Individual Tax Provisions

Tax Rate Structure: The legislation permanently codifies the tax brackets established by the 2017 TCJA. It adds an additional inflation adjustment year for determining income thresholds where tax brackets above 12% end and brackets exceeding 22% begin.

Standard Deduction Enhancement: The TCJA’s increased standard deduction becomes permanent. Beginning with tax years after 2024, single filers receive $15,750, heads of household get $23,625, and married couples filing jointly benefit from $31,500. These amounts will undergo annual inflation adjustments, with changes applied retroactively to include 2025.

State and Local Tax Deduction Modifications: The legislation temporarily elevates the federal SALT deduction cap to $40,000 from the current $10,000, incorporating inflation adjustments. The cap reaches $40,400 in 2026, then increases 1% annually through 2029 before reverting to $10,000 in 2030.

The deduction phases out for taxpayers with modified adjusted gross income exceeding $500,000 (based on 2025 figures), with the threshold inflation-adjusted through 2029. The phase-out reduces the SALT deduction by 30% of MAGI exceeding the threshold, though never below $10,000.

Unlike earlier versions that attempted to restrict SALT cap workarounds, the final legislation simply raises the cap without addressing strategies like passthrough entity taxes (PTETs). The AICPA had actively advocated against PTET limitations, with Koziel expressing gratitude to Congressional members who supported preserving these deductions for millions of businesses.

Personal Exemptions and Senior Deduction: While permanently setting personal exemption deductions at zero, the legislation creates a temporary $6,000 deduction under Section 151 for taxpayers aged 65 or older. This senior deduction phases out when MAGI exceeds $75,000 ($150,000 for joint returns) and remains effective for 2025-2028.

Child Tax Credit Expansion: The nonrefundable child tax credit increases to $2,200 per child beginning in 2025, with inflation indexing. The $1,400 refundable portion becomes permanent with inflation adjustments. Income phase-out thresholds remain at $200,000 ($400,000 for joint returns), along with the $500 credit for non-qualifying child dependents.

Qualified Business Income Deduction: The Section 199A QBI deduction becomes permanent at 20% (rejecting the House proposal for 23%). The phase-in range for SSTBs and entities subject to wage/investment limitations expands, increasing single return thresholds from $50,000 to $75,000 and joint return thresholds from $100,000 to $150,000. A new inflation-adjusted $400 minimum deduction applies to taxpayers with at least $1,000 QBI from active trades or businesses where they materially participate.

Estate and Gift Tax Exemptions: Section 2010 amendments permanently increase estate and lifetime gift tax exemptions to $15 million for single filers ($30 million jointly) in 2026, with subsequent inflation indexing.

Alternative Minimum Tax: The TCJA’s increased AMT exemptions become permanent, with phase-out thresholds reverting to 2018 levels of $500,000 ($1 million jointly), inflation-adjusted. The exemption phase-out rate increases from 25% to 50% of alternative minimum taxable income exceeding thresholds.

Mortgage Interest Deduction: The legislation permanently limits qualified residence interest deductions to the first $750,000 of acquisition debt while excluding home equity interest. Certain mortgage insurance premiums on acquisition debt now qualify as residence interest.

Additional Individual Provisions: The legislation includes numerous other changes affecting casualty loss deductions (limited to federally and certain state-declared disasters), miscellaneous itemized deductions (permanently suspended except unreimbursed educator expenses), overall itemized deduction limitations (replacing the Pease limitation with a new formula), and various other modifications to moving expenses, gambling losses, and commuting benefits.

New Tax Benefits and Special Deductions

Tip Income Deduction: A temporary deduction up to $25,000 applies to qualified tips received in customarily tipped occupations. Available to both W-2 employees and independent contractors for 2025-2028, the deduction phases out when MAGI exceeds $150,000 ($300,000 jointly). Employers may use reasonable estimation methods for 2025 tip reporting.

