BUSINESS SUMMARY
100% Bonus Depreciation
Starting with assets purchased after January 19, 2025, businesses can once again fully deduct the cost of qualifying equipment, software, vehicles, furniture, and land improvements in the first year. This 100% bonus depreciation is now a permanent feature of the tax code. While this immediate expensing can significantly reduce your 2025 taxable income, it’s important to plan strategically. Using all deductions now may mean missing out on valuable deductions in future years when they could be more beneficial.
Domestic R&E Expenses
The new law allows taxpayers to fully deduct U.S. research and experimental (R&E) expenditures for tax years beginning after December 31, 2024. Deciding whether to take this deduction, how it interacts with the research credit, and whether retroactive relief is available will depend on your specific situation. Consult us before filing or amending returns to ensure you’re making the best choice.
Qualified small business stock (QSBS) gain exclusion
For stock acquired after July 4th, 2025 there have been expansions to the stock requirements. These include a graduated exclusion for how long the stock has been held, exclusion increased to $15M and the gross asset limitation has increased to $75M. Both of these are indexed for inflation adjustments. Please see our article on QSBS here: Your Guide to Qualified Small Business Stock (Section 1202).
Business charitable contributions
Starting in 2026, corporations will only be able to deduct charitable contributions to the extent that they exceed 1% of their taxable income. While the overall charitable deduction limit will remain at 10% of taxable income, any contributions below the 1% threshold will be lost. However, contributions that exceed the 1% floor but are still subject to the 10% cap can be carried forward for up to five years, allowing them to be used in future tax years before being forfeited.
Qualified Business Income (QBI) Deduction Made Permanent
The 20% deduction for pass-through business income is now permanent and will continue beyond 2025. The 2026 phase-in threshold has been raised to $75,000 for single filers (corresponding to taxable income between $191,950 and $241,950) and to $150,000 for joint filers (taxable income between $383,900 and $483,900), after which wage/property or other limitation rules may apply. In addition, active owners with at least $1,000 of QBI are guaranteed a minimum deduction of $400.
Excess Business Loss Cap Now Permanent
Business losses are now permanently capped at $313,000 for single filers and $626,000 for joint filers. Any disallowed losses will be carried forward as Net Operating Losses (NOLs).
Energy and Green Credits
Most clean energy credits, including those for vehicles and commercial property, will expire for property placed in service after 2025 or 2026.
PERSONAL SUMMARY
NOTABLE UPDATES STARTING WITH 2025 TAX YEAR
Permanent Tax Brackets
The seven-rate federal income tax system (10%, 12%, 22%, 24%, 32%, 35%, 37%) is now permanent and will continue to adjust for inflation.
Expanded Standard Deduction
The standard deduction amounts are:
• Single / Married Filing Separately: $15,750
• Head of Household: $23,625
• Married Filing Jointly / Qualifying Surviving Spouse: $31,500
Senior Bonus Deduction
Taxpayers age 65+ can claim an extra deduction of $6,000 (single) or $12,000 (joint) for years 2025-2028. The deduction phases out starting at $75k of income ($150k joint).
No Tax Break on Social Security Benefits
Despite significant media coverage, the proposal to eliminate taxes on Social Security benefits was NOT included in the OBBBA legislation. Instead, Congress created a new Seniors Deduction of $6,000 (or $12,000 for joint filers) – an amount well below average annual Social Security benefits of $23,712 per retiree.
SALT Deduction Cap
The cap on state and local tax (SALT) deductions increases from $10,000 to $40,000 (indexed for inflation) for 2025–2029, with a phase-out above $500,000 AGI. This allows many taxpayers to deduct more property and state income taxes when itemizing.
Auto-Loan Interest
Deduct up to $10,000 of interest paid on new U.S.-assembled personal-use vehicles, with the deduction phasing out for taxpayers with income above $200,000 for married couples filing jointly and $100,000 for all other filing statuses, for tax years 2025 through 2028.
Home Mortgage Interest
The $750,000 cap on acquisition debt is now permanent, limiting the deduction for new loans above this amount.
Expanded Lifetime Gift Tax Exemption
The lifetime gift tax exemption is set to increase from $13.61 million in 2024 to $13.99 million in 2025, and then to $15 million in 2026, with adjustments for inflation. Please see our article on Estate Planning here: Smart Estate Planning in Washington: https://www.greenwoodcpa.com/smart-estate-planning-in-washington-tips-to-protect-your-legacy/
Child Tax Credit
Credit made permanent and for 2025, the credit is $2,200 per child (indexed for inflation). Refundable portion remains capped at $1,400 per child (also indexed for inflation).
Energy Efficient Home Improvement Credit
The 30% credit for energy-efficient upgrades ends after 2025.
Clean Vehicle Credits
Credits for new and used clean vehicles will no longer be available for vehicles purchased after September 30, 2025.
Adoption Credit
Up to $5,000 of the adoption credit becomes refundable for adoptions finalized in 2025 and after.
Qualified Tips and Overtime Premium Pay
Deductions are available for qualified tips (up to $25,000) and overtime premium pay (up to $12,500 for single filers and $25,000 for joint filers), with phase-outs starting at $150,000 for single filers and $300,000 for married couples filing jointly, for the period from 2025 to 2028.
Trump Accounts
Children born between 2025–2028 receive a one-time $1,000 federal contribution.
NOTABLE UPDATES STARTING WITH 2026 TAX YEAR
Cap on Itemized Deductions
Starting in 2026, a limitation on itemized deductions for those in the top 37% tax bracket. These will be reduced by 2/37 of the lesser of (a) the amount of the deductions or (b) the taxable income that exceeds the dollar amount at which the 37% rate bracket begins.
Charitable Giving
Beginning in 2026, taxpayers who don’t itemize will still be able to deduct certain charitable contributions. A new above-the-line deduction allows for cash donations up to $1,000 for singles and $2,000 for joint filers. However, for those who do itemize, charitable contributions will only be deductible once they exceed 0.5% of adjusted gross income (AGI). Any charitable carryover contributions from pre-2026 will not be subject to the new limitations.
Gambling Losses Capped
Under OBBBA, only 90% of gambling losses can be deducted against gambling winnings. In practical terms, taxpayers would need losses equal to about 111% of winnings to fully offset them.
Miscellaneous Itemized Deductions
Permanent termination of miscellaneous itemized deductions other than educator expenses. These deductions included unreimbursed employee expenses, tax preparation fees, investment expenses, and other similar expenses.
529 Plans
Starting in 2026, annual K-12 withdrawals double to $20,000, now covering more educational expenses. 529-to-Roth rollovers (up to $35,000 lifetime) remain.
Trump Accounts (Kid IRAs)
Starting in 2026, up to $5,000/year in after-tax contributions per child under 18, with withdrawals allowed at age 18 for education, first home, or business, and unrestricted at 30.
NOTABLE UPDATES STARTING WITH 2027 TAX YEAR
Charitable Scholarship Credit
Beginning in 2027, a dollar-for-dollar federal tax credit up to $1,700 ($3,400 for married filing joint) is available for donations to state-approved K-12 scholarship organizations.
ABLE Accounts
Beginning in 2027, permanently higher contribution limits plus Saver’s Credit eligibility.
