New Tax Law 2025

New legislation includes multiple tax provisions that will make permanent most of the 2017 Tax Cuts and Jobs Act (TCJA) tax provisions that were set to expire this year, while adding some new deductions and changes.

State and local sales tax deduction

The new legislation temporarily increases the cap on the state and local sales tax deduction from $10,000 to $40,000. This increased cap is effective for 2025. The $40,000 cap will increase to $40,400 in 2026.

No more clean energy credits

The new legislation pretty much ends energy-related tax incentives including:

• The Clean Vehicle Credit, the Previously Owned Clean Vehicle Credit and the Qualified Commercial Clean Vehicles Credit. All are eliminated for vehicles acquired after September 30, 2025.

• The Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit will not be available for property placed in service after December 31, 2025.

• The New Energy Efficient Home Credit will expire on June 30, 2026.

• The Alternative Fuel Vehicle Refueling Property Credit ends for property placed in service after June 30, 2026.

Deduction for seniors

There is a new $6,000 deduction for qualifying individuals who reach the age of 65 during the year. The deduction begins to phase out when modified adjusted gross income exceeds $75,000 ($150,000 for married filing jointly).

Tip income deduction

Tip-based workers can now deduct a portion of their cash tips for federal income tax purposes. Individuals who receive qualified cash tips in occupations that customarily receive tips may exclude up to $25,000 in reported tip income from their federal taxable income. A married couple filing a joint return may each deduct up to $25,000. This applies to a broad range of service occupations, including restaurant staff, hair dressers, and hospitality workers.

Overtime deduction

A new deduction of up to $12,500 ($25,000 if married filing jointly) is established for qualified overtime compensation.

Charitable deduction with standard deductions

The legislation reinstates a tax provision that was previously effective for tax year 2021. A deduction for qualifying charitable contributions will be permanent for taxpayers who do not itemize deductions starting in tax year 2026. The deduction will be capped at $1,000 ($2,000 for married filing jointly). Contributions must be made in cash to a public charity and meet other specific requirements.

Car loan interest deduction

Interest paid on car loans is now deductible for certain buyers. Taxpayers who purchase qualifying new vehicles assembled in the United States for personal use may deduct up to $10,000 in loan interest.

There are more tax law changes beyond the ones included here. Additional information and details will be available in the coming weeks and months.

To learn more about how these changes affect you, contact MNM Vested, LLC.

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