Tax Deductions 2025-2026: What’s New or Changed
See how new or changed tax deductions can save you money on your 2025 federal income tax return, which you’ll file in 2026. The “One Big Beautiful Bill” added four new deductions, while several other deductions are larger or more accessible than they were for the 2024 tax year. Don’t miss out on any new tax-saving opportunities.
The One Big Beautiful Bill that passed includes permanently extending tax cuts from the Tax Cuts and Jobs Act, including increasing the cap on the amount of state and local or sales tax and property tax (SALT) that you can deduct, makes cuts to energy credits passed under the Inflation Reduction Act, makes changes to taxes on tips and overtime for certain workers, reforms Medicaid, increases the Debt ceiling, and reforms Pell Grants and student loans. Updates to this article are in process. Check our One Big Beautiful Bill article for more information.
Key Takeaways
- The “One Big Beautiful Bill” added new tax deductions for tip income, overtime pay, car loan interest payments, and seniors age 65 and older.
- The Standard Deduction amounts for 2025 were increased approximately 7.9% from 2024.
- The SALT deduction cap jumped from $10,000 to $40,000 for 2025, but the cap can be reduced back down to $10,000 if your income is too high.
- The maximum deduction for 2025 tax year contributions to a traditional IRA is $7,500 for most people, but it’s $8,600 for people who are at least 50 years old.
Are there any new tax deductions for 2025?
There are four new tax deductions for the 2025 tax year:
- Tip Deduction (“No Tax on Tips”)
- Overtime Deduction (“No Tax on Overtime”)
- Car Loan Interest Deduction (“No Tax on Car Loan Interest”)
- Senior Deduction (“Enhanced Deduction for Seniors”)
All of these were created by the “One Big Beautiful Bill,” which was enacted in July 2025, and are claimed on Schedule 1-A. However, they only apply for the 2025 to 2028 tax years.
Let’s take a quick look at these new tax breaks.
First, up – the tip deduction. If you receive taxable tips at work, you may be able to deduct up to $25,000 of those tips on your tax return. However, not everyone who receives tips qualifies for this new tax break. For instance, you must be in a job that “customarily and regularly” received tips before 2025 (the Treasury Department has a list of these jobs on its website).
As the name suggests, the overtime deduction is for workers who earn overtime compensation during the year. Eligible people can deduct up to $12,500 of overtime pay on their return (up to $25,000 for married couples filing a joint return).
With the car loan interest deduction, you may be able to write off up to $10,000 of interest paid during the year on a loan taken out after 2024 to buy a new car, van, truck, or motorcycle. The loan and vehicle you purchase must satisfy certain requirements, though. For instance, the vehicle’s final assembly point must be in the U.S.
Finally, taxpayers who are at least 65 years old can claim a deduction of up to $6,000 on their tax return. If you’re married and your spouse is also 65 or older, the maximum deduction is $12,000 – but married couples must file a joint return to claim the deduction.
All four deductions are gradually phased out if your income is above a certain amount. But, if you qualify, they’re available whether you claim itemized deductions or the Standard Deduction.
Check out the IRS “fact sheet” on these new deductions for more information.
TurboTax Tip:
"You must have a Social Security number valid for employment on the day you file your return to be eligible for the tip deduction, overtime deduction, and senior deduction." – Victoria Adams, EA, Aberdeen, WA
Which personal income tax deductions changed for 2025?
For individual taxpayers, several common federal income tax deductions were modified for the 2025 tax year. This includes changes to the:
- Standard Deduction
- State and Local Taxes (SALT) Deduction
- IRA Deduction
- HSA Deduction
- Self-Employed SEP, SIMPLE, and Qualified Plans Deduction
- Student Loan Interest Deduction
- Long-Term Care Insurance Deduction
- Deduction for Business Expenses of Reservists, Performing Artists, and Fee-Basis Government Officials
The “One Big Beautiful Bill” amended the Standard Deduction and SALT deduction. Other changes to 2025 personal income tax deductions were triggered by the IRS’s annual adjustments to account for inflation. These inflation adjustments are good for taxpayers, because they increase the value of affected tax breaks and/or make them available to more people. And since inflation has been relatively high lately, the increases for the 2025 tax year are larger than normal.
Let’s take a look at the changes to common tax deductions you may be able to claim on your 2025 personal income tax return. While the information below only covers non-business deductions, it’s important to point out that business owners may also be able to claim various business-related deductions on Schedule C and the qualified business income deduction.
