On July 4, 2025, President Trump signed the One Big Beautiful Bill (OBBB) Act, bringing several tax changes for individuals and businesses. This article explains key updates to deductions for the average person, effective for tax years 2025.
Standard Deduction
The increased standard deduction is now permanent. For 2025, the standard deduction is:
- $15,750 for single filers
- $23,625 for heads of household
- $31,500 for married couples filing jointly
These amounts will adjust for inflation in future years. When filing your return, you can deduct the higher of the standard deduction or itemize deductions.
Car Loan Interest Deduction
From 2025 to 2028, you can deduct up to $10,000 of interest paid on a loan for a personal car, even if you don’t itemize deductions. However:
- The deduction shrinks if your income exceeds $100,000 ($200,000 for joint filers).
- This is a new benefit for anyone purchasing a car with a loan after 2024.
Itemized Deductions:
State and Local Tax (SALT) Deduction
If you itemize, you may be able to deduct more state and local taxes (like property or income taxes) from 2025 to 2029:
- The limit is $40,000 ($20,000 if married filing separately) in 2025, increasing slightly each year (e.g., $40,400 in 2026).
- However, if your income exceeds $500,000 ($250,000 if filing separately), your deduction shrinks. It’s reduced by 30% of the amount your income goes over this limit, but you’ll always get at least $10,000 ($5,000 if filing separately).
- After 2029, the limit drops back to $10,000 ($5,000 if filing separately).
Home Mortgage Interest Deduction
The rules for deducting mortgage interest are now permanent:
- You can deduct interest on up to $750,000 of mortgage debt ($375,000 if filing separately) used to buy or build a home.
- Interest on home equity loans remains non-deductible.
These updated deductions offer valuable opportunities to reduce your tax burden, whether you opt for the enhanced standard deduction or choose to itemize with benefits like the expanded SALT deductions. Stay tuned for our next article, where we’ll explore new provisions set to take effect in 2026, further shaping your tax planning strategy.