Get ready for tax season

Clients will need more help than usual this tax season, as last summer’s H.R. 1, P.L. 119-21, known as the One Big Beautiful Bill Act, made federal taxes more complicated for many individuals. The law introduced new deductions and made significant changes to many existing tax provisions.

However, the millions of taxpayers who stopped itemizing deductions when the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, increased the standard deduction amount will continue to see simpler tax return calculations, as H.R. 1 made the TCJA’s increased standard deduction and tax rates permanent. The act made many other TCJA provisions, which had been scheduled to expire at the end of 2025, permanent.

Here’s a look at what’s new and what has changed that will affect 2025 tax returns.

H.R. 1 CHANGES TO EXISTING TAX PROVISIONS

Standard deduction, tax brackets, and personal exemptions

The TCJA’s tax rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37% were made permanent by the act. (See the Filing Season Quick Guide for where the brackets begin and end.) For 2025, the standard deduction is $15,750 for single filers, $31,500 for married individuals filing jointly, and $23,625 for heads of household. H.R. 1 also made permanent the TCJA’s removal of the deduction for personal exemptions.

Miscellaneous itemized deductions

H.R. 1 made the TCJA’s suspension of miscellaneous itemized deductions permanent.

Alternative minimum tax

The act permanently extended the TCJA’s higher alternative minimum tax (AMT) exemption amounts and exemption phaseout thresholds, indexed for inflation. (See the Filing Season Quick Guide.)

State and local tax deduction

Beginning in 2025, H.R. 1 increased the limit on the federal deduction for state and local taxes (the SALT cap) to $40,000 ($20,000 for married taxpayers filing separately). The TCJA had set the cap at $10,000. The amount of the deduction available to a taxpayer is reduced by 30% of the amount the taxpayer’s modified adjusted gross income (MAGI) exceeds $500,000 ($250,000 for married taxpayers filing separately); however, the deduction amount can’t be phased out below $10,000 ($5,000 for married taxpayers filing separately). Also, the various workarounds that states have enacted to help taxpayers avoid the SALT cap, such as passthrough entity tax (PTET) deductions for owners of passthrough entities, were not affected by the act.

Child tax credit increase

For clients with dependent children, the act permanently increased the Sec. 24 nonrefundable child tax credit to $2,200 per child beginning in tax year 2025. The refundable child tax credit (the additional child tax credit) was also made permanent ($1,700 in 2025). In addition, the phaseout threshold amounts for the credit of $200,000 ($400,000 in the case of a joint return) and the $500 nonrefundable credit available for each dependent of the taxpayer other than a qualifying child were made permanent.

Social Security numbers (SSNs) must be shown on the return for each child for whom the credit is being claimed, but also, new for 2025, the taxpayer claiming the credit (or in the case of a joint return, at least one of the spouses) must have an SSN, which must be included on the taxpayer’s return.

Mortgage interest

The act made permanent the provision limiting the Sec. 163 qualified residence interest deduction to the first $750,000 in home mortgage acquisition debt. It also permanently excludes interest on home-equity indebtedness from the definition of qualified residence interest. However, the act reinstated, starting in 2026, the provision allowing certain mortgage insurance premiums on acquisition indebtedness to count as qualified residence interest (which had expired after 2021).

Moving expenses

H.R. 1 made the TCJA’s elimination of the moving expense deduction permanent. Currently, only active-duty members of the U.S. armed forces may take the deduction. Starting in 2026, certain members of the intelligence community will also be eligible.

Sec. 199A qualified business income deduction

The act made permanent the Sec. 199A qualified business income (QBI) deduction. In addition, beginning in 2026, it expanded the phase-in range for the specified service trades or businesses (SSTBs) and wage and investment limitations by increasing the $50,000 amount for nonjoint returns to $75,000 and the $100,000 amount for joint returns to $150,000. The act also introduced, beginning in 2026, a minimum deduction of $400 (adjusted for inflation) for taxpayers who have at least $1,000 of QBI from one or more active trades or businesses in which they materially participate.