How did the Standard Deduction change for 2025?
For the 2025 tax year, the basic Standard Deduction received its annual increase to account for inflation, and an additional 5% boost from the “One Big Beautiful Bill.” As a result, the basic Standard Deduction amounts increased by about 7.9% from 2024 to 2025.
For the 2025 tax year, the basic Standard Deduction is $15,750 for Single filers and married taxpayers who file separate returns (up from $14,600 for 2024), while married couples filing jointly and qualifying surviving spouses can deduct an amount twice that size at $31,500 (up from $29,200 for 2024). Head of Household filers can claim a 2025 Standard Deduction of $23,625 (up from $21,900 for 2024).
|
Filing Status |
2024 Standard Deduction |
2025 Standard Deduction |
|
Single |
$14,600 |
$15,750 |
|
Married Filing Jointly |
$29,200 |
$31,500 |
|
Married Filing Separately |
$14,600 |
$15,750 |
|
Head of Household |
$21,900 |
$23,625 |
|
Surviving Spouse |
$29,200 |
$31,500 |
The additional Standard Deduction for people who are at least 65 years old or blind also increased for the 2025 tax year. It’s equal to $1,600 for joint filers, married taxpayers filing separately, and surviving spouses (up from $1,550 for 2024); and $2,000 for Single taxpayers and Head of Household filers (up from $1,950 for 2024). If you’re both 65 or older and blind, the additional Standard Deduction amount is doubled.
There are also limits on the Standard Deduction if you can be claimed as a dependent on someone else’s tax return. For 2025, it can’t exceed the greater of $1,350 (up from $1,300 for 2025), or $450 (same amount for 2024) plus your earned income (up to the Standard Deduction limit).
How did the SALT deduction change for 2025?
The “One Big Beautiful Bill” increased the cap on the itemized deduction for state and local taxes (SALT) from $10,000 to $40,000 for the 2025 tax year ($20,000 for married people filing separate returns).
However, new phase-out rules were also added to the SALT deduction cap. If your modified adjusted gross income is over $500,000 ($250,000 for married couples filing separately), the cap is gradually reduced by 30% of every dollar over the threshold until it reaches $10,000 ($5,000 for married couples filing separately).
How did the IRA deduction change for 2025?
The IRA deduction phase-out ranges for the 2025 tax year are adjusted to account for inflation. The deduction, which is available for contributions to a traditional IRA, is gradually reduced (potentially to $0) if you or your spouse are covered by an employer-sponsored retirement plan.
If you’re covered by a retirement plan at work, the 2025 deduction is phased out as follows:
- For Single and Head of Household filers, the deduction is reduced if your modified adjusted gross income (MAGI) is more than $79,000 (more than $77,000 for 2024) and is completely eliminated if your MAGI is $89,000 or more ($87,000 or more for 2024).
- For Married Filing Jointly and Qualifying Surviving Spouses, the deduction is reduced if your MAGI is more than $126,000 (more than $123,000 for 2024) and is completely eliminated if your MAGI is $146,000 or more ($143,000 or more for 2024).
- For married taxpayers filing a separate return, the deduction is reduced if your MAGI is less than $10,000 and is completely eliminated if your MAGI is $10,000 or more (the $10,000 threshold was the same for 2024).
If you’re not covered by a workplace retirement plan but your spouse is, and you’re filing a joint return, the 2025 IRA deduction is reduced if your MAGI is more than $236,000 (more than $230,000 for 2024) and is completely eliminated if your MAGI is $246,000 or more ($240,000 or more for 2024).
You can’t deduct contributions to a Roth IRA.
How did the HSA deduction change for 2025?
The maximum deduction for contributions to health savings accounts (HSAs) is higher for the 2025 tax year, since contribution limits for HSAs rose from 2024 to 2025. But don’t forget that you must be covered under a qualifying high-deductible health plan to contribute to an HSA.
For 2025, the HSA deduction generally can’t exceed $4,300 if you have self-only coverage or $8,550 if you have family coverage (up from $4,150 and $8,300, respectively, for 2024). But if you were at least 55 years old at the end of 2025, you can deduct an additional $1,000.
How did the self-employed SEP, SIMPLE, and qualified plans deduction change for 2025?
