By Robert J. Laino, Staff Accountant
Enhanced Deduction for Seniors
The OBBB introduces a new, temporary $6,000 deduction specifically for seniors age 65 and older (whether collecting Social Security benefits or not), effective for tax years 2025 through 2028. The senior deduction will phase out when the taxpayer’s modified adjusted gross income exceeds $75,000 for single filers and $150,000 for joint filers.
No Tax on Tips
The OBBB created a new temporary deduction for individuals who receive qualified cash tips in occupations where tipping is customary. The deduction is up to $25,000 per year per taxpayer and can be claimed by those taking the standard deduction. The deduction phases out by $100 for every $1,000 of modified adjusted gross income above $150,000 for single filers and $300,000 for joint filers. The deduction is set to expire after 2028.
No Tax on Overtime
Another temporary deduction was created for individuals who receive qualified overtime compensation. Taxpayers may deduct up to $12,500 per year in qualified overtime compensation ($25,000 for joint filers). The deduction phases out by $100 for every $1,000 of modified adjusted gross income above $150,000 for single filers and $300,000 for joint filers. The deduction is set to expire after 2028.
No Tax on Car Loan Interest
Individual taxpayers cannot deduct interest on loans used to purchase vehicles for personal use. However, the OBBB provides individuals with a new temporary tax deduction for interest paid on a new vehicle loan acquired between 2025 and 2028. The deduction is capped at $10,000 per year and phases out when modified adjusted gross income exceeds $100,000 for single filers and $200,000 for joint filers. Vehicles must have had their final assembly in the United States and must serve as collateral for the loan.
Trump Accounts
The OBBB introduced a new type of tax-preferred investment account for children called a “Trump account.” The account would be exempt from tax, similar to a Roth IRA. Contributions are limited to $5,000 annually to be funded with after-tax dollars. Contributions can be made by parents, relatives, employers, amongst others; until the child reaches 18 years of age. Distributions are restricted until the beneficiary reaches 18 years of age subject to some exceptions. To be eligible for an account, the child must be a U.S. citizen with a Social Security number. Under the newborn pilot program, the federal government will contribute $1,000 per child into every eligible account for U.S. citizens born between January 1, 2025, and December 31, 2028.
Individual SALT Limitation
One of the most controversial provisions in TCJA was the lower $10,000 cap imposed on the individual federal deduction for state and local taxes. The OBBB retroactively increases the individual SALT deduction cap to $40,000 for 2025, $40,400 in 2026 and by an additional 1 percent annually through 2029. Modified adjusted gross income phase-outs apply, but the SALT deduction cannot be reduced below $10,000. The individual SALT limitation increase is temporary and will revert to $10,000 beginning in 2030. There were no changes made to the pass-through entity tax (PTET) that was created as a workaround to the lower SALT cap.
Non-Itemizers’ Charitable Deduction
Prior to the OBBB, no provision allowed individuals to deduct charitable contributions without electing to itemize deductions. The bill provides a new permanent provision for non-itemizers beginning in 2026. Non-itemizers may deduct annually up to $1,000 of qualifying charitable contributions for single filers and $2,000 for joint filers.
Child Tax Credit
The child tax credit was permanently increased to $2,200 per qualifying child for 2025 with $1,700 being refundable, both adjusted annually for inflation. The higher modified gross income phase-out limitations of $200,000 for single filers and $400,000 for joint filers were also made permanent.
Wagering Losses
Currently, wagering losses are deductible only to the extent of winnings. The OBBB imposes a new 90 percent limitation on the offsetting of losses from wagering transactions against reportable winnings, effective after December 31, 2025.