Adoption credit

Starting in 2025, for clients who have adopted a child during the year, H.R. 1 made a portion of the Sec. 23 adoption credit — up to $5,000 — refundable.

Bonus depreciation

The Sec. 168 additional first-year (bonus) depreciation deduction was increased by the act to 100% for property acquired and placed in service on or after Jan. 19, 2025, as well as for specified plants planted or grafted on or after Jan. 19, 2025. However, property that taxpayers placed in service in the first 18 days of 2025 is subject to the former, reduced rate of 40%.

Sec. 179

For property placed in service in 2025, H.R. 1 set the maximum amount a taxpayer may expense under Sec. 179 at $2.5 million, reduced by the amount by which the cost of the qualifying property exceeds $4 million.

Research-and-development expenses

H.R. 1 enacted new Sec. 174A, which allows taxpayers to immediately deduct domestic research or experimental expenditures paid or incurred in tax years beginning after Dec. 31, 2024. Research or experimental expenditures attributable to research conducted outside the United States will continue to be required to be capitalized and amortized over 15 years under Sec. 174.

NEW TAX BREAKS

H.R. 1 introduced four new income tax deductions, but the IRS did not update information returns or withholding tables for 2025 to reflect these deductions. It also didn’t update its online Tax Withholding Estimator. To claim these deductions, taxpayers will need to include Schedule 1-A, Additional Deductions, with their returns in the Form 1040 series. The new schedule includes sections for calculating a taxpayer’s senior deduction, tip income deduction, overtime income deduction, and car loan interest deduction (all discussed below).

Senior deduction

H.R. 1 from 2025 through 2028 allows individuals who are age 65 and older to claim a deduction of $6,000. Married couples can claim a $12,000 deduction if they both qualify. The deduction phases out for taxpayers with MAGI over $75,000 ($150,000 for joint filers). To qualify, a taxpayer must turn 65 on or before the last day of the tax year. This new deduction is in addition to the current additional standard deduction for seniors of $1,600, or $2,000 if the individual is unmarried and not a surviving spouse.

Tip income deduction

For the years 2025 through 2028, the act created a deduction of up to $25,000 for qualified tips received by an individual in an occupation that customarily and regularly receives tips. The deduction can be claimed by employees receiving a Form W-2, Wage and Tax Statement, and independent contractors who receive Form 1099-K, Payment Card and Third Party Network Transactions, or Form 1099-NEC, Nonemployee Compensation, or who report tips on Form 4137, Social Security and Medicare Tax on Unreported Tip Income. The deduction is available for taxpayers who claim the standard deduction or itemize deductions.

The deduction begins to phase out for taxpayers with MAGI over $150,000 ($300,000 in the case of a joint return). For tax year 2025, employers required to furnish statements enumerating an individual’s tips can use “any reasonable method” to estimate designated tip amounts.

In proposed regulations released in September (REG-110032-25), the IRS specified that to qualify for the deduction, the tips must be received from customers or through a mandatory or voluntary tip-sharing arrangement, such as a tip pool. Qualified tips must be paid voluntarily by the customer and not be subject to negotiation. In cases where an automatic service charge is added to a bill with no option for the customer to disregard or modify it, the amounts distributed to the workers from it are not qualified tips.

Only taxpayers who work in occupations that customarily and regularly received tips before Dec. 31, 2024, are eligible for the deduction. The proposed regulations include a list of these occupations with illustrative examples (Prop. Regs. Sec. 1.224-1(f)(1), Table 1). They include various food service, entertainment, hospitality, home service, personal service, wellness, recreation, and transportation and delivery occupations.

Note that taxpayers who conduct or are employed by a trade or business that is an SSTB under Sec. 199A(d)(2) are not eligible for the “no tax on tips” deduction. SSTBs include any trade or business involving the performance of services in the fields of health; law; accounting; actuarial science; performing arts; consulting; athletics; financial services; brokerage services; investing and investing management; trading or dealing in securities, partnership interests, or commodities; or any trade or business where the principal asset of the trade or business is the reputation or skill of one or more of its employees or owners.

