The One Big Beautiful Bill Act (OBBBA) introduces significant changes to both itemized and standard deductions beginning with the 2025 tax year.
These updates will affect a wide range of taxpayers, especially high-income earners, seniors and those with large deductions related to state and local taxes, mortgage interest, and vehicle purchases. Understanding the timeline and scope of these changes is key to navigating the evolving tax landscape.
Below is a summary of the most impactful changes, broken down by tax year.
Changes effective in tax year 2025
Increased standard deduction
Starting in 2025, the standard deduction will increase permanently (subject to an annual inflation-based adjustment). The new thresholds are:
- $15,750 for single filers
- $31,500 for married filing jointly
- $23,625 for head of household
Additionally, what was once a temporary suspension of personal exemptions (initially set to expire at the end of 2025) is now permanent, further simplifying the tax filing process, albeit at a potential cost to some households.
New above-the-line deductions
Two new deductions will be available for tax years from 2025 through 2028:
Senior deduction: Taxpayers aged 65 or older can deduct up to $6,000 above the line. However, income phaseouts apply ($150,000 for joint filers and $75,000 for single filers).
Vehicle loan interest deduction: Up to $10,000 of interest paid on qualifying new personal-use vehicles can be deducted, provided the vehicle is assembled in the U.S. This deduction excludes campers and motor homes and is subject to income phaseouts of $200,000 for joint filers and $100,000 for single filers.
Other notable changes include:
- The limitation on mortgage interest deductions for loans up to $750,000 of principal is now permanent.
- The state and local tax (SALT) deduction cap will rise to $40,000 through 2029. The increased limitation (from $10,000 to $40,000) phases out by 30% of the excess of modified adjusted gross income over $500,000. The phaseout cannot reduce the deduction below $10,000.
- Taxpayers may only deduct up to 90% of actual gambling losses, and only to the extent of gambling income.
- The suspension of miscellaneous itemized deductions has now been made permanent.
Changes effective in tax year 2026
Looking ahead to 2026, additional deduction-related provisions under the OBBBA are set to take effect. These changes primarily target high-income taxpayers and charitable contributions.
Itemized deduction limit for top earners: Taxpayers in the highest marginal tax bracket will be subject to a 65% limitation on itemized deductions: only $0.35 of each $1.00 can be deducted.
Charitable contributions for non-itemizers: Even if you don’t itemize, you’ll be able to deduct charitable contributions up to $1,000 for individuals and $2,000 for joint filers.
Charitable deduction floor: Charitable contributions will be subject to a new 0.5% floor of adjusted gross income. Only the amount above that floor will be deductible.
Key takeaways for tax planning
The OBBBA introduces a mix of taxpayer-friendly provisions (such as higher standard deductions and expanded vehicle deductions) alongside new limitations on itemized deductions and charitable giving. These changes make proactive tax planning, particularly for higher-income individuals, more important than ever.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
