What’s Inside the New Tax Act? 2025 Tax Law Changes Every Taxpayer Should Know

Introduction: A New Chapter in Tax Policy

On July 4th, 2025, President Trump signed into law a major piece of tax legislation that reshapes many aspects of the U.S. tax code for individuals and businesses. Designed primarily to make permanent the provisions of the 2017 Tax Cuts and Jobs Act (TCJA), the new tax act also introduces several new features—some permanent, some temporary—that will have meaningful financial impacts on families, retirees, and working professionals.

For millions of taxpayers, this law means avoiding a substantial tax increase that would have otherwise occurred at the end of 2025. But beyond simply maintaining the status quo, this legislation introduces new tax breaks for seniors, parents of young children, middle-income earners, and even tip-based workers. It also eliminates or scales back several benefits to help offset its considerable cost.

As a financial advisor, I strongly recommend you take the time to understand what’s in this legislation and how it may affect your tax planning in 2025 and beyond. Below, we break down the highlights of the new law—what’s permanent, what’s temporary, and what didn’t make it in.

Permanent Provisions: Locking in TCJA and More

The foundation of this new tax act is the permanent extension of many TCJA provisions that were originally set to expire after 2025. Let’s review what’s now codified into long-term tax law.

1. Tax Brackets Stay the Same

The 7-tier tax bracket system, originally defined under the TCJA, remains intact. These include a top marginal rate of 37% and a bottom rate of 10%, with income thresholds adjusted for inflation (though not all brackets will receive full inflation indexing going forward).

This permanence offers taxpayers more predictability in long-term planning, especially for retirement withdrawals, investment income, and estate strategies.

2. Standard Deduction Increased and Made Permanent

The standard deduction, which was doubled under the TCJA, is now made permanent and further increased to $15,750 for single filers and $31,500 for married couples filing jointly, starting in 2026. These amounts will also be indexed for inflation.

For the majority of taxpayers who don’t itemize, this increased deduction can significantly reduce taxable income.

3. Mortgage Interest Deduction Capped

The mortgage interest deduction cap remains at $750,000 of mortgage debt ($375,000 for single filers), solidifying the limit imposed in 2017. While this won’t affect most homeowners, those in high-cost housing markets should pay close attention when financing new home purchases.

4. State and Local Tax (SALT) Deduction Expanded—Temporarily

In a significant win for residents in high-tax states, the SALT deduction cap rises to $40,000 through 2029. However, this is subject to income-based phaseouts starting at $500,000 for joint filers and $250,000 for separate filers.

After 2029, the cap reverts to $10,000 permanently, regardless of income. Married filing separately taxpayers will see a limit of $20,000 through 2029, reverting to $5,000 thereafter.

This expanded window provides planning opportunities for taxpayers to front-load state taxes or make large charitable gifts before the cap reduction.

5. Gift and Estate Tax Exemptions Rise

The lifetime federal estate and gift tax exemption increases to $15 million for individuals and $30 million for couples, up from $13.99 million and $27.98 million respectively. These exemptions will be indexed for inflation moving forward, offering affluent families significant estate planning flexibility.

6. Child Tax Credit Increased and Made Permanent

The Child Tax Credit (CTC), which was doubled under TCJA, is now permanently increased to $2,200 per child, beginning in tax year 2025. This is a substantial benefit for middle-income families and is expected to improve affordability for young parents.

7. Charitable Deductions for All

The law reinstates charitable deductions for non-itemizers, allowing $1,000 for single filers and $2,000 for joint filers. However, for itemizers, there’s a new 0.5% floor based on adjusted gross income (AGI), meaning your contribution must exceed 0.5% of AGI to begin receiving a deduction.

Additionally, taxpayers in the highest bracket (37%) will only be able to deduct charitable contributions at a maximum rate of 35%.

8. Personal Exemptions Permanently Repealed

The personal exemption, which allowed taxpayers to deduct a set amount for themselves and each dependent, remains permanently repealed. However, this is somewhat offset by the higher standard deduction and expanded child tax credit.

Temporary Provisions: 4-Year Window of Additional Relief (2025–2028)

Some of the most headline-grabbing elements of the new law are set to expire after 2028. These temporary provisions provide relief to targeted groups and offer short-term tax planning opportunities.

1. No Taxes on Tips or Overtime

For tax years 2025 through 2028, tipped workers and those earning overtime will be eligible for deductions of up to $25,000 (tips) and $12,500 (overtime). These deductions phase out at $150,000 for single filers and $300,000 for joint filers.

This offers a meaningful benefit to service workers and labor-intensive jobs—groups often underrepresented in tax relief efforts.

2. Senior Deduction Boost

Americans aged 65 and older receive an additional $6,000 deduction, which phases out at $75,000 for singles and $150,000 for joint filers. This is on top of the existing $2,000 (single) and $3,200 (joint) deduction already available for seniors.

This added deduction is a valuable offset to help manage rising medical expenses and potentially mitigate the taxability of Social Security benefits.

3. Deductible Car Loan Interest

Buy a car made in America? The new law lets you deduct up to $10,000 of interest on loans for vehicles whose final assembly occurred in the U.S. This deduction applies to incomes under $100,000 (single) and $200,000 (joint).

This is an incentive aimed at supporting U.S. manufacturing and energy-efficient transportation alternatives.

New Accounts and Expanded Benefits

1. The Trump Account: A New Savings Vehicle for Children

The legislation introduces the Trump Account, a new savings account for children that can be funded up to $5,000 annually by parents, relatives, or others. Contributions are non-deductible, but the account functions like a traditional IRA once the child reaches 18.

Even more compelling: newborns between 2025–2028 qualify for a $1,000 federal seed deposit.

While not income-restricted, this vehicle resembles Connecticut’s Baby Bonds, providing a powerful head start for generational wealth-building.

2. Expanded Use of HSAs and 529 Plans

The new law enhances the flexibility of two widely-used savings tools:

• Health Savings Accounts (HSAs): Now accessible to more types of health plan participants, with permanent eligibility for telehealth and $150/month for direct primary care ($300 for families).
• 529 Plans: Expanded to cover testing fees, tutoring, and educational therapy for students with disabilities. Withdrawals are now also allowed for recognized postsecondary credentials, broadening utility beyond traditional college education.

What’s Missing: No Change to Social Security Taxation

Despite early discussions, Social Security benefits remain taxable for individuals with income above $34,000 or joint filers above $44,000. While the senior deduction may offer relief for some, the broader proposal to eliminate Social Security taxation did not make it into the final legislation.

Final Thoughts: What This Means for Your Financial Plan

The 2025 tax act marks one of the most comprehensive shifts in tax policy in recent years. While much of it preserves the framework of the TCJA, the new provisions—both permanent and temporary—create numerous opportunities for tax-savvy individuals and families to optimize their financial plans.

Key Takeaways for Taxpayers:

• Review your income brackets and deduction eligibility for 2025 and beyond.
• Take advantage of temporary deductions (like tips and overtime) while they last.
• Consider using Trump Accounts and expanded HSAs/529s to save for your family.
• Work with a tax professional to maximize available credits and deductions, especially if your financial situation is changing.

Tax policy may change again depending on future administrations, but for now, this legislation offers a broad window of opportunity to reduce your tax burden and build wealth more efficiently.