Senior deduction
Under the act, individuals who are age 65 and older may claim a deduction of $6,000 in 2025 through 2028. The $6,000 amount is per person — so married couples can claim a $12,000 deduction if they both qualify. However, the deduction phases out for taxpayers with modified adjusted gross income (MAGI) over $75,000 ($150,000 for joint filers). To qualify, a taxpayer must turn 65 on or before the last day of the tax year. This new deduction is in addition to the current additional standard deduction for seniors of $1,600, or $2,000 if the individual is unmarried and not a surviving spouse.
Because the extra senior deduction was created as a substitute for a “no tax on Social Security” promise that could not be adopted under the budget reconciliation rules that governed the passage of the act, clients may think they have to be receiving Social Security benefits to take the deduction, but they do not. Individuals age 65 and older can claim the deduction even if they haven’t started taking Social Security. On the other hand, individuals between the ages of 62 and 64 are not eligible for the deduction, even if they have started receiving Social Security benefits.
SALT cap
For 2025, the limit on the federal deduction for state and local taxes (the SALT cap) increases to $40,000 ($20,000 for married taxpayers filing separately) from the previous $10,000. The amount of the deduction available to a taxpayer is reduced by 30% of the amount the taxpayer’s MAGI exceeds $500,000 ($250,000 for married taxpayers filing separately), but the phaseout stops when the deduction reaches $10,000 ($5,000 for married taxpayers filing separately). The act did not limit the various workarounds that states have enacted and taxpayers are currently using to avoid the SALT cap.
Car loan interest
The act allows individuals to deduct up to $10,000 in interest paid on a loan used to purchase a qualified vehicle, but various restrictions embedded in the provision may prove a trap for the unwary client (including a phaseout beginning at $100,000 of MAGI ($200,000 for married taxpayers filing jointly)).
To qualify for the deduction, the interest must be paid on a loan that is originated after Dec. 31, 2024; used to purchase a vehicle, the original use of which starts with the taxpayer (used vehicles do not qualify); for a personal-use vehicle (not for business or commercial use); and secured by a first lien on the vehicle. A qualified vehicle is a car, minivan, van, SUV, pickup truck, or motorcycle with a gross vehicle weight rating of less than 14,000 pounds that has undergone final assembly in the United States, among other requirements.
Finally, for many eligible clients, the interest deduction will not outlast the car loan; the provision is set to expire after 2028.
Child tax credit
The nonrefundable child tax credit was permanently increased to $2,200 per child. The additional child tax credit (the refundable child tax credit) of $1,400, adjusted for inflation, was also made permanent. The additional child tax credit after adjustment for inflation is $1,700 for 2025. The credit starts to phase out at MAGI of $200,000 ($400,000 in the case of a joint return). There is also a $500 nonrefundable credit available for each dependent of the taxpayer other than a qualifying child. As formerly, Social Security numbers must be shown on the return for each child for whom the credit is being claimed.
Bonus depreciation
The allowance is increased to 100% for property acquired and placed in service on or after Jan. 19, 2025, as well as for specified plants planted or grafted on or after Jan. 19, 2025. Property placed in service in the first 18 days of 2025 is subject to the former, reduced rate of 40% in effect before the enactment of the act.
Sec. 179
For property placed in service in 2025, the maximum amount a taxpayer may expense under Sec. 179 is $2.5 million, reduced by the amount by which the cost of the qualifying property exceeds $4 million. The $2.5 million and $4 million amounts are adjusted for inflation for tax years beginning after 2025.
R&D
The act allows taxpayers to immediately deduct domestic research or experimental expenditures paid or incurred in tax years beginning after Dec. 31, 2024. However, research or experimental expenditures attributable to research that is conducted outside the United States will continue to be required to be capitalized and amortized over 15 years under Sec. 174.
Small business taxpayers with average annual gross receipts of $31 million or less (other than a tax shelter) can retroactively apply this change to tax years beginning after Dec. 31, 2021. In addition, all taxpayers that made domestic research or experimental expenditures in tax years beginning after Dec. 31, 2021, and before Jan. 1, 2025, can elect to accelerate the remaining unamortized deductions for those expenditures over a one- or two-year period.
Sec. 163(j)
The act changed the definition of adjusted taxable income (ATI) under Sec. 163(j) for tax years beginning after Dec. 31, 2024, permanently excluding depreciation, depletion, and amortization from the computation of ATI. The act also amended the definition of “motor vehicle” to allow interest on floor plan financing for certain trailers and campers to be deductible.
Small business stock
The act modified the Sec. 1202 exclusion for gain from qualified small business stock (QSBS) by providing a tiered gain exclusion for QSBS acquired after July 4, 2025. For QSBS acquired after that date and held for three years, 50% of the gain will be excluded from gross income. If the QSBS is held for four years, the exclusion rises to 75%. If the QSBS is held for five years or more, 100% of the gain will be excluded from income.
Farmland sales
The act created a new Sec. 1062 that allows income tax resulting from the sale of qualified farmland property to a qualified farmer to be paid in four installments. The new section applies to sales or exchanges in tax years beginning after July 4, 2025. (So, for calendar-year taxpayers, it will not apply until 2026.)