According to the proposed regulations, the SSTB rule supersedes the list of eligible occupations, so, if an employee is employed by an SSTB, no part of their tip income related to that employment is deductible, even if that employment is in an otherwise eligible occupation (Prop. Regs. Sec. 1.224-1(c)(4)).

For self-employed taxpayers, the deduction cannot exceed the individual’s net income (without regard to the tip income deduction) from the trade or business in which the tips were earned. And married taxpayers must file jointly to claim the deduction.

(Editor’s note: For further information, see “IRS Clarifies How Employees Can Claim 2025 Tip and Overtime Deductions,” JofA, Nov. 21, 2025).

Overtime income deduction

H.R. 1 also created a temporary deduction of up to $12,500 ($25,000 in the case of a joint return) for qualified overtime compensation received by an individual during a given tax year. This deduction is also available for 2025 through 2028, and nonitemizers can claim it. The deduction begins to phase out when the taxpayer’s MAGI exceeds $150,000 ($300,000 in the case of a joint return), phasing out by $100 for every $1,000 the taxpayer’s MAGI exceeds the threshold. For single taxpayers, it phases out completely at MAGI of $275,000 and for joint filers at MAGI of $550,000.

Qualified overtime compensation is overtime compensation paid to an individual required under Section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate (as used in that section) at which the individual is employed. Note that only the portion of overtime pay that exceeds the taxpayer’s regular rate of pay is eligible for the deduction — in other words, if the employee earns “time and a half” for overtime, only the “and a half” portion is deductible.

The qualified overtime compensation must be reported separately to the employee on Form W-2 for the employee to claim the deduction. Married individuals must file jointly to claim the deduction.

(Editor’s note: For further information, see “IRS Clarifies How Employees Can Claim 2025 Tip and Overtime Deductions,” JofA, Nov. 21, 2025).

Auto loan interest deduction

Starting in 2025 and through 2028, individuals can deduct up to $10,000 in interest paid on a loan used to purchase a qualified vehicle. The deduction phases out for taxpayers with MAGI over $100,000 ($200,000 for married taxpayers filing jointly). To qualify for the deduction, the interest must be paid on a loan that is (1) originated after Dec. 31, 2024; (2) used to purchase a vehicle, the original use of which starts with the taxpayer (used vehicles do not qualify); (3) for a personal-use vehicle (not for business or commercial use); and (4) secured by a first lien on the vehicle.

A qualified vehicle is a car, minivan, van, SUV, pickup truck, or motorcycle with a gross vehicle weight rating of less than 14,000 pounds that has undergone final assembly in the United States, among other requirements. As of this writing, the IRS has not published a list of eligible vehicles. (Editor’s note: For further information, see “Proposed Regulations Provide Guidance on Car Loan Interest Deduction,” JofA, Jan. 5, 2026).

EXPANSION OF EXISTING TAX BREAKS

Health savings account eligibility

H.R. 1 added a safe harbor to allow a health plan to qualify as a high-deductible health plan (HDHP) even if it does not have a deductible for telehealth services, applicable to plan years beginning after Dec. 31, 2024. (Editor’s note: For further information, see “IRS Clarifies Health Savings Account Changes in H.R. 1 in New Notice,” JofA, Dec. 9, 2025).

REPEAL OF EXISTING PROVISIONS

Electric vehicle credits

The Sec. 30D clean vehicle credit, the Sec. 25E previously owned clean vehicle credit, and the Sec. 45W qualified commercial clean vehicle credit were all eliminated for vehicles acquired after Sept. 30, 2025.

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About the author

Alistair M. Nevius, J.D., is a freelance writer based in North Carolina. To comment on this article or to suggest an idea for another article, contact Paul Bonner at Paul.Bonner@aicpa-cima.com.

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