What the July 4, 2025 Tax Law Actually Changed for Individuals (Post-TCJA Era)

1) Quick Overview of What Changed

Who benefits? Most W-2 earners see similar or slightly better results than late-TCJA rules; high-tax-state households may benefit from the larger SALT cap but face income-based phase-downs. Tipped and overtime workers may see noticeable savings for 2025–2028.

2) Rates & Brackets: TCJA Structure Made Permanent

OBBBA permanently extends the TCJA income tax rate structure (with modest bracket adjustments). For individual taxpayers, the familiar seven-bracket layout remains, with annual inflation indexing.

• Action for 2025: Update withholding and revisit safe-harbor estimates based on your 2024 tax liability.
• Planning tip: If you usually itemize, re-run your standard vs. itemized decision under the new SALT and itemized-limit mechanics.

3) SALT Deduction: Temporary Higher Cap & Phase-Out

The SALT cap increases from $10,000 to as high as $40,000 (filing-status rules apply) starting in Tax Year 2025, but it phases down for higher-income taxpayers and never drops below the baseline $10,000 minimum deduction.

4) AMT: Higher Permanent Exemptions

OBBBA permanently increases the AMT exemption and adjusts phase-outs. Fewer middle-income households will owe AMT, but high earners with large ISO exercises, depreciation, or high add-backs should still model exposure.

• Action: If you exercise ISOs or have significant preference items, run an AMT projection before year-end.

5) Standard vs. Itemized Deductions (Revised Limits)

The higher standard deduction introduced by TCJA is now permanent. Itemized deductions continue with revised limitations for upper-income filers (a modernized “Pease-style” approach). The optimal route—standard or itemize—will depend on your SALT, mortgage interest, and charitable strategy.

6) Pass-Through Deduction (Section 199A) Made Permanent

OBBBA makes the Qualified Business Income (QBI) deduction permanent—with tweaks. Wage and property tests, and Specified Service Trades or Businesses (SSTBs) limitations, still apply for higher-income owners.

• Action: Track W-2 wages, unadjusted basis in qualified property (UBIA), and SSTB status to protect 199A.
• Planner’s tip: Evaluate entity choice and reasonable compensation for S-corps under the new steady-state regime.

7) Excess Business Loss (IRC §461(l)) Now Permanent

The Excess Business Loss (EBL) limitation becomes a permanent feature with thresholds indexed for inflation. Disallowed losses convert to NOL carryforwards subject to normal NOL rules.

• Action: Time deductions/bonus depreciation and consider grouping elections to mitigate EBL.

8) Child Tax Credit Enhancements

OBBBA enhances the Child Tax Credit with adjusted amounts, partial refundability, and indexing. Income phase-outs continue to shape eligibility.

9) Estate, Gift & GST: Bigger, Permanent, Indexed

OBBBA increases the lifetime estate, gift, and GST exemptions, makes them permanent, and indexes for inflation. Portability and step-up in basis rules remain critical for married couples and heirs.

• Action: Update wills, trusts, and beneficiary designations; consider Spousal Lifetime Access Trusts (SLATs) in high-net-worth cases.

10) Charitable Giving: New Floor, Higher AGI Limits & Credit

OBBBA introduces a permanent charitable contribution floor and increases AGI percentage limits for certain cash gifts to qualifying charities and funds, plus a targeted nonrefundable credit for eligible cash donations.

11) QSBS (Section 1202) Expansion

OBBBA broadens access to the Qualified Small Business Stock exclusion by adjusting eligible company thresholds and caps. Five-year holding and active business requirements remain foundational.

Early-stage investors: Track original issuance, C-corp status, and basis allocation for partial dispositions.

12) Personal Casualty & Theft Losses

Rules are updated for disaster-related personal casualty losses. Federal disaster declarations and thresholds determine eligibility; coordination with insurance proceeds is essential.

13) Temporary Deductions: Tips, Overtime, Vehicle Loan Interest

No Tax on Tips (2025–2028)

• Deduction type: Above-the-line, up to $25,000 of qualified tips (subject to occupational and reporting rules).
• Income phase-out: Begins for higher MAGI; deduction unavailable above upper thresholds.
• Still taxable for: Payroll (FICA) and often state/local—federal income tax deduction only.
• Records: Keep daily tip logs (cash, charged, pooling).

No Tax on Overtime (2025–2028)

• Deduction type: Above-the-line for qualified overtime pay (definitions/limits apply).
• Eligibility: W-2 employees receiving overtime as defined under wage-and-hour rules; self-employed generally not eligible for this specific deduction.

Qualified Passenger Vehicle Loan Interest (Temporary)

• Who may benefit: Certain commuters and workers using qualifying vehicles that meet statutory criteria.
• Key filter: Vehicle and financing must satisfy definition & U.S. assembly/use requirements, time-boxed to specified years.

14) Year-End 2025 Planning Checklist for U.S. Individuals