2025 Reconciliation Act (One Big Beautiful Bill aka OBBBA)

Terms:

• The date in front refers to the effective date or the effective time period if limited

• MAGI refers to Modified Adjusted Gross Income, which is your total income less things like IRAs, student loan interest, etc.

• EV Electric Vehicle

Individual Tax Provisions

Credits –

1/1/25 – Child Credit is raised from $2,000 to $2,200 for children 16 years of age or

younger at year end. For older qualified dependent children, the annual credit is $500.

EV Credit is no longer available for purchases after 9-30-25

9/2/2025 - Energy efficient home improv credit ($1200 per yr) ends. Stated expiration is

9-30-25 but appears to be erroneous.

9/2/2025 - 30% solar credit ends. Stated expiration is 9-30-25 but appears to be

erroneous.

[Note that the energy project must be “begun” by 9/2/25, which is 60 days after the

7/4/2025 date of enactment, and must be completed by 12/31/2027. “Begun” means an

irrevocable contract signed and 5% or more in non-refundable payments have been

paid, or more than 5% of the project has been completed]

1/1/26 – Dependent Care Credit maximum raised from $600 per child to $1,050.

1/1/26 – Employer potential dependent care benefit (if offered) is increased from $5,000

to $7,500

Itemized deductions:

1/1/25 – Standard deduction increases from $29,200 to $31,500 married and from

$14,600 to $15,750 singles

Other current law items were all made permanent, plus…

$1000 per taxpayer additional cash (only) donation deduction against MAGI

regardless if the taxpayer is itemizing deductions or not (but no double deduction for the

same cash donation)

1/1/2025-12/31/2030: State tax and real estate taxes deduction goes up to $40,000

–replaces 2024 $10,000 limit – with phase-down after $500,000 MAGI

[This could affect business taxpayers who paid Pass-Through Entity tax on June 15,

2025]

1/1/25-12/31/2028 – Additional senior deduction: a qualified individual receives a

$6,000 deduction per person if one of the couple is 65 as of 12-31-25. MAGI threshold

is $150k after which there is a phaseout until $300,000. One-half those amounts for

singles.

Adjustments or exemptions to taxable income:

1/1/25-12/31/2028 – Tip income $25,000 exclusion from income tax only, not from

Social Security/Medicare. Phase out after $150,000 per person ($300k MFJ) - $100 per

$1000

[Only applies to situations where tips are customary and cannot apply to any Specified

Service Trade or Business, such as performing arts, consulting, law, health, or any

business where the principal asset is the reputation or skill of one or more employees or

owners.]

1/1/25-12/31/2028 - Overtime pay exclusion - Excludes only the extra ½ of hourly pay,

and only for federal income tax, not Social Security/Medicare. Up to $12,500 single,

$25,000 for a married couple.

1/1/25-12/31/2028 (loan date): Up to $10,000 of loan interest is deductible for the

personal use of a US-made vehicle (reduce by $200 for every $1000 of MAGI

exceeding $100,000 (MFJ $200,000). Phases out at $150,000 and $300,000 MAGI

respectively.

Other:

7/4/2025: Use of 529 tuition savings accounts are expanded: May be used for home

school, tutoring, and elementary/secondary schooling tuition and other related

education costs.

1/1/2025: Individuals are now able to enter into Health Savings Accounts with bronze-

level and catastrophic health plans offered in the individual market on a state insurance

exchange. Previously that was only offered for specific HSA-eligible plans for which a

higher premium was charged, and had limited or no availability to individuals outside of

business.

1/1/2026: Individuals are able to use funds from their Health Savings Accounts to

pay for gym memberships and other fitness programs up to $500 annually {$1000

for families}.

1/1/2025: OBBBA creates an IRA-type savings plan for newborns 1/1/2025-

12/31/2029 started with a tax-free $1,000 federal contribution. Families may deposit up

to $5,000 annually with earnings remaining untaxed until withdrawal (minimum

withdrawal age is 18)