High inflation as of late means this is the fourth year in a row that the adjustments have resulted in a higher 401(k) contribution limit. But what about your IRA?

Here’s how much you can contribute to retirement accounts in 2026.

IRA 2026 contribution limits

The contribution limits for a traditional or Roth IRA increased last year and will increase again for 2026.

• You can contribute a maximum of $7,500 (up from $7,000 last year).
• Catch-up contributions for taxpayers 50 and older are also subject to cost-of-living adjustments, and these limits have also increased for 2026 to $1,100 ($8,600 total).

However, not everyone can make the maximum IRA contribution limits this year. You can only make the maximum contribution to your Roth IRA if your modified adjusted gross income (MAGI) is below the threshold set for the year.

• For 2026, single and head-of-household filers with a MAGI below $153,000 (up from $150,000 last year) can contribute the full $7,500 in 2026.
• The maximum contribution is reduced for these filers if their MAGI is between $153,000 and $168,000, and these taxpayers can't contribute to a Roth IRA at all if their MAGI exceeds $168,000.
• For married couples filing jointly, the income phase-out range for 2026 is from $242,000 to $252,000 (up from from $236,000 to $246,000 last year).
• Joint filers with a MAGI below $242,000 can contribute the full $7,500 for 2026, but these filers cannot contribute anything to an IRA with a MAGI greater than $252,000.

(Note: The above income limits do not apply to traditional IRAs.)

401(k) limit increase for 2026 contributions

Contribution limits for 401(k), 403(b) most 457 plans, and the federal government's Thrift Savings Plan will increase by $1,000 for 2026. Eligible taxpayers can contribute $24,500 to these accounts in 2026 (up from $23,00 last year).

The contribution limit for SIMPLE plans increases to $17,000 this year (up from $16,500 last year). Similarly, participants of an applicable SIMPLE plan might be able to contribute a higher amount of $18,100 (up from $17,600 last year).

401(k) 2026 catch-up limit

There's an increase in catch-up contribution limits for taxpayers 50 and older for 2026. These taxpayers will be able to contribute an additional $8,000 in 2026 ($32,500 total).

However, under SECURE 2.0, a higher catch-up contribution limit applies for those age 60 to 63 beginning this year. (Participants in that age range could contribute an additional $11,250 instead of $8,000.) The total potential contribution amount for these taxpayers is $35,750.

For more information, see Kiplinger's report: 'Super Catch-Up' Contribution for Ages 60-63.

The catch-up contribution limit for employees age 50 and older who participate in SIMPLE plans also has increased for 2026, to $4,000 (certain applicable plans might have a contribution limit of $3,850).

But under a new change under SECURE 2.0, those who are 60 to 63 can contribute more to SIMPLE plans, ($5,250) for 2026.

IRA deduction phase-out thresholds for 2026

If you put money in a traditional IRA, you might be able to take a tax deduction for some or all your contributions. (There is no deduction available for contributions to a Roth IRA.)

However, the deduction is gradually phased out if your income is above a certain amount.

Here are the phase-out ranges for 2026.

• For single taxpayers covered by a workplace retirement plan, the phase-out range is from $81,000 to $91,000 (up from from $79,000 to $89,000 last year).
• For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is from $129,000 to $149,000 (up from $126,000 to $146,000 last year).
• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is from $242,000 to $252,000 (up from from $236,000 to $246,000 last year).

If you are married and filing a separate return (and covered by a workplace retirement plan), the phase-out range remains from $0 to $10,000 because this limit is not subject to a cost-of-living adjustment.

Saver's Credit income limit for 2026

Americans with lower and middle incomes who contribute to a retirement plan can claim the Saver's Credit on their federal tax return, which could lower their tax bills.

However, not everyone qualifies. Here are the new income limits for claiming the Saver’s Credit in 2026.

• $80,500 for married couples filing jointly (up from $79,000 last year).
• $60,375 for heads of household (up from $59,250 last year).
• $40,250 for single and married taxpayers filing separately (up from $39,500 last year).

