Congress just passed the Big Beautiful Bill, one of the most sweeping tax overhauls in years. From deductions and credits to business incentives and green tax breaks, nearly every part of the tax code is getting a shake-up.
This will be a two-part post. The second part will dive deeper into the impact of the Big Beautiful Bill on Businesses.
Breaking Down the “Big Beautiful Bill”: What Taxpayers Need to Know About the 2025 Changes
In July 2025, Congress passed what’s been nicknamed the Big Beautiful Bill—a sweeping tax package with wide-ranging implications for individuals and business owners alike. This legislation touches nearly every corner of the tax code, from charitable giving and standard deductions to business incentives and green energy credits.
If you’re wondering how this affects you, here’s a clear breakdown of the most important changes—and why strategic planning now could save you thousands later.
Important Note on Effective Dates
Not all provisions start at the same time. Some changes take effect as early as January 1, 2025, while others have effective dates of July 4, 2025, September 23, 2025, or even later in 2026 and beyond. Always confirm the effective date of any rule before making tax-related decisions.
Standard Deduction and Personal Exemptions
-
The standard deduction is now permanent and indexed for inflation.
-
2025:
-
$15,750 (Single)
-
$31,500 (Married Filing Jointly)
-
-
-
Personal exemptions, which were previously set to return in 2026, are permanently eliminated.
Qualified Business Income (QBI) Deduction
-
The 20% QBI deduction is made permanent.
-
The phase-in range has been expanded, so more individuals can qualify.
-
A $400 minimum deduction is added starting in 2026 for those who phase out entirely but have:
-
At least $1,000 in qualified business income,
-
Material participation in the business.
-
-
Both the $400 minimum and $1,000 income threshold are indexed for inflation.
Qualified Residence Interest & Mortgage Insurance
-
The mortgage interest cap of $750,000 is now permanent.
-
Interest on mortgages above $750,000 will be partially nondeductible.
-
Mortgage insurance premiums now count as qualified residence interest—but are phased out as income increases.
Miscellaneous Itemized Deductions (2% Floor)
-
Permanently disallowed.
-
This includes unreimbursed employee expenses, tax prep fees, and other deductions previously claimed under the 2% AGI threshold.
Gambling Losses
-
Professional gamblers now face limits on the deductibility of gambling losses.
-
Exact mechanics vary—check with your advisor if this applies to you.
Child Tax Credit & Other Dependent Credit
-
Child Tax Credit increases to $2,200 (with $1,400 refundable).
-
Phase-out thresholds:
-
$200,000 (Single)
-
$400,000 (Married Filing Jointly)
-
-
Other Dependent Credit of $500 is now permanent, but requires a Social Security Number—ITIN holders no longer qualify.
-
All changes apply beginning in 2025.
SALT Deduction (State and Local Taxes)
-
SALT cap increased to $40,000 starting in 2025.
-
Not indexed for inflation, but a preset increase schedule applies:
-
2026: $40,400
-
2027: $40,804, etc.
-
-
Phase-out begins at $500,000 in modified AGI:
-
Deduction is reduced by 30% of the income over $500,000.
-
Cannot drop below $10,000 minimum.
-
For married filing separately: floor is $5,000.
-
Tip Income Deduction (“No Tax on Tips”)
-
Deduction up to $25,000 per year.
-
Must meet three criteria:
-
Tips are voluntarily paid (not auto-gratuity).
-
Earned in industries customary to tipping (e.g., servers, barbers, spa workers).
-
Reported via W-2, 1099, 1099-K, or Form 4137.
-
-
Phases out over:
-
$150,000 (Single)
-
$300,000 (Married Filing Jointly)
-
-
Does NOT reduce AGI, only taxable income.
-
Only valid with a Social Security Number—no ITIN eligibility.
-
2025–2028 effective period.
Overtime Deduction
-
Deduction up to:
-
$12,500 (Single)
-
$25,000 (Joint)
-
-
Only applies to overtime premium pay (e.g., $5/hr above base).
-
Phased out at:
-
$150,000 (Single)
-
$300,000 (Joint)
-
-
Reduces taxable income, not AGI.
-
2025–2028 window.
Senior Deduction
-
New deduction of $6,000 per person aged 65+.
-
$12,000 total if both spouses qualify.
-
-
Phased out at:
-
$75,000 (Single)
-
$150,000 (Joint)
-
-
Not tied to receiving Social Security benefits.
-
Must have a Social Security number.
-
2025–2028 effective years.
-
Does not replace the higher standard deduction for seniors—it’s an additional benefit.
Car Loan Interest Deduction
-
Deduct up to $10,000 per person ($20,000 Joint) per year.
-
Criteria:
-
Personal use vehicle (not business or salvage).
-
Assembled in the U.S.
-
Must pay at least $600 in interest to qualify.
-
Income thresholds:
-
<$100,000 (Single)
-
<$200,000 (Joint)
-
-
-
2025–2028 deduction.
