You may have been reading about the significant federal tax law changes that have recently been passed. They take effect over the next couple of years, but some of them (like Clean Energy Credits) start soon. This month’s article is meant to bring you up to speed on the changes.
Permanent Extensions from the 2017 Tax Cuts and Jobs Act (TCJA)
- Marginal tax rates: All seven TCJA individual tax brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%) are now permanent.
- Child Tax Credit: The existing $2,000 credit increases to $2,200 per child and is now indexed for inflation.
- Pass-through business income deduction (Section 199A): The 20% deduction remains permanent under TCJA. (This deduction allows eligible owners of certain sole proprietorships, partnerships, and S-corporations to deduct up to 20% of their qualified business income.)
- Alternative Minimum Tax (AMT), estate/gift tax, personal exemptions, itemized deduction limits: These permanent extensions include maintaining elevated AMT exemptions, the doubled standard deduction, repeal of personal exemptions, itemized deductions preserved per TCJA rules. (AMT is a separate federal tax system that ensures high-income individuals pay a minimum tax amount. Taxpayers subject to AMT must calculate their tax using both regular tax rules and AMT rules and pay the higher amount.)
New or Expanded Temporary Provisions (2025–2028/2029)
- Tips deduction: Up to $25,000 deduction for qualified tip income (phases out for incomes over $150,000 — in effect through 2028).
- Overtime deduction: Up to $12,500 (or $25,000 for joint filers) for qualified overtime pay through 2028.
- Senior “bonus” deduction: Up to an additional $6,000 deduction for seniors (individuals 65+) which is phased out at higher Modified Adjusted Gross Income — effective through 2028.
- Auto loan interest deduction: Up to $10,000/year deduction for interest on auto loans for U.S.-assembled vehicles, phasing out for higher-income filers — effective through 2028.
- SALT deduction cap: Rose from the current $10,000 cap to $40,000 per taxpayer ($20,000 per taxpayer if married filing separately). The cap is phased down after incomes exceed $500k. It’s in effect through 2029. (The State and Local Tax, SALT, deduction is a federal tax break that allows taxpayers who itemize their deductions to subtract certain state and local taxes from their federal taxable income. The deduction can reduce a taxpayer’s federal tax liability, especially for residents of high-tax states.)
- Charitable deductions for non-itemizers: Up to $1,000 (individuals) or $2,000 (joint filers) in charitable contribution deductions — even without itemizing. For itemizers, deduction is limited to contributions exceeding 0.5% of Adjusted Gross Income. For those in the 37% bracket, the financial benefit they receive from itemized deductions is reduced to 35 cents for every dollar deducted — down from the standard 37 cents. This begins in 2026.
Estate & Gift Tax Enhancements
- Estate tax exemption: Elevated to $15 million for individuals ($30 million for married couples), starting in 2026 and adjusted for inflation.
Other Significant Effects & Considerations
- Medicare and Social Security Tax: The senior deduction may reduce or eliminate Social Security taxation for about 88% of beneficiaries, but thresholds for taxing benefits remain unchanged.
- Roth IRA Conversions & Retirement Planning: New deductions (like SALT and the $6,000 senior deductions) may lower your tax bracket and make a Roth conversion more attractive. There are important details to understand here before proceeding.
- Clean Energy Credits Phasing Out Early: Solar, EV and other green energy incentives expire sooner than planned under prior law. The dates vary depending on the type of credit.
As you can see, there are quite a few changes in our tax laws. The details matter here and can sometimes be a bit complicated. If you’d like someone to help you understand how these changes affect you, we’d be pleased to help out in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.