Read More

• 2026 HSA Contribution Limit: What You Should Know
• Saver's Credit: Who Qualifies for This Retirement Tax Break?
• New 2026 Income Tax Brackets Are Set

Earlier this month, President Donald Trump released a graphic on his social media platform Truth Social titled “Great American Presidents.” Inside the graphic were the words “30-Year Mortgage” above a photograph of former President Franklin D. Roosevelt, and “50-Year Mortgage” above a photo of Trump.

The post sparked debate as industry experts and elected officials weighed in on a proposed 50-year loan term to help first-time buyers afford a home.

But would such a proposal actually help or hurt a homebuyer’s financial situation? And how would a 50-year mortgage affect another pain point for homeowners: Taxes?

Read on.

Are 50-year mortgages coming?

When homeowners buy a house, they typically secure a 30-year mortgage. This loan lifecycle follows a process called amortization, where the borrower pays fees and interest first, then slowly pays down the principal balance over time. Ideally, after 30 years, the homeowner owns the house.

By stretching the loan term from 30 to 50 years, the buyer effectively pays less every month for the same principal balance.

Consequently, on the surface, a 50-year mortgage might seem to help a first-time homebuyer afford a home, as shown by Fannie Mae’s mortgage calculator:

• A 30-year mortgage on a $200,000 home with a 5% down payment and 6% interest rate could result in a monthly mortgage payment of $1,512.
• A 50-year mortgage home with the same price and terms as above could lead to a monthly mortgage payment of $1,373.
• Compared to a 30-year term, the proposed 50-year mortgage would result in a monthly payment savings of approximately $139 for the homebuyer.

Director of the Federal Housing Finance Agency, Bill Pulte, who reportedly proposed the idea to Trump, called the proposal “a complete game changer,” while sharing Trump’s post on X. Pulte later added that the Trump administration is developing a “WIDE arsenal of solutions” to the housing affordability crisis.

Home affordability has become a recent issue for the Trump administration, as housing prices have skyrocketed more than 50% over the last five years.

And those who can afford a house spend an average of 39% of their income on housing expenses — well over the 30% recommended amount given by financial experts, according to Redfin. Yet some elected officials and industry experts claim the 50-year mortgage proposal could boomerang, leading to significantly higher home costs over time and even threatening future generational wealth.

50-year mortgage Trump proposal

A 50-year mortgage may yield slightly lower monthly payments than a 30-year term. But the total loan cost would be staggering, according to the latest LendingTree analysis using a $500,000 mortgage and a 6.1% interest rate:

• For a 30-year fixed loan, a homebuyer would pay $590,791 in interest over the life of the loan.
• For a 50-year fixed loan, a homebuyer would pay over $1.1 million in interest alone.
• Effectively, the amount of interest you pay on a 30-year vs. a 50-year loan would be more than double, even though your loan only increased by 20 years.

“This is not a good idea,” remarked Richard Green, a professor at the University of Southern California’s Marshall School of Business, who told CNN, “The monthly payment savings would be really small. At the same time, you’re putting people at risk, because it takes a really long time for them to start paying down their loan.”

Just days after the proposal, Trump told Fox News in an interview, “It’s not even a big deal,” and “All it means is you pay less per month. You pay it over a longer period of time. It’s not like a big factor.”

Meanwhile, the average age of a new homebuyer has increased to a record-breaking 40 years old, according to the National Association of Realtors.

If the first-time buyer purchases a home at that age, there’s a good chance they could be dead before their 50-year mortgage matures. Future generations could be on the hook for paying the loan, which means less wealth would be passed down to younger generations.

"I don’t like 50 year mortgages as the solution to the housing affordability crisis,” wrote Rep. Marjorie Taylor Greene (R-Ga.) on X. “It will ultimately reward the banks, mortgage lenders, and home builders while people pay far more in interest over time and die before they ever pay off their home. In debt forever, in debt for life!"

