On July 4th, 2025, the president signed the largest piece of new tax legislation since The Tax Cuts and Jobs Act and the Inflation Reduction Act.  Below are just a few of the sweeping changes for businesses and individuals.  Unless noted, all changes are effective beginning after December 31, 2025.

BUSINESSES

Section 179 Expensing Election

The accelerated expense election has been increased for tax year 2025 from $1,250,000 to $2,500,000 and will permanently be indexed for inflation every year thereafter.  The investment limitation was increased from $3,130,000 to $4,000,000 in 2025 and permanently indexed for inflation thereafter.  The act did not increase the Section 179 limitation for SUV’s.

Bonus Depreciation

For property acquired and placed in service after January 19, 2025, 100% (up from 40%) expensing option is available.  This also applies to specified plants, planted or grafted after January 19, 2025. The property needs to be acquired and placed in service after January 19, 2025.  If there is a written binding contract for the acquisition of property before January 20, 2025, the applicable % of bonus depreciation under the Tax Cuts and Jobs Act would apply to the in-service date.

Section 174 – Research and Experimental Expenses

Beginning with tax years after December 31, 2024, taxpayers can immediately deduct domestic research and experimental expenses paid or incurred.  Taxpayers may accelerate deductions over a one-year period or ratably over a two-year period, if they made domestic research or experimental expenditures after December 31, 2021, and before January 1, 2025. Foreign research and experimental expenses still need to be capitalized and amortized over 15 years.   For small business taxpayers (average annual gross receipts of $31 million or less) they may retroactively apply the change to tax years beginning after December 31, 2021. The taxpayer must elect by July 4, 2026, and amend returns affected.

Qualified Business Income Deduction

The deduction is made permanent for tax years after December 31, 2025.  The new law also expands the phase-in range for Specified Service Business Income, allowing a larger deduction for taxpayers below the phase-in ceiling.

Business Interest Deduction Limit

Beginning for tax years after 2024, adjusted taxable income corresponds to EBITDA (earnings before interest, taxes, depreciation, and amortization) instead of EBIT.  The law also revised the definition of a motor vehicle to include certain trailers and campers designed to be towed or affixed to a motor vehicle thereby allowing floor plan financing to be deducted for these items.

Meals

Beginning for tax years after 2025, the deduction for employer provided meals has been terminated, with exceptions.  If the employer provides meals at the convenience of the employer and are purchased and consumed onsite by its employees, the law allows 100% deduction.

1099 – Information Reporting Threshold for Business Payments

For payments made after 2025, the threshold has increased from $600 to $2,000 for required information reporting on form 1099-NEC and 1099-MISC.

 

INDIVIDUALS

Income Tax Rates made permanent for Individuals, Estates and Trusts

The current tax rates for individuals are made permanent – 10,12,22,24,32,35 and 37 percent.  The current tax rates for trusts and estates are made permanent – 10, 24 35 and 37 percent.

Temporary $6,000 deduction for seniors

Beginning after December 31, 2024, and before January 1, 2029, for seniors who reached age 65 before the close of the tax year would qualify.  The deduction would start to phase out for those taxpayers with adjusted gross income exceeding $75,000 ($150,000 for MFJ). If both taxpayer and spouse qualify, the total deduction would be $12,000 married filing joint filers.

Alternative Minimum Tax – Individual

The AMT exemption was made permanent with tax years beginning in 2026. The phase-out threshold amount reverts back to $1,000,000 (2018 TCJA) from $1,252,700 and adjusted annually for inflation.

Estate, Gift and Generation Skipping Transfer Tax Exclusions

The exclusion amount was made permanent and increased to $15 million for tax years after 2025 and indexed for inflation every year thereafter.

No Tax on Tips (income tax deduction, not a payroll tax deduction too)

An income tax deduction can be claimed by individuals on qualified tips in tax years 2025 through 2028.  The tip income needs to be received in an occupation that normally receives tips on or before December 31, 2024.  The deduction is limited to $25,000 and is phased out at $150,000 for single filers and $300,000 for married filing joint filers.

No Tax on Overtime (income tax deduction, not a payroll tax deduction too)

An income tax deduction can be claimed by individuals on qualified overtime in tax years 2025 through 2028.  The deduction is limited to $12,500 per year for single filers and $25,000 for married filing joint filers.  The deduction is phased out at $150,000 for single filers and $300,000 for married filing joint filers.

Car Loan Interest

Beginning after 2024 and before 2029, a deduction of up to $10,000 is available to taxpayers for interest paid or accrued on post 2024 debt from the purchase of a passenger vehicle for personal use.  Qualifying vehicles include car, pickup truck minivan, SUV or motorcycle.  The vehicles must be new, final assembly needs to occur in the United States and the VIN must be reported on the tax return.

Itemized Deductions

  • State and Local Tax (SALT) Deduction has been temporarily increased to $40,000 for tax years 2025 and will increase by 1% every year thereafter until 2029. The deduction is reduced by 30 percent but not below $10,000, if adjusted gross income is over $500,000 for MFJ and $250,000 for single filers.
  • Charitable Contributions for those individuals who do not itemize have been increased. For non-itemizers, they can claim a charitable deduction of $1,000 for single filers and $2,000 for married filing joint filers.  The new tax law includes a .5 % floor for charitable contributions for those taxpayers who itemize.
  • Phaseout of Itemized deductions are reduced by 2/37 of total itemized deductions or taxable income if the taxpayer’s income exceeds the dollar amount at the 37 percent rate bracket.

Dependent Care Assistance Benefits

The exclusion from gross income for dependent care assistance has increased from $5,000 to $7,500 per year. discharge of student loan debt due to death or disability is now permanent beginning after December 31, 2025.

Credits

  • Child Tax Credit

The credit has been made permanent and is increased to $2,200 per qualifying child under age 17, with the refundable portion at $1,400 and both indexed for inflation every year thereafter.  The “other dependent” child credit of $500 was made permanent but not indexed for inflation.  The phase-out threshold has increased to $400,000 for MFJ filers and $200,000 for others.

  • Energy Efficient Home Improvement Credit

The credit has been repealed therefore any property placed in service after December 31, 2025, is ineligible for the credit.

  • Residential Clean Energy Credit

The credit has been repealed therefore any property placed in service after December 31, 2025, is ineligible for the credit.

  • Clean Vehicle Credit

The clean vehicle credit for up to $7,500 has been repealed therefore qualified vehicle placed in service after September 30, 2025, is ineligible for the credit.