08/25/2025
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Dear Client,
We are writing to inform you of the recent enactment of significant tax legislation—the Tax Reform Act of 2025 (informally referred to as the “One Big Beautiful Bill” or OBBB)—which was signed into law on July 4, 2025. This sweeping legislation introduces a wide array of changes affecting both individual and business taxpayers.
Given the complexity of the Act, its impact on your specific tax situation will depend on several factors. To assist you, we have prepared a summary outlining the most relevant provisions. We encourage you to review this information and contact us with any questions. Together, we can evaluate how these changes may affect you and develop a strategy aligned with your financial goals.
Key Provisions for Individuals
•Permanent Lower Tax Rates The reduced income tax rates introduced under the 2017 TCJA are now permanent. For example, the top marginal rate remains at 37%, rather than reverting to 39.6%, and most married couples filing jointly will continue to benefit from lower brackets.
•Increased Standard Deduction Effective 2025, the standard deduction increases to $31,500 for joint filers, $23,625 for heads of household, and $15,750 for single filers. These amounts will rise slightly in 2026. Fewer taxpayers will need to itemize, so consider grouping deductible expenses to maximize savings.
•New Senior Deduction From 2025 through 2028, taxpayers aged 65 and older (and their spouses, if filing jointly) may claim a $6,000 deduction per person. This benefit phases out at 6% of income exceeding $75,000 (single) or $150,000 (joint).
•Car Loan Interest Deduction For tax years 2025–2028, individuals may deduct up to $10,000 annually in interest on loans for new personal-use vehicles, even without itemizing. Eligibility is subject to income limits and vehicle requirements.
•Expanded Child Tax Credit (CTC) Beginning in 2025, the CTC increases to $2,200 per child, with future adjustments for inflation.
•Enhanced Child & Dependent Care Credit Starting in 2026, taxpayers may claim 50% of eligible childcare expenses—up to $3,000 for one child or $6,000 for two or more. The full credit applies to incomes up to $15,000 and phases down for higher incomes.
•Mortgage Interest Deduction Cap Maintained The $750,000 cap on deductible mortgage interest remains unchanged. Additionally, home equity interest is permanently nondeductible. Beginning in 2026, qualifying mortgage insurance premiums will be treated as deductible mortgage interest.
•Elimination of Miscellaneous Itemized Deductions These deductions are permanently repealed. However, starting in 2026, K–12 educators working 900+ hours annually may deduct classroom expenses.
•Expanded SALT Deduction For 2025, the cap on state and local tax deductions increases to $40,000, with annual 1% increases through 2029. The cap reverts to $10,000 in 2030 and phases out for joint filers earning over $500,000.
•Above-the-Line Charitable Deduction Beginning in 2026, non-itemizing taxpayers may deduct up to $1,000 ($2,000 for joint filers) in cash donations to qualified public charities. Exclusions apply.
•New Deduction Floor for Itemizers beginning in 2026, you’ll only be able to deduct charitable contributions that exceed 0.5% of your adjusted gross income (AGI).
•New Tax-Deferred “Trump Accounts” for Children Taxpayers may contribute up to $5,000 annually in after-tax dollars to a new investment account for each eligible child. Children born between January 1, 2025, and December 31, 2028, will receive a $1,000 federal contribution.
•Improved Adoption Credit Starting in 2025, up to $5,000 of the adoption credit may be refundable.
•Expanded 529 Plan Uses Funds may now be used for additional K–12 and non-traditional education expenses, including tutoring and special education services.
•Disaster Loss Deduction Restrictions Beginning in 2026, personal loss deductions are limited to federally or state-declared disasters.
•Limits on Gambling Losses Starting in 2026, only 90% of gambling losses may be deducted against winnings.
•Estate and Gift Tax Exemption Increase Effective 2026, the lifetime exemption increases to $15 million.
•Green Energy Credits Sunset
-Home energy improvements: expire after 2025
-Energy-efficient new homes: expire after June 30, 2026
-Residential clean energy (e.g., solar): expire after 2025
-Electric vehicle credits: expire after September 30, 2025
-EV charger credits: expire after June 30, 2026
Key Provisions for Businesses
•Permanent QBI Deduction The 20% deduction for qualified business income is now permanent, with updated income thresholds and inflation adjustments. This deduction now includes a $400 minimum deduction for qualified businesses.
•100% Bonus Depreciation Made Permanent Businesses may continue to fully deduct qualifying purchases in the year acquired, effective for property purchased after January 19, 2025.
•Increased Section 179 Limits Starting in 2025, the immediate expensing limit rises to $2.5 million, with phase-out beginning at $4 million.
•Enhanced Small Business Stock Exclusion Gains from the sale of qualified small business stock held for 3–5+ years are subject to more favorable treatment for stock acquired after July 4, 2025.
•Form 1099-K Threshold Reversion The reporting threshold returns to $20,000 and 200 transactions.
•Higher 1099-NEC & 1099-MISC Thresholds Beginning in 2026, reporting is required only for payments of $2,000 or more (up from $600).
•Farmland Sale Tax Deferral Capital gains from the sale of qualified farmland after July 4, 2025, may be deferred over four years.
Items Not Extended
•Affordable Care Act (ACA) Premium Assistance expansion for individuals earning over 401% of the Federal Poverty Level (FPL), which was temporarily extended under the American Rescue Plan (2021) and the Inflation Reduction Act (2022), was not continued under the OBBB (2025). As a result, starting in 2026, taxpayers above the 401% FPL threshold may no longer qualify for enhanced subsidies on health insurance purchased through the ACA marketplace. This change could lead to significantly higher premium costs for middle-income individuals and families who had previously benefited from the expanded eligibility.
We hope you find this summary helpful. Please note that this overview highlights only select provisions of the Act. We welcome the opportunity to discuss how these changes may affect your personal or business tax situation.
Sincerely,
Your team at Rauch, McFetridge, Cleveland & Stein CPAs, LLC