In the meantime, Opendoor’s CEO, Kaz Nejatian, praised the idea on X. “50 year mortgage is probably the most pro-homeowner government policy of the last two decades.”

50-year mortgage vs. 30-year mortgage: Interest tax deduction

Some may wonder whether the cost of a 50-year mortgage could be offset through tax savings. After all, homeowners may take advantage of the mortgage interest deduction (MID) if they itemize their federal returns.

• MID allows you to deduct up to $750,000 on qualifying loans after 2017 (before that date, the limit is $1 million).*
• Interest paid on a proposed 50-year loan would be higher compared to interest paid on a 30-year loan (even though your monthly mortgage payment would be lower).
• Because of this, your annual MID could be potentially higher on a hypothetical 50-year loan compared to a 30-year mortgage.
• However, because the MID is capped at $750,000 for new loans, you might not be able to recoup all your interest paid over the life of the loan (plus you’d have to itemize your federal taxes every year just to claim it instead of the standard deduction).
• And since the average homeowner typically sells their home after 12 years, you likely wouldn’t see a more advantageous tax benefit from the mortgage tax deduction than on a 30-year loan.

And there’s home equity risk, too. The principal is paid down slowly on a 50-year mortgage, which means the homeowner's equity builds at a significantly slower rate. This exposes the homeowner to a greater risk of potential home price declines, or even “negative” equity if the housing market dips.

*Note: The MID limits for married filing separately couples are lower than other filing statuses.

Is a 50-year mortgage a good idea legally?

Before anything else, the Trump administration would need to overcome a legislative hurdle to enact a 50-year mortgage.

The Dodd-Frank Wall Street Consumer Protection Act, which was designed (in part) to protect homebuyers after the 2008 housing financial crisis, doesn’t currently embrace 50-year mortgages.

So if a 50-year loan were issued, it would likely be “non-qualified,” meaning it wouldn’t be backed federally. The lack of federal assurance increases lender risk, which would likely increase the interest rate for the buyer.

Yet a policy change might not be off the table.

According to ABC News, a White House official said that the administration is "always exploring new ways to improve housing affordability" and will announce any official policy changes directly.

So stay informed and stay tuned.

Read More

• About 40% of Heirs Say They Can’t Afford an Inherited Home
• Ten Tax Breaks for Homeowners and Homebuyers in 2025
• Are Trump Tariffs Legal? The Supreme Court and What’s at Stake

1. Did the OBBB extend the QBI deduction?

Question: I know the qualified business income (QBI) deduction was going to expire at the end of 2025. Did the “One Big Beautiful Bill” (OBBB) extend this federal income tax break?

Joy Taylor: Yes. The OBBB not only extended this popular tax break that was otherwise set to expire after 2025 but also made it permanent. Self-employed individuals, independent contractors, gig workers who aren’t employees, farmers, some landlords and owners of pass-through entities, such as partnerships, LLCs and S corporations, claim the 20% QBI write-off on line 13 of their Form 1040 and attach IRS Form 8995 or 8995-A.

QBI is one’s allocable share of income less deductions from a business. The rules can get complicated, especially for individuals with 2025 incomes that exceed $394,600 for joint filers and $197,300 for other filers.

This tax deduction was first enacted in the 2017 Tax Cuts and Jobs Act to provide some federal income tax parity between C corporations, which are taxed at a 21% rate, and pass-through entities, in which the individual owners pay income tax on earnings up to a 37% tax rate. Many congressional Republicans wanted to make the 20% QBI permanent, and they got their wish in the OBBB.

Note that making this tax break permanent cost the government lots of money. That’s because it is in the top 10 largest federal individual income tax expenditures, rounded up by the staff of the bipartisan congressional Joint Committee on Taxation.

2. Can freelancers claim the QBI deduction?

Question: I recently left my full-time job, and I am now an independent freelance consultant. Can I claim the 20% QBI deduction on my 2025 Form 1040?

