New Individual Tax Deductions in the 2025 Tax Act: What You Need to Know

The “One Big Beautiful Bill” (OBBB), also known as the 2025 Tax Act, enacted on July 4, 2025, delivers sweeping tax changes aimed at providing relief across the spectrum, from retirees to workers and recent car buyers. Here is a breakdown of the 4 most notable new individual tax deductions for the 2025 tax year:

Senior Deduction: Extra Relief for Those 65 and Older

To support qualifying older Americans, if you are 65 or older, you are eligible for a new, additional $6,000 deduction (per individual) from your taxable income, on top of the regular standard deduction (or itemized deductions) and the existing extra senior deduction. For married couples, this means potentially $12,000 more in deductions per year.

• Effective dates: 2025-2028 tax years
• Phase-out thresholds: The deduction is reduced by 6% (but not below zero) of the modified adjusted gross income (MAGI) that exceeds $75,000 for single and $150,000 for joint filers.
• Filing requirements: A social security number is required, and a married couple must file jointly to claim the deduction for both spouses.

No Tax on Tip Income

Eligible workers can deduct up to $25,000 per year in qualified tip income from their taxable income—and no itemizing of other deductions is necessary. Qualified tips are voluntary cash or charged tips received from customers or through tip sharing.

• Effective dates: 2025-2028 tax years
• Phase-out details: The deduction phases out for those with MAGI over $150,000 (single) or $300,000 (joint filers) – by $100 for each $1,000 over threshold.
• Eligibility: Applies to both employees and self-employed individuals. Tips must be reported and come from occupations that customarily and regularly receive tips (beginning on or before December 31, 2024) and that are reported on a Form W-2, Form 1099, or other specified statement. Married filers must file jointly.
• Additional Guidance Pending: By October 2, 2025, the IRS is supposed to publish a list of qualifying occupations. There will be transition relief for the 2025 tax year for employers and payors that are subject to the new reporting requirements.

No Tax on Overtime Wages

For eligible workers, qualified overtime compensation—specifically the portion above your regular pay (e.g., the “half” in time-and-a-half)—is now deductible through 2028, up to $12,500 for single and $25,000 for joint filers. This is an additional deduction on your tax return regardless of whether you take the standard deduction or itemize your deductions.

• Effective dates: 2025-2028 tax years
• Phase-out details: Begins for single filers over $150,000 and joint filers over $300,000 (by $100 for each $1,000 over threshold) with full phase-out at $400,000 and $550,000, respectively.
• Eligibility: Overtime must be reported on IRS-approved forms (e.g., Form W-2, Form 1099, or other specified statement). Married filers must file jointly.

Auto Loan Interest Deduction

If you purchase a new, U.S.-assembled vehicle for personal use and take out a loan, you may deduct up to $10,000 in interest per year.

• Effective dates: 2025-2028 tax years
• Phase-out thresholds: Applies against MAGI exceeding $100,000 for single filers and $200,000 for joint filers.
• Eligibility: Debt must be incurred after December 31, 2024. The vehicle must weigh less than 14,000 lbs and be a car, minivan, SUV, pickup truck, or motorcycle. Final assembly must be performed in the U.S.
• Reporting requirements: Lenders must file information returns reporting interest received on qualified personal auto loans with the IRS.

Putting It All Together: Who Wins—and How Much?

These new provisions offer real opportunities to reduce taxable income significantly for many families. However, eligibility rules and income phase-outs mean they will not benefit everyone equally.

Wrap-Up: What Should You Do?

• For tax planning purposes and making any adjustments to 2025 Q3 and Q4 tax estimates, check your eligibility for each deduction, especially phase-out thresholds based on MAGI, which is your adjusted gross income with specific deductions and exclusions added back in.
• If you are 65+, the additional senior deduction alone may dramatically reduce your tax burden, stack it with other deductions where applicable.
• Workers earning tip or overtime income and individuals with qualifying vehicle loans should evaluate how much they can trim from their taxable income.
• Understand how your employer plans to report tips and overtime compensation for the 2025 tax year, so you can plan accordingly for the preparation of your individual tax return.

Hungerford is Here to Help.

Navigating these new tax changes can be complex—but the potential savings are substantial. Reach out to Hungerford today to learn exactly how the 2025 changes will affect your situation and to develop a personalized tax strategy that maximizes your benefits.