Market Update: New Tax Provisions of H.R.1
On July 4, President Trump signed into law a new tax and spending package. At nearly 900 pages, the bill contains… well, a lot. In this article, I focus solely on the tax provisions and how they might affect you. Please keep in mind that I am not a CPA, this legislation is very new, and some of the more complicated items like “no tax on tips and car loans” come with various conditions and guardrails that will take IRA guidance to interpret. This information is correct to the best of my knowledge, with sources cited below.
If you have specific questions about planning for 2025, please contact your advisor.
What has changed?
The new law has plenty of new provisions and plenty of things that we thought might change due to the 2026 sunset, but didn’t.
Most notable are some new deductions, for example, expanded SALT, enhanced senior deduction, and an auto loan interest deduction, all of which include income phaseouts. There were also some subtle changes to the lower tax brackets, itemized deduction calculations, and some of the more complicated areas like AMT and the QBI deduction.
What details might affect me?
No change in income tax rates
The 2017 Tax Cuts and Jobs Act (TCJA) lowered five of the seven personal income tax brackets, including the top rate, which dropped from 39.6% to 37%. Those rates were set to sunset at the end of 2025, but this measure makes them permanent.
The new law also permanently establishes the larger standard deductions included in the 2017 legislation and raises the standard deductions for 2025.
Bigger deduction for seniors
The law doesn’t eliminate taxes on Social Security, but it adds a new tax deduction for seniors for tax years 2025-2028. This “bonus” deduction, for taxpayers aged 65 and over, could be up to $6,000 per taxpayer. Taxpayers can take this deduction whether they itemize or not.
Who qualifies? Individuals with incomes of up to $75,000 ($150,000 for married filing jointly) can subtract the full $6,000 ($12,000 MFJ) from their taxable income. The deduction phases out at higher income levels and cannot be claimed for individuals earning more than $175,000 ($250,000 for MFJ).
SALT deduction
The 2017 tax law introduced a $10,000 cap on the amount of state and local tax (SALT) payments people could deduct from their federal taxes. The new law temporarily increases the threshold to $40,000 for taxpayers with a modified adjusted gross income below $500,000. The SALT deduction will increase by 1% per year until 2030 when it will revert to $10,000.
Deduction for car loans
The new law allows borrowers to deduct up to $10,000 in car loan interest payments from 2025 – 2028 with a couple of caveats. First, the vehicle must have undergone final assembly at a US factory. Second, eligibility is tied to income. The deduction tapers off for taxpayers earning more than $100,000 ($200,000 for MFJ).
Expansion of 529 Accounts to Cover Professional Certification
Beneficiaries will be able to use 529 education savings accounts to cover fees and expenses related to obtaining or maintaining “recognized post-secondary credentials.”
Sources: AARP, Associated Press, CFP Board, The Tax Foundation, Wall Street Journal