Joy Taylor: Generally, yes. The QBI deduction applies not only to individual owners of pass-through entities, such as partnerships, S corporations and LLCs, but also to self-employed individuals who file Schedule C with their returns.

An important limitation applies to high earners in certain service fields. They include health, law, accounting, consulting, financial and brokerage services, performing arts, athletics, actuarial science, investing or trading in securities, or any business where the principal asset is the reputation or skill of its employees. If you are in one of the affected fields and your income for 2025 exceeds $394,600 for joint filers or $197,300 for single filers and head-of-household filers, the 20% deduction begins to phase out.

3. Do landlords qualify for the QBI write-off?

Question: I own rental property and generate a profit from the activity. Can I claim a 20% qualified business income deduction for my rental income that I report on Schedule E of my Form 1040?

Joy Taylor: It depends. Self-employed individuals and owners of LLCs, partnerships, S corporations and other pass-through entities can deduct 20% of their QBI, subject to limitations for individuals with incomes in 2025 of more than $394,600 for joint filers and $197,300 for single filers and head-of-household filers.

Rental income reported on Schedule E of the Form 1040 may be eligible for the deduction in certain cases. There are two ways to qualify for the 20% QBI write-off for rental income. The first is if the rental activity rises to the level of a trade or business. For this purpose, the IRS’s regulations refer to the standard under tax code Section 162, the statute that generally governs the deductibility of trade or business expenses.

There is no statutory or regulatory definition of a Section 162 trade or business. Instead, this is based on each taxpayer’s specific facts and circumstances. Some relevant factors are the type of property (commercial or residential), lease terms, extent of day-to-day involvement by the lessor or his or her agents, the significance and type of ancillary services provided under the lease, and the number of rentals.

A second way to qualify rental income as QBI is to meet an IRS safe harbor. At least 250 hours in a year must be devoted to the rental activity by the taxpayer, employees or independent contractors. Time spent on repairs, collecting rent, negotiating leases, tenant services, property management, advertising and supervising workers counts. Hours put in for driving to and from the property, arranging financing and constructing long-term capital improvements on the property aren’t included. If you own multiple properties, you can treat each property separately or aggregate similar rental activities into commercial or residential categories.

Taxpayers who use the safe harbor must meet strict recordkeeping requirements and attach an annual statement to their tax returns. Contemporaneous records must detail hours, dates and descriptions of the services and who performed them. If the services are done by contractors or employees, the taxpayer must keep logs of the work done by them, as well as proof of payment.

Note that the safe harbor doesn’t apply to rental income from property leased under a triple net lease or if the owner’s personal use of residential property exceeds the greater of 14 days or 10% of the days rented.

Treating rental income as QBI doesn’t change how you report that income on your Form 1040. Rental estate rental income is usually reported on Schedule E of the 1040. Also, the rental income generally isn’t subject to self-employment tax.

4. Do REIT investors get the 20% QBI write-off?

Question: I am thinking of buying shares in a real estate investment trust (REIT). My financial advisor told me that REIT investors qualify for the 20% QBI deduction. Is this true?

Joy Taylor: Yes. The 20% QBI deduction also applies to holders of publicly traded partnership units and REIT shares. Individuals can deduct 20% of qualified REIT dividends, which are distributions not taxed under the favorable rules for capital gains and dividends, and 20% of their share of a PTP’s QBI.

5. How do LLC members know the amount of the entity’s QBI?

Question: I own membership interests in a multi-member LLC. How do I know if the LLC has QBI, and if it does, my allocable share of the LLC’s QBI?

