How the One Big Beautiful Bill Impacts You:
What Every Taxpayer Needs to Know
A simple breakdown of the new tax law—explaining how it changes your income taxes, deductions, credits, and everyday finances starting in 2025.
1. Lower tax rates stay in place
The lower tax brackets from the 2017 Tax Cuts and Jobs Act were supposed to expire after 2025, but this bill makes them permanent. That means the percentage you pay on your income will stay lower than it was before 2018. Most middle-income earners will keep saving money on federal taxes instead of seeing their rates go back up.
2. The standard deduction gets bigger
You no longer need to track as many small deductions because the standard deduction—the amount everyone can claim without itemizing—goes up again. Single filers will be able to deduct about $15,750, and married couples around $31,500 starting in 2025. Those numbers will also increase each year with inflation. Personal exemptions (the old $4,000-per-person rule) remain gone, but this larger deduction replaces that benefit.
3. New deduction for seniors
People aged 65 or older get an additional $6,000 deduction, or $12,000 if both spouses qualify. This helps seniors who no longer have dependents and mainly live on retirement income. It starts phasing out once income passes roughly $75,000 for single filers or $150,000 for married couples. The extra senior deduction only lasts through the 2028 tax year.
4. Child Tax Credit increases
Parents will now receive $2,200 per qualifying child, up from $2,000. This credit will also rise with inflation in future years. The refundable portion—money you can still receive even if you owe no tax—stays at $1,400 but will also be indexed for inflation. Each child must have a valid Social Security number, and you must include that number on your return to claim the credit.
5. Higher limit on state and local tax deductions (SALT)
The cap on deducting state and local taxes goes from $10,000 to $40,000 beginning in 2025. This helps taxpayers in high-tax states like California, New York, and New Jersey. However, people with very high incomes will see the limit reduced as income rises. After 2029 the higher cap expires and returns to $10,000.
6. Continued help for small business owners
The 20 percent deduction for pass-through business income (known as the QBI deduction) continues permanently. The income thresholds to qualify are higher, so more small-business owners will benefit. Anyone with at least $1,000 of active business income will get at least a $400 deduction, even if their income is low.
7. Larger estate and gift exemptions
The amount you can pass to your heirs without paying federal estate tax jumps to $15 million per person after 2025. A married couple could transfer up to $30 million tax-free. This helps families preserve wealth and small business assets for the next generation.
8. Fewer people hit by the Alternative Minimum Tax (AMT)
The AMT is a backup tax system designed to ensure wealthy people pay a minimum amount. Under the new law, the exemption amounts stay high, meaning middle-class taxpayers almost never have to worry about AMT anymore.
9. Student loan forgiveness stays tax-free
If a student loan is canceled because of death or total disability, the amount forgiven will not be counted as income. This applies to both federal and private education loans. Before this change, people could get an unexpected tax bill after loan forgiveness.
10. Temporary “no tax” breaks for workers
For the years 2025 through 2028, several short-term deductions will reduce taxable income for employees:
Tips – Up to $25,000 in properly reported tips per year can be excluded from taxable income.
Overtime – You can deduct up to $12,500 per person ($25,000 for couples) of overtime pay.
Each of these deductions phases out for higher incomes and ends after 2028.
11. Car loan interest deduction for new U.S.-built cars (2025–2028)
Interest on certain new, personally used cars assembled in the U.S. becomes deductible for a limited window of years. There is a cap on how much interest can be deducted per year and a phase-out for higher incomes. The car has to meet specific rules (new purchase, first-lien loan, primarily personal use, etc.), so this is a targeted, time-limited benefit.
12. Charitable contributions on top of the standard deduction
Special deduction for charitable giving for people who do not itemize. Non-itemizers will be able to deduct up to $1,000 in cash charitable gifts if single or $2,000 if married filing jointly, on top of the standard deduction, starting with tax years after 2025. This is made permanent, and it’s paired with a new 0.5% “floor” rule so only donations above a small share of income count toward the regular itemized charitable deduction.
13. “Trump Accounts” for children
Parents can open new savings accounts for kids under 18 called “Trump Accounts.” They work somewhat like IRAs. Money grows tax-free until the child turns 18, but contributions are not deductible. Each child can receive up to $5,000 per year (adjusted for inflation). Investments are limited to low-cost U.S. stock index funds, keeping them simple and inexpensive. These accounts are meant to help families start investing for their children early.
14. Smaller miscellaneous changes
A few additional rules continue or are clarified:
You can still deduct personal casualty losses only if they come from a federally declared disaster.
Mortgage interest deductions stay limited but continue past 2025.
Moving expense deductions remain only for military families.
Gambling losses can only be deducted up to 90 percent of your winnings.
Certain fringe benefits and transportation benefits for employees stay tax-favored.
Major Change to Clean Energy Tax Credits
The OBBB accelerates the repeal of several popular federal tax credits, ending a significant source of energy-related tax savings for individuals:
Residential Energy Credits End: The Residential Clean Energy Credit (Section 25D, e.g., for solar panels) and the Energy-Efficient Home Improvement Credit (Section 25C) are no longer available for property placed in service or costs paid after December 31, 2025.
Clean Vehicle Credits End: The tax credits for purchasing New Clean Vehicles (Section 30D) and Previously-Owned Clean Vehicles (Section 25E) are repealed for any vehicle acquired after September 30, 2025. Taxpayers must have a binding written contract and have made a payment on or before this date to qualify.