This year brings some of the most significant and permanent changes to the federal tax code in decades. Below, we break down the key law changes, explain their background and impact, and provide the new 2025 and 2026 individual tax rate tables for your reference.  Please note this is not an all-inclusive list, and if you would like to further discuss how these changes may impact you, please reach out to us.

Key 2025 Tax Law Changes

1. Individual Income Tax Rates and Brackets

The Tax Cuts and Jobs Act (TCJA) of 2017 temporarily lowered individual tax rates and widened brackets through 2025.  The 2025 Act makes these lower rates and wider brackets permanent, preventing a reversion to higher pre-TCJA rates. The top rate remains 37%, and the marriage penalty relief continues. Brackets are indexed for inflation using the chained CPI method, with technical adjustments after 2025.

2. Standard Deduction and Personal Exemptions

The TCJA nearly doubled the standard deduction and suspended personal exemptions through 2025.  The higher standard deduction is now permanent ($31,500 joint, $23,625 head of household, $15,750 single/MFS for 2025, indexed for inflation). Personal exemptions remain eliminated, but a new $6,000 “senior deduction” is available for those 65+ from 2025–2028, phased out at higher incomes.

Standard deduction applies for tax years after December 31, 2024; senior deduction for 2025–2028.

3. Child Tax Credit (CTC)

The TCJA increased the CTC to $2,000 per child (with $1,400 refundable) through 2025.  The CTC is now $2,200 per child for 2025 ($1,700 refundable), indexed for inflation.  The earned income threshold for the refundable portion is $2,500. Phase-out thresholds remain at $400,000 (joint) and $200,000 (others).

4. State and Local Tax (SALT) Deduction Cap

The TCJA capped the SALT deduction at $10,000 through 2025.  The cap is increased to $40,000 for 2025, $40,400 for 2026, with 1% annual increases through 2029. The deduction phases out for high-income taxpayers and reverts to $10,000 in 2030.

5. Pease Limitation and Itemized Deductions

The Pease limitation reduced itemized deductions for high-income taxpayers and was set to return in 2026.  The Pease limitation is permanently repealed. Starting in 2026, itemized deductions are reduced by 2/37th of the lesser of total itemized deductions or the amount by which taxable income exceeds the 37% bracket threshold. The QBI deduction is excluded from this limitation.

6. Qualified Business Income (QBI) Deduction

The TCJA allowed a 20% deduction for QBI from pass-through entities through 2025.  Effective for tax years starting after, December 31, 2025, the QBI deduction is now permanent, with a $400 minimum deduction for active QBI (requires at least $1,000 in QBI). The phase-in threshold increases to $75,000 (single) and $150,000 (joint), indexed for inflation after 2026.

7. Tip and Overtime Deductions

Tips and overtime pay were fully taxable.  For 2025–2028, individuals in tipping occupations may deduct up to $25,000 of qualified tip income and up to $12,500 of overtime pay (joint filers: $25,000). Deductions phase out for MAGI above $150,000 ($300,000 joint).

8. Mortgage Interest and Other Deductions

The TCJA limited the mortgage interest deduction to $750,000 of acquisition debt.  Effective for tax years starting after December 31, 2025, the $750,000 cap is now permanent.  Mortgage insurance premiums are treated as qualified residence interest. Miscellaneous itemized deductions remain suspended, except for a new deduction for educator expenses.

9. Alternative Minimum Tax (AMT)

The TCJA increased AMT exemption amounts and phase-out thresholds through 2025.  The AMT exemption and phase-out thresholds are permanently increased, with the phase-out rate for higher-income taxpayers increased from 25% to 50%.  This is effective for years after December 31, 2025.

10. Permanent Disallowance of Miscellaneous Itemized Deductions

The TCJA suspended these deductions through 2025.  The 2025 Act permanently suspends miscellaneous itemized deductions, except for a new educator expense deduction.

11. Estate and Gift Tax

The TCJA doubled the basic exclusion amount for estate and gift tax through 2025.  The higher lifetime exclusion amount (approx. $13.99 million per individual in 2025 and $15 million in 2026) is extended beyond 2025.  The annual gift tax exclusion for 2025 and 2026 is $19,000 per recipient.

The annual exclusion for gifts to a non-U.S. citizen spouse is $190,000 in 2025 and $194,000 in 2026.

Nonresident aliens (NRAs) are subject to U.S. estate tax on their U.S.-situated assets that exceed the $60,000 threshold.

Key business tax provisions affecting 2025

1. Bonus Depreciation (100% Expensing)

The TCJA set 100% bonus depreciation for qualified property, but this was scheduled to phase down after 2022.  The 2025 Act makes 100% bonus depreciation permanent for property acquired after January 19, 2025, eliminating the scheduled phase-down. A transitional election allows businesses to apply pre-Act phase-down rates if desired.  This encourages immediate investment in business assets and improves after-tax cash flow, especially for capital-intensive industries.

2. Business Interest Deduction Limitation (Section 163(j))

The TCJA limited business interest deductions to 30% of adjusted taxable income (ATI), calculated as EBITDA through 2021 and EBIT from 2022.  The 2025 Act restores the EBITDA-based limitation for tax years after 2024, increasing the deductible interest for many businesses. The Act also changes the ordering for interest capitalization and carryforwards.

This is especially beneficial for businesses with significant depreciation and amortization, such as manufacturers.

EBITDA add-back applies to tax years after December 31, 2024; new ordering rules apply after December 31, 2025.

3. Section 179 Expensing Limits

Section 179 allows immediate expensing of qualifying property, subject to annual limits.  The expensing limit increases to $2,500,000 and the phase-out threshold to $4,000,000 for property placed in service in tax years after 2024, with future inflation adjustments.  More businesses can fully expense qualifying property, incentivizing equipment and asset investment.

4. Energy Credits and Deductions

Energy Efficient Home Improvement Credit (Section 25C) is terminated for property placed in service after December 31, 2025.

Residential Clean Energy Credit (Section 25D) is terminated for expenditures after December 31, 2025.

Energy Efficient Commercial Buildings Deduction (Section 179D) is terminated for construction beginning after June 30, 2026.

5. Opportunity Zones

Created by the TCJA to encourage investment in low-income communities.  The 2025 Act enhances Opportunity Zone incentives.

7. Limitation on Excess Business Losses (Section 461(l))

This tax provision limits non-corporate taxpayers’ business loss deductions.  The limitation is made permanent for tax years after 2025 and the inflation adjustment is modified.  Non-corporate taxpayers will continue to face limits on deducting business losses against other income.

Other Notable Provisions

• Corporate Charitable Contributions: New 1% floor imposed, in addition to the 10% ceiling, for tax years after December 31, 2025.
• Advanced Manufacturing Investment Credit (CHIPS Credit): Increased from 25% to 35% for property placed in service after December 31, 2025.
• Information Reporting Thresholds: Form 1099-K threshold reverts to $20,000/200 transactions; Forms 1099-NEC and 1099-MISC thresholds increase to $2,000 for payments after 2025.
• Non-Itemizer Charitable Deduction: Up to $1,000 ($2,000 joint) “above-the-line” charitable deduction for non-itemizers.
• Tax-Deferred Accounts for Children: New tax-deferred investment accounts for children under 18, with up to $5,000 annual contributions and a $1,000 government contribution for children born 2025–2028.
• Casualty Loss Deduction: Permanently limited to federally and certain state-declared disasters.
• Child and Dependent Care Credit: Enhanced credit rates and phase-out thresholds.