Each tax year, the Internal Revenue Service (IRS) reviews and updates various deductions and credits on Form 1040. For the 2025 tax year, many of these changes reflect inflation adjustments, while others remain unchanged due to statutory limitations or pending legislative reform. Understanding what’s new and what stayed the same is essential for maximizing your refund or reducing the amount you owe. In this detailed guide, we break down the most important deductions and credits on Form 1040 and how they affect your 2025 return.
Understanding Form 1040: A Brief Overview
Form 1040 is the U.S. individual income tax return used by most taxpayers to report annual income, claim deductions and tax credits, and calculate the amount of tax owed or refund due. It incorporates several schedules that detail different sources of income, itemized deductions, and credits. Each year, updates are made to Form 1040 based on changes in tax law and inflationary adjustments.
Standard Deduction: What’s New for 2025
One of the most significant line items on Form 1040 is the standard deduction, which reduces your taxable income without needing to itemize expenses. For 2025, the standard deduction has increased due to inflation indexing:
- Single: $14,600 (up from $13,850 in 2024)
- Married Filing Jointly: $29,200 (up from $27,700)
- Head of Household: $21,900 (up from $20,800)
- Married Filing Separately: $14,600
Additionally, those aged 65 or older or who are blind receive an extra deduction:
- Single or Head of Household: $1,950 extra
- Married (each 65+ or blind): $1,550 per person
What Stayed the Same: You still cannot claim the standard deduction if you are married filing separately and your spouse itemizes deductions.
Itemized Deductions: Largely Unchanged
Itemizing may still be beneficial for taxpayers with high medical expenses, mortgage interest, or state and local tax (SALT) payments. However, most limits remain unchanged unless indexed:
1. Medical Expenses
You can deduct unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI). This threshold has remained consistent.
2. State and Local Taxes (SALT)
The deduction for state and local income, sales, and property taxes is still capped at $10,000 ($5,000 if married filing separately).
3. Mortgage Interest
Interest on mortgage debt up to $750,000 (for loans taken out after 2017) remains deductible. Older loans may qualify for up to $1 million in deductible interest.
4. Charitable Contributions
You can deduct up to 60% of AGI for cash donations to qualified charities. The temporary suspension of the 60% AGI limit for 100% deduction expired at the end of 2021 and was not reinstated in 2025.
Above-the-Line Deductions: What’s New?
Above-the-line deductions appear on Schedule 1 and reduce your AGI. Here are a few changes for 2025:
1. Educator Expense Deduction
New for 2025: The deduction limit for classroom supplies increased from $300 to $400 per eligible educator.
2. Student Loan Interest Deduction
The $2,500 cap remains the same. However, the phase-out thresholds have been increased:
- Single: Phase-out starts at $80,000
- Married Filing Jointly: Phase-out starts at $165,000
3. Health Savings Account (HSA) Deduction
- Self-only coverage: Up to $4,150
- Family coverage: Up to $8,300
- Catch-up (55+): Additional $1,000
What Stayed the Same: Contributions to traditional IRAs remain deductible up to $6,500 ($7,500 if age 50+), with income phase-out rules still applying based on coverage by workplace retirement plans.
Tax Credits: Updated and Static Elements
Tax credits reduce your tax liability dollar-for-dollar and are either refundable or nonrefundable. Let’s examine what changed and what didn’t for 2025.
1. Child Tax Credit (CTC)
What Stayed the Same: The maximum CTC remains $2,000 per qualifying child under age 17. The refundable portion (Additional Child Tax Credit) remains at $1,600 unless legislative updates are passed.
Phase-out threshold: Begins at $200,000 for single and $400,000 for joint filers.
2. Earned Income Tax Credit (EITC)
What’s New: Adjusted for inflation. The maximum credits for 2025 are:
- No children: Up to $650
- One child: Up to $4,200
- Two children: Up to $7,000
- Three or more children: Up to $7,830
3. Saver’s Credit
This nonrefundable credit rewards low- and moderate-income taxpayers for contributing to retirement accounts. The income limits for eligibility have been increased for 2025:
- Single: Up to $38,250
- Head of Household: Up to $57,375
- Married Filing Jointly: Up to $76,500
4. American Opportunity Credit (AOTC) and Lifetime Learning Credit (LLC)
Both education credits remain unchanged:
- AOTC: Up to $2,500 per student (partially refundable)
- LLC: Up to $2,000 per return (nonrefundable)
Income phase-outs for both credits are indexed annually. For 2025, phase-out for AOTC begins at:
- Single: $95,000
- Married Filing Jointly: $190,000
5. Clean Energy and Vehicle Credits
New for 2025: Expanded eligibility for electric vehicle (EV) tax credits under the Inflation Reduction Act continues to apply. EVs must meet domestic manufacturing and price thresholds. Credits are available up to $7,500 for qualified vehicles and are now transferable to dealers at point-of-sale.
Refundable vs. Nonrefundable Credits: A Quick Reminder
Refundable credits can result in a refund even if you owe no tax (e.g., EITC, Additional CTC).
Nonrefundable credits can only reduce your tax liability to zero (e.g., Saver’s Credit, LLC).
Other 2025 Notables Affecting Form 1040
- Flexible Spending Account (FSA) Limit: Increased to $3,200 for health care FSAs.
- Commuter Benefits: Monthly limit increased to $325 for parking or transit expenses.
- Adoption Credit: Maximum of $16,810 with phase-outs beginning at $252,150.
Tips for Maximizing Your 2025 Deductions and Credits
- Track deductible expenses throughout the year using software or an app.
- Review AGI thresholds for phase-outs to time deductions or contributions accordingly.
- Use tax software that automatically updates based on the latest IRS limits.
- If your income dropped in 2025, recheck eligibility for credits like EITC or Saver’s Credit.
- File early and accurately to avoid refund delays.
Conclusion
The 2025 updates to Form 1040 reflect a mix of inflation-indexed increases and continued stability in many core deductions and credits. Whether you take the standard deduction or itemize, and whether you’re eligible for refundable or nonrefundable credits, staying informed is the key to an optimal tax outcome.
By understanding what’s new and what has remained unchanged, you can file with confidence and potentially save thousands of dollars. Use this guide to review your eligibility, prepare your documents, and ensure you’re claiming every dollar you’re entitled to when tax time arrives.