The maximum tax deduction a self-employed person can claim for contributions to certain retirement plans increased for the 2025 tax year, because the annual contribution limits for those plans were increased from 2024 to 2025.
For Simplified Employee Pension (SEP) IRAs, the maximum deductible amount for 2025 contributions is $70,000 ($69,000 for 2024) or 25% of your first $350,000 of compensation ($345,000 for 2024), whichever is lower.
The basic 2025 deduction limit for contributions by a self-employed person to a Savings Incentive Match Plan for Employees (SIMPLE) IRA is $16,500 ($16,000 for 2024). However, you can deduct an additional $3,500 if you were at least 50 years old at the end of 2025 (also $3,500 for 2024). Plus, you can deduct either 2% of the first $350,000 of your self-employment compensation ($345,000 for 2024) or an “employer match” of up to 3% of your compensation.
A self-employed person with a 401(k) plan (including a solo 401(k)) can deduct up to $23,500 in contributions to their own 401(k) account for the 2025 tax year if they’re under 50 years of age ($23,000 for 2024). That amount jumps to $31,000 if you were either 50 to 59 years old, or at least 64 years old, at the end of the tax year ($30,500 for 2024). If you were 60 to 63 years old at the end of 2025, the limit climbs to $34,750 (this additional level is new for 2025). You can also deduct contributions of up to 25% of your net earnings from self-employment. However, for the 2025 tax year, your deduction for all contributions, other than catch-up contributions, can’t exceed $70,000 ($69,000 for 2024).
How did the student loan interest deduction change for 2025?
For 2025, the phase-out ranges for the student loan interest deduction were adjusted to account for inflation.
The deduction is worth up to $2,500 per year. But your deduction will be gradually reduced – potentially to $0 – if your modified adjusted gross income (MAGI) exceeds a certain amount that’s based on your filing status.
For the 2025 tax year, the deduction is phased out as follows:
- For Single filers, Head of Household filers, and Qualifying Surviving Spouses, the deduction is reduced if your MAGI is more than $85,000 (more than $80,000 for 2024) and is completely eliminated if your MAGI is $100,000 or more ($95,000 or more for 2024).
- For Married Filing Jointly filers, the deduction is reduced if your MAGI is more than $170,000 (more than $165,000 for 2024) and is completely eliminated if your MAGI is $200,000 or more ($195,000 or more for 2024).
Married taxpayers filing separate returns can’t claim the student loan interest deduction.
How did the deduction for long-term care insurance premiums change for 2025?
For the 2025 tax year, the limits on deductions for long-term care insurance premiums – whether as a medical expense deduction or a self-employed person’s deduction for health insurance – were increased to:
- $480 if you’re 40 or younger ($470 for 2024)
- $900 if you’re 41 to 50 ($880 for 2024)
- $1,800 if you’re 51 to 60 ($1,760 for 2024)
- $4,810 if you’re 61 to 70 ($4,710 for 2024)
- $6,020 if your 71 or older ($5,880 for 2024)
Your age for this purpose is determined on the last day of the tax year. Also, premiums deducted as a medical expense are only deductible to the extent they exceed 7.5% of your adjusted gross income.
How did the deduction for business expenses of reservists, performing artists, and fee-basis government officials change for 2025?
The standard mileage rate used by armed forces reservists, performing artists, and fee-basis government officials to calculate their deduction for the unreimbursed business use of a personal vehicle is increased from 67 to 70 cents per mile for the 2025 tax year.
These taxpayers can use either the standard mileage rate or their actual expenses (including parking fees, tolls, and the like) to calculate the deduction for the business use of their vehicle. They may also deduct certain other unreimbursed employee expenses.
Which tax deductions didn’t change for 2025?
Tax deductions for the following expenses and payments didn’t change from 2024 to 2025:
- alimony
- amortizable bond premiums
- Archer Medical Savings Account (MSA) contributions
- attorney fees and court costs for lawsuits involving certain discrimination claims or IRS whistleblower awards
- chaplain contributions to a 403(b) retirement plan
- charitable contributions
- estate “excess deductions” reported to a beneficiary on Schedule K-1 (Form 1041)
- estate tax (federal) on income connected to a person who died
- foreign housing deduction
- gambling losses (only to the extent of gambling winnings)
- impairment-related work expenses of a disabled person
- interest on borrowed money that’s allocable to property held for investment
- jury duty pay given to your employer
- losses from a contingent payment or inflation-indexed debt instrument
- losses from natural disasters or theft
- mortgage interest and points
- Olympic and Paralympic medals or prize money
- penalties on the early withdrawal of certain savings
- pension contributions under Section 501(c)(18) of the tax code (i.e., to a pension created before June 25, 1959, funded only by employee contributions)
- reforestation amortization and expenses
- renting personal property if you’re not in the business of renting the property
- repayment of amounts under a claim of right over $3,000
- self-employment taxes
- teacher and other educator expenses for classroom materials
- unemployment benefit repayments
- unrecovered investments in a pension
Frequently Asked Questions About Tax Deductions
Q1: What are tax deductions and how do they work?