-
Does not reduce AGI, only taxable income.
529 Plan Enhancements
-
Effective July 4, 2025, 529 plans can now be used for:
-
Elementary & secondary education
-
Online learning, tutoring, therapy
-
Books, curricula, educational materials
-
Testing fees, educational therapy for disabilities
-
-
Distribution limit rises from $10,000 → $20,000 (starting in 2026) for elementary or secondary public, private, or religious school expenses.
-
Can now cover:
-
Professional licenses
-
Credential programs (CPA, CFP, teacher certification, etc.)
-
Green Tax Credits Ending
-
Clean vehicle and energy efficiency credits are phasing out:
-
Some expire Sept 30, 2025
-
Others sunset in 2026
-
-
Includes:
-
EV tax credits
-
Solar incentives
-
Home energy upgrades
-
-
Act fast if you plan to use them.
Trump Accounts (New Tax-Deferred Savings)
-
Available for U.S. citizens born between Jan 1, 2025 and Dec 31, 2028.
-
Modeled after IRAs, but for minors under age 18.
-
Treasury contributes $1,000 automatically at birth.
-
Annual contribution cap: $5,000 per child.
-
Contributions can come from parents, employers, nonprofits, or government.
-
-
Investment grows tax-deferred.
-
Account opens in 2026, but contributions begin July 4, 2026.
Premium Tax Credit Adjustments
-
Begins phasing in by 2026, with full changes by 2027.
-
Stricter eligibility rules mean fewer individuals will qualify.
-
Those earning under $120,000 and using healthcare.gov may lose subsidies and face higher premiums—even if income remains unchanged.
-
Affects applications starting 2026 and 2027.
Charitable Contributions
-
Standard deduction users can now deduct:
-
$1,000 (Single)
-
$2,000 (Married Filing Jointly) in cash donations
-
Starts in 2026.
-
-
Itemizers face a new 0.5% AGI floor—you must give more than 0.5% of income for any deduction to apply.
-
C corporations face a similar floor:
-
Minimum: 1% of taxable income
-
Max: 10% deduction cap
-
Qualified Opportunity Zones (QOZs)
-
The program was made permanent, offering a powerful tool to defer, reduce, and eliminate capital gains tax.
-
Strategy:
-
Sell an appreciated asset (e.g., real estate, stock).
-
Reinvest the gain into a Qualified Opportunity Fund (QOF) within 180 days.
-
-
Tax Benefits:
-
10% basis increase after 5 years.
-
30% increase if invested in a rural QOZ fund.
-
After 10 years: You can step up in basis to FMV, eliminating capital gains on fund appreciation.
-
After 30 years: Another step up in basis to current FMV, investment can nearly become tax-free.
-
-
Downside: Money is tied up long-term, so liquidity is limited.
Itemized Deduction Limitations (High Earners)
- We received the SALT increase however for high income earned they will face a new potential reduction in itemized deduction
-
Applies starting in 2026 to those in the top 37% tax bracket.
-
Deduction reduced by 2 ÷ 37 of the excess taxable income above the 37% threshold.
-
Impacts:
-
High-income individuals
-
Real estate sellers in years they have high income
-
Large capital gain earners in years they have high income
-
Child and Dependent Care Credit Enhancements
-
Modest increase for those under:
-
$150,000 (Joint)
-
$75,000 (Single)
-
-
Kicks in starting 2026.
-
Doesn’t change structure—just slightly boosts eligibility. This will not be a drastic change to the dependent care credit
Farmland Installment Sale Treatment
-
Applies to sales or exchanges after July 4, 2025.
-
Automatically treated as an installment sale, even if the buyer pays up front.
-
Spreads taxable gain over equal payments over the course of 4 years (e.g., 4 years at $250K/year instead of $1M all at once).
-
Provides major tax deferral opportunities for landowners and estate planners.
Education Credits: SSN Requirement
-
Starting in 2026, you must have a Social Security Number to claim:
-
American Opportunity Credit (AOTC)
-
Lifetime Learning Credit
-
-
ITIN holders no longer qualify.
What Should Taxpayers Do Now?
- Review the effective dates for each provision—some benefits start in 2025, others phase in or out through 2028.
- Pay attention to income thresholds—many deductions phase out for higher earners.
- Act early on expiring credits—green incentives and the tip/overtime deductions expire after 2028.
- Consider timing for purchases and donations—cars, charitable giving, and energy upgrades may yield different results depending on when they’re made.
Final Thoughts
The Big Beautiful Bill is one of the most comprehensive tax changes in recent years. It locks in some benefits permanently, adds new deductions for a limited time, and sets expiration dates for others.
Early and strategic planning in 2025 will be essential for maximizing opportunities and avoiding missed savings.
At Thompson Tax Group LLC, we help individuals, real estate investors, and small business owners understand and prepare for tax changes like these.
Contact us today to create your 2025 tax strategy.
.png){kind=link}