Joy Taylor: The Schedule K-1 that you receive from the LLC will include your allocable share of the LLC’s QBI, if any, in the “Other Information Box” of the K-1 under a special code. Similar information will be shown on Schedule K-1s given to S corporation shareholders and to partners in partnerships.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

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• Ask the Editor: What Medical Expenses are Deductible?
• Ask the Editor: Questions on the New Tips Deduction
• Ask the Editor: Questions on Four New Tax Deductions
• Ask the Editor: Question on SALT Deduction
• Ask the Editor: Questions on the $6,000 Senior Deduction

And for high-income earners, charitable giving in 2025 is particularly vital. Tax legislation in 2026 will cap the maximum federal tax benefit at 35%, effectively making contributions this year far more valuable. Plus, a new rule next year might further reduce the allowable charitable deductions for donors with complex gifting strategies.

Here’s what you need to know.

Charitable deduction for high-income earners in 2025

Let’s first review why donating this year, in 2025, is more advantageous than in 2026. Basically, the 2025 Trump Tax Bill changed many rules regarding charitable donations. Those changes are summarized in the following table.

As you can see, for 2026, a charitable contribution "floor" will be introduced for itemizers, regardless of income level. Only total contributions above 0.5% of your AGI will be deductible.

For example, if you had $200,000 AGI and donated $2,000, only $1,000 would be deductible.

Charitable contributions for high-income itemizers will also be subject to a cap in 2026. The new law imposes a 35% limit on the value of all itemized deductions for high earners, meaning taxpayers in the top bracket will receive a lower tax break compared to 2025.

The calculation order for charitable asset types will be reversed. Assets with the lowest deduction limits (e.g., 20% of AGI) will now be calculated first.

This technical change directly affects how much of your giving is an allowable deduction in 2026, potentially reducing the overall tax break for high-income donors who make gifts of varying asset types.

While excess contributions can still be carried forward for up to five years, carryforwards used in 2026 and beyond will be subject to the new limitations.

So below are three ways for you to take advantage of the more advantageous donation rules in 2025 — especially if you’re a high earner.

1. Donate stock to charity (or other appreciated non-cash assets)

You may have heard that donating appreciated stock (or other non-cash assets) is a part of a good charitable deduction strategy. Well, that’s because donating these assets provides a “double” tax benefit.

• You can deduct the asset’s full fair market value, pre-tax. If your asset’s fair market value (FMV) is higher than “cost-basis” (what you paid), the gain is not taxable once donated to a qualified, public charity.
• This allows you to avoid capital gains tax. By transferring the asset directly to your chosen charity, you’ll avoid paying capital gains tax (up to 20%) on the increase in the asset’s value. Plus, you may also avoid paying the 3.8% net investment income tax (NIIT).

Of course, there are a couple of caveats when donating appreciated non-cash assets.

• Namely, the donated asset must have been held for more than one year before donation; otherwise, the asset will be donated at cost-basis, which could be significantly lower than the value of an appreciated stock.
• Also, donations of appreciated stock to a public charity are subject to a 30% AGI limit, which is higher than the AGI limit for cash (60%). Despite this difference, avoiding capital gains tax typically makes donating the asset (rather than selling and donating the cash) more tax-advantageous.

If you donate appreciated assets to specific types of accounts, your donations may also yield tax-free growth for future charitable giving. One such account that high-earners typically use is a donor-advised fund (DAF).

2. Use a donor-advised fund (DAF) bunching tax strategy

A donor-advised fund (DAF) allows you to claim an immediate tax deduction for your contributions this year (under the more favorable 2025 rules), while the fund recommends grants to your chosen charities over time.

Given the flexibility in timing, a DAF is often used in conjunction with a tax strategy called “bunching.” This is where you pay two or more years’ worth of itemized expenses in the current tax year to push your total itemized deductions over the standard deduction amount.

• If performed correctly, “bunching” your deductions gives you one year of high itemization followed by one year of the standard deduction, which maximizes your total tax savings for both years.
• Using a DAF-bunching strategy is particularly beneficial for high-income earners who anticipate a higher federal income tax rate in 2026, when charitable giving tax laws will be less favorable.
• Plus, tax-free growth in a DAF means you can pay out more money in the future, amplifying your philanthropic impact.

Also, bunching doesn