Overtime Compensation Deduction: Taxpayers can deduct up to $12,500 ($25,000 jointly) of qualified overtime pay annually. This temporary provision for 2025-2028 requires separate reporting of overtime amounts and phases out at the same MAGI thresholds as the tip deduction.

Vehicle Loan Interest: For 2025-2028, qualified passenger vehicle loan interest becomes excludable from personal interest definitions, capped at $10,000 annually. This applies to loans for U.S.-assembled vehicles secured by first liens, phasing out for MAGI over $100,000 ($200,000 jointly).

Trump Accounts: The legislation creates new tax-advantaged savings accounts for minors, structured as specialized IRAs benefiting individuals under 18. Contributions occur only before age 18, with distributions beginning at 18. Annual contributions cap at $5,000 (inflation-adjusted after 2027), with permitted investments in mutual funds and indexed ETFs. A pilot program provides $1,000 tax credits for opening accounts for children born 2025-2028.

Education and Family Benefits: Several provisions enhance education and family-related tax benefits, including increased adoption credit refundability ($5,000), expanded dependent care assistance exclusions ($7,500), enhanced child and dependent care credits (50% of expenses), and new credits for scholarship organization contributions ($1,700). Section 529 plans gain expanded qualified expense coverage for elementary, secondary, and postsecondary education.

Charitable Contributions: Non-itemizers gain charitable deduction access up to $1,000 ($2,000 jointly), while itemizers face a new 0.5% floor reducing contributions by 0.5% of their contribution base.

Business Tax Provisions

Depreciation and Expensing: The legislation permanently extends 100% bonus depreciation for property placed in service after January 19, 2025. Section 179 expensing limits increase to $2.5 million, reduced when qualifying property exceeds $4 million.

Research and Development: Domestic research expenditures become immediately deductible for tax years after December 31, 2024, while foreign research remains subject to 15-year amortization. Small businesses with $31 million or less in average gross receipts may apply changes retroactively to post-2021 years.

Business Interest Limitations: EBITDA limitations under Section 163(j) return for years after December 31, 2024, excluding depreciation, amortization, and depletion from adjusted taxable income calculations. The definition of “motor vehicle” expands to permit floor plan financing interest deductions for certain trailers and campers.

Manufacturing and Production: New provisions include 100% first-year depreciation for qualified production property (nonresidential manufacturing real property) and increased advanced manufacturing investment credits from 25% to 35% for property placed in service after December 31, 2025.

Small Business Enhancements: Qualified small business stock gain exclusions increase significantly – stock held four years sees exclusions rise from 50% to 75%, while five-year holdings achieve 100% exclusions. The excess business loss limitation for non-corporate taxpayers becomes permanent.

Additional Business Provisions: The legislation makes permanent the employer paid family leave credit, new markets tax credit, and opportunity zones (with modifications). It creates exceptions to percentage-of-completion accounting for certain residential construction and treats spaceports like airports for bond purposes. Employer child care credits increase from 25% to 40% of expenses, with maximum credits rising to $500,000 ($600,000 for small businesses).

Clean Energy Incentive Terminations

The legislation eliminates numerous clean energy tax incentives with varying termination dates:

Vehicle-Related Credits: Previously owned clean vehicles (Section 25E), new clean vehicles (Section 30D), and commercial clean vehicles (Section 45W) all terminate after September 30, 2025. Alternative fuel refueling credits (Section 30C) end June 30, 2026.

Building and Home Energy: Energy-efficient home improvements (Section 25C) terminate December 31, 2025. Residential clean energy credits (Section 25D) end for expenditures after December 31, 2025. Commercial building efficiency deductions (Section 179D) and new energy-efficient home credits (Section 45L) both terminate June 30, 2026.

Production and Fuel Credits: Clean hydrogen production (Section 45V) terminates January 1, 2028, while sustainable aviation fuel credits (Section 6426(k)) end September 30, 2025. Clean electricity production and investment credits for wind/solar terminate December 31, 2027, with foreign entity restrictions. Clean fuel production credits extend through 2029 but prohibit foreign feedstocks.