Tax deductions cut your tax bill by reducing the amount of income that’s subject to tax.
After adding up your total income on your tax return (with certain exceptions for tax-exempt income), you subtract any deductions from that amount to calculate your taxable income. For most people, the tax owed on your taxable income is then determined by using either the tax tables or tax rate schedules (you can subtract tax credits and tax payments already made from your tax liability later on your return).
So, the more deductions you can claim, the lower your taxable income will typically be. And by lowering your taxable income, you’ll end up with a smaller tax payment or a larger tax refund.
Q2: What types of tax deductions are available?
There are two basic types of tax deductions – “above-the-line” deductions and “below-the-line” deductions.
Above-the-line deductions are reported on Form 1040 above the line for adjusted gross income (AGI). As a result, they’re subtracted from your gross income to arrive at AGI, which means they actually reduce your AGI. Since the eligibility for or amount of several other tax breaks are based on your AGI, above-the-line deductions can have a ripple effect and trigger more tax savings elsewhere on your tax return.
Some of the more popular above-the-line deductions are for:
- individual retirement account (IRA) contributions
- health savings account (HSA) contributions
- student loan interest payment
- educator expenses
- self-employed health insurance premiums
As you may have guessed, below-the-line deductions are reported on your tax return below the line for AGI. That means they don’t reduce your AGI. But they do reduce your taxable income, so they’re still valuable tax breaks.
The Standard Deduction is the most common below-the-line deduction. Itemized deductions that you claim on Schedule A are also below-the-line deductions. They include deductions for:
- medical and dental expenses
- state and local taxes
- home mortgage interest payments
- charitable donations
- losses from natural disasters or theft
Unfortunately, you have to pick between the Standard Deduction and itemized deductions – you can’t claim both. But you can generally pick whichever one is higher and saves you the most money. (You can claim above-the-line deductions whether you take the Standard Deduction or itemize.)
Other below-the-line deductions include write-offs for:
- tip income
- overtime pay
- car loan interest payments
- taxpayers who are at least 65 years old
- qualified business income (only for certain business owners)
Q3: What’s the difference between a tax deduction and a tax credit?
Both tax deductions and tax credits help lower your income tax bill, but they do so in different ways. And while tax deductions are nice, tax credits are generally better.
Tax deductions lower your taxable income, which ultimately reduces the tax you owe for the year. But, at best, your actual savings are only a percentage of the deduction amount and depend on your tax bracket. For instance, if you’re in the 22% tax bracket and claim a $1,000 IRA deduction, your tax liability is only reduced by $220 ($1,000 x .22 = $220).
On the other hand, you can subtract income tax credits from the tax you owe on a dollar-for-dollar basis. So, if you have a $1,000 tax credit, you can reduce your tax bill by up to $1,000.
There are also two general types of credits: refundable and nonrefundable tax credits. If the credit is “refundable,” you will get a tax refund if the credit amount is greater than the tax you owe before applying the credit. For example, if your pre-credit tax liability is $2,000 and you qualify for a $2,500 refundable tax credit, you’ll get a $500 refund.
If the credit is “nonrefundable,” the credit will only reduce the tax you owe to $0. For instance, if your pre-credit tax liability is $2,000 and you qualify for a $2,500 nonrefundable tax credit, you won’t owe any tax, but you won’t get the rest of the credit as a refund, either ($500 of the credit is essentially lost).
Q4: What’s the difference between a tax deduction and a tax exclusion?
An exclusion is like a tax deduction, since they both reduce the amount of income that’s taxed. But while you subtract a tax deduction from income that’s reported on your tax return, you don’t even need to report income that’s granted an exclusion.
Since income that’s excluded generally isn’t reported on your return, it reduces both your AGI and taxable income.
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