuition
       1. Curriculum materials
       1. Books and Instructional Materials
       1. Online education materials
       1. Professional tutoring
       1. Testing
       1. Dual enrollment fees
       1. Licensed educational therapies.
    1. You can use funds for credentialling expenses such as tuition, fees, books, testing required to maintain the credential.
17. You can deduct $1000 ($2000 if MFJ) in cash type (not Goodwill) charitable contributions even if you don’t itemize. There is a weird 0.5% floor thing I don’t fully understand but don’t think it will apply often?
18. The threshold for 3^rd party payment processers (Paypal/Square/Venmo) to send a tax form was restored to $20,000 and the $600 limit for 1099MISC/NEC was increased to $2000 and increases with inflation. These were the long delayed and much hated reductions to increase enforcement.
19. Affordable Care Act Premium Tax Credit:
    1. Limited availability to legal residents and a few other categories of non-citizens.
    1. Added verification requirements for qualifying for the credit advance.
    1. Eliminated income based limits on recapture of excess credits – if you are over-subsidized, you will have to pay the entire excess back.
20. Changes were made to Income Based Student Loan Repayment Plans (beyond my area but wanted to point it out).
21. Changes were made to Pell Grants including adding “Workforce” Pell Grants (beyond my area but wanted to point it out).

TRUMP Accounts:

1. A LOT to unpack and too much for this document but they are basically a tax advantaged account for children under 18 that can be used for a variety of things.
2. They look like a pretty good deal.
3. The government will be piloting a program to put $1000 in newborns accounts.

Deductions, Credits and Programs eliminated:

1. Used Clean Vehicle Credit is gone 9/30/2025
2. New Clean Vehicle Credit is gone 9/30/2025
3. Alternate Vehicle Fueling Credit goes away 6/30/2026
4. 2025 is the last year for solar, HVAC, energy efficient door/window, insulation, and all other residential energy credits.
5. IRS Direct File is eliminated but Free File from software providers is to be expanded.

Generic Changes that affect a lot of things:

1. SSN requirement (generally for taxpayer and/or spouse and impacted dependents):
   1. Senior deduction
   1. Child Tax Credit
   1. Student Loan discharge exclusion
   1. American Opportunity Credit and Lifetime Learning Credit
   1. Premium Tax Credit (Obamacare Subsidy)
2. Some of these provisions expire around 2029 but I will mostly not be discussing that since, as we see with this bill, most will not be allowed to expire.