Nuclear Power Restrictions: The legislation places new restrictions on nuclear power production credits for foreign entities and facilities using imported fuel.

International Tax Modifications

Foreign Tax Credits: The legislation modifies foreign tax credit limitations, treating certain deductions as allocable to “net CFC tested income” (formerly GILTI). Deemed paid credits for Subpart F inclusions increase from 80% to 90%.

GILTI and FDII Changes: Section 250 deduction percentages decrease to 33.34% for foreign-derived intangible income and 40% for GILTI after December 31, 2025, creating 14% effective rates for both. The legislation eliminates deemed tangible income returns from calculations, renaming these provisions as “foreign-derived deduction eligible income” and “net CFC tested income.”

BEAT Adjustment: The base-erosion and anti-abuse tax rate increases modestly from 10% to 10.5%, less than earlier proposals.

Interest Limitation Ordering: Business interest limitations must be calculated before applying any interest capitalization provisions.

Administrative and Compliance Provisions

Information Reporting Changes: Form 1099-K reporting reverts to requiring reports only when transactions exceed $20,000 and 200 annually. General 1099 reporting thresholds increase from $600 to $2,000, with post-2026 inflation adjustments.

New Compliance Measures: The legislation creates new compliance requirements including SSN mandates for education credits, due diligence requirements for employee retention credit promoters (with $1,000 penalties per failure), and extension of excessive refund claim penalties to employment tax refunds.

New Taxes and Fees: A 1% remittance transfer tax applies to cash, money orders, and similar physical transfers (excluding electronic transfers). The firearms transfer tax under Section 5811 decreases. New Section 1062 allows farmland sellers to pay resulting taxes to qualified farmers in four annual installments.

Program Appropriations: The legislation appropriates $410 million through September 30, 2034, for Trump account funding, including a pilot program providing $1,000 credits for accounts opened for children born 2025-2028.

Implementation Timeline and Key Dates

Immediate Effects: Many provisions take effect immediately upon enactment or retroactively to 2025, including increased standard deductions, child tax credits, and various individual deductions for tips, overtime, and vehicle loan interest.

2025 Implementations: Bonus depreciation returns to 100% for property placed in service after January 19, 2025. Research and development immediate expensing begins for domestic expenditures. Various clean energy credits begin terminating throughout 2025.

2026 and Beyond: Estate tax exemptions increase to $15 million ($30 million jointly) in 2026. The SALT cap increases to $40,400 in 2026 before annual 1% increases through 2029. Many temporary provisions, including tip and overtime deductions, expire after 2028.

2030 Reversions: The SALT cap returns to $10,000 beginning in 2030, marking one of several provisions with sunset dates requiring future Congressional action.

Professional Perspectives and Planning Considerations

Tax professionals and advisors emphasize several key planning opportunities arising from this legislation. The permanent extension of many TCJA provisions provides long-term planning certainty, while new deductions for tips and overtime create immediate tax-saving opportunities for eligible workers.

Business owners should evaluate accelerated depreciation benefits, enhanced QBI deductions, and expanded Section 179 expensing. The research and development immediate expensing provision particularly benefits technology and innovation-focused companies.

Estate planners note the significance of increased exemptions, recommending wealth transfer strategies before any potential future reductions. The creation of Trump accounts introduces new multigenerational planning tools for families with young children.

International businesses must navigate the modified GILTI and FDII frameworks, renamed but maintaining similar structures with adjusted rates. The modest BEAT increase requires minimal adjustment for most affected corporations.

The AICPA has published comprehensive comparison charts detailing how these provisions differ from current law, available with free registration on their website. Tax practitioners are encouraged to review these resources for detailed implementation guidance.

As Mark Koziel noted, these tax provisions should “facilitate tax planning earlier in the year, which can help reduce the anxiety of the unknown for many taxpayers.” This comprehensive reform package represents one of the most significant tax law changes since the original TCJA, affecting virtually every individual and business taxpayer in various ways.