Big Changes, Bigger Deductions: Inside the 2025 Tax Bill
- Baker Holtz
- 6 days ago
- 3 min read
In a narrow 51-50 Senate vote, the 2025 Tax Bill—dubbed the "One Big Beautiful Bill"—officially passed and was signed into law by the President on July 4, 2025. This landmark legislation introduces sweeping reforms to the U.S. tax code and federal spending priorities, marking one of the most significant updates since the 2017 Tax Cuts and Jobs Act (TCJA). With key TCJA provisions set to expire at the end of 2025, this new bill acts as both a renewal and a reimagining of major tax policy, taking effect immediately.
Major Changes at a Glance
Tax Changes for Individuals
Expanded SALT Deduction: The cap on the state and local tax deduction will increase from $10,000 to $40,000 per household (or $20,000 for married filing separately), with phase-outs starting at $500,000 of income.
Permanent Tax Rates with Adjustments: The law makes the individual tax rates from the TCJA permanent and adds an extra year of inflation adjustments to the income thresholds for brackets above 12% and 22%.
Increased Estate and Gift Tax Exemption: Beginning in 2026, the federal estate and gift tax exemption will be permanently raised to $15 million per individual (or $30 million for married couples), with annual adjustments for inflation. This change locks in a historically high exemption amount, offering extended planning flexibility.
Tax-Free Tip Income: The new law exempts tip income of up to $25,000 from federal income taxes, aiming to provide targeted relief for service industry workers. This does not apply to employer-paid wages, only to voluntary gratuities. The deduction begins to phase out when modified adjusted gross income (MAGR) exceeds $150,000 ($300,000 for joint filers).
Temporary Overtime Deduction: From 2025 through 2028, individuals can claim an above-the-line deduction of up to $12,500 ($25,000 for joint filers) for qualified overtime compensation. This deduction phases out at a modified adjusted gross income (MAGI) of $150,000 ($300,000 for joint filers) and applies only to overtime pay required under the Fair Labor Standards Act. To qualify, the overtime amount must be reported separately on Form W-2 or Form 1099.
Deductible Car Loan Interest (2025–2028): Interest on loans for qualified passenger vehicles will be temporarily deductible for personal use from 2025 through 2028. To qualify, the loan must be a first lien incurred after December 31, 2024, and the vehicle must have its final assembly in the United States. This interest is excluded from the definition of non-deductible personal interest under Sec. 163(h).
Charitable Contribution Deduction: This law allows non-itemizing taxpayers to deduct up to $1,000 (or $2,000 for joint filers) for certain charitable contributions. For itemizers, a 0.5% floor reduces the allowable deduction by a percentage of the contribution base.
Tax Provisions for Businesses
100% Bonus Depreciation Restored: Businesses can immediately write off the full cost of qualifying capital assets purchased between January 19, 2025, and the end of 2026—encouraging investment and improving cash flow.
Immediate R&D Expensing: Domestic research and development costs will again be fully deductible through 2026, offering relief to innovation-driven industries. Small businesses will be permitted to retroactively apply this change to years beginning after December 31, 2021.
Expanded Section 179 Expensing: The cap for Section 179 expensing will increase from $1.25 million to $2.5 million, allowing businesses to immediately deduct more of the cost of qualifying equipment and machinery. The legislation also raises phase-out thresholds, extending the benefit to larger investments.
100% First-Year Depreciation for Production Property: The law provides a full first-year depreciation deduction for the adjusted basis of qualified production property—generally nonresidential real estate used in manufacturing.
Enhanced Exclusion for Qualified Small Business Stock: For stock acquired after the bill’s enactment, gains on qualified small business stock held at least four years will be 75% excluded from income. If held for five years or more, the exclusion increases to 100%.
Key Considerations
As tax policy evolves, it’s critical to:
Monitor legislative updates and how they apply to you and your business
Consult with your CPA or financial advisor
Consider adjustments to your 2025 and 2026 tax planning strategy
Baker Holtz is well versed in the navigation of tax policy and planning. Check out our Baker Holtz Blog for more tax tips and policies for your financial future.
Please reach out to us with any questions and we would be happy to personally assist you.
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Grand Rapids, MI 49503
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