Strategies for the 2025 Mega Tax Law

This year’s July Fourth set off fireworks April 15-style as President Trump used Independence Day to sign major tax and spending legislation, aka the One Big Beautiful Bill Act. Naturally, you may be asking, “What does the new tax law mean for me?”

You owe it to yourself to find out because you don’t want to assume the size of its impact. For many people, we expect the impact will be neutral to slightly positive from a tax perspective.

You will need to look across your finances so you don’t overlook potential opportunities. Work with a financial advisor and a tax professional, who are there to help you.

A big, ball of yarn to unwind

One of the most important headlines is that the law makes the current income tax brackets permanent. (By the way, when we say “permanent,” read that as “until the law changes again.”) The law also includes new benefits for seniors and high-tax-state residents. But, as a whole, it’s a rocky road of provisions, extending or enhancing current ones while offering some new tax breaks and taking away others.

Whether the new tax law has a meaningful impact on your taxes depends on your circumstances.

To give you a sense of the broad array of ways that the law could affect you, let’s touch on just a few of its changes and some strategies to consider.

Debate over standard deduction vs. itemization heats up

Back in 2017, the Tax Cuts and Jobs Act approximately doubled the standard deduction.

The new law permanently extends the $15,000 standard deduction with a one-time boost to $15,750 ($31,500 married filing jointly) for 2025. The standard deduction will be inflation-adjusted going forward.

Strategies to consider:

While the standard deduction may be a decent amount, you may be able to deduct more from your taxable income if you itemize, depending on your finances. Here are a couple of ways you could itemize:

• State and local income/property taxes, or SALT, have been limited to $10,000 since 2018 under the TCJA. The new mega law raises the cap to $40,000. See the section below on SALT for more details.
• You can deduct mortgage interest on up to $750,000 of your mortgage loan value. The law now makes that value limit permanent. Also, mortgage insurance premiums are now treated as mortgage interest. Note that a home equity loan interest deduction (loan proceeds not used to buy, build, improve) is permanently excluded.
• As before, you can itemize charitable contributions. Starting in 2026, charitable deductions must be above 0.5% of your adjusted gross income before you can start deducting them. (Non-itemizers are eligible for a deduction of up to $1,000 for individuals and $2,000 for married filing jointly 2026).

Whether or not you itemize, there is also a new auto loan interest deduction. Auto loan interest has historically been considered nondeductible personal interest. However, the new law allows for a deduction of up to $10,000 for auto loan interest for taxpayers from 2025 to 2028. A key requirement to be eligible for the deduction is that the location of the final assembly of the car must be in the U.S. In addition, this deduction is subject to phase out with modified adjusted gross income over $100,000 for individuals and $200,000 for those filing jointly.

If you’re 65 and over: A $6,000 deduction (with caveats)

There is no change in the taxation of Social Security benefits.

This bill provides for an extra $6,000 deduction for individuals who are 65 or older, subject to income phaseout, from 2025 to 2028. If you’re married and filing jointly, your spouse also may claim a $6,000 deduction, provided they’re also 65 or older.

But a deduction phaseout starts for individuals with MAGI greater than $75,000 (at $175,0000, it’s completely phased out). For couples filing jointly, the added deduction starts to phase out at MAGI combined incomes greater than $150,000 (at $250,000, it’s completely phased out).

NOTE: You don’t have to be collecting Social Security benefits to be entitled to this tax break. And if you are collecting Social Security and are under age 65, you are not eligible for the deduction.

Strategy to consider:

• If you’re entitled to this additional deduction, you may have an opportunity to recognize more income (for example, in a Roth conversion or capital gains) with no additional tax.

Raises SALT cap to $40,000, with a phase down for high-income earners

There has been a lot of consternation about SALT since the TCJA of 2017 imposed a $10,000 cap on it. On your federal tax return, SALT is included where you deduct items such as property taxes, state income taxes and sales taxes.

Prior to 2017, taxpayers used to be able to deduct SALT without limits. That means TCJA hit taxpayers particularly hard who live in high-tax states like California, New Jersey and New York.

This year’s legislation increases the SALT deduction cap to $40,000 through 2029. However, the SALT cap amount starts to phase down after one’s MAGI hits $500,0000 and reverts to $10,000 when MAGI hits $600,000. The $500,000 income limit and $40,000 SALT cap thresholds are increased by 1% per year through 2029.

Strategies to consider:

• If you’re subject to the deduction’s phaseout, you may want to consider making qualified charitable distributions, pretax 401(k) contributions and/or health savings account contributions to mitigate the impact of the phaseout.
• To take advantage of the SALT deduction, you will need to itemize your deductions and forgo the standard deduction.

Attention business owners: Qualified business income deduction is now permanent

Are you a partner in a limited partnership, an owner of an S corporation or a sole proprietor?

The qualified business income deduction of up to 20% for pass-through business income has been made permanent. Pass-through business income is income that flows to owners, partners or shareholders rather than to the company itself. Thus, the individuals themselves are taxed on the business income.

The legislation also widens the phaseout ranges.

For 2025, the QBI deduction starts to phase out for individuals when their taxable income hits $197,300, through $247,300 ($394,600-$494,600 for joint filers). This $50,000 single phaseout range will widen to $75,000 starting in 2026. The married filing jointly phaseout range will increase from $100,000 to $150,000 in 2026 as well.

Strategies to consider:

• Given the wider phaseout ranges, more taxpayers may be eligible for this special deduction.
• If you’re a small-business owner, the widened phaseout ranges may provide more money in your pocket to grow your business.

Next steps

These are just a few of the major provisions. You don’t want to miss an opportunity to take advantage of whatever positives the legislation holds for your tax situation. Start the conversation with both a tax professional and a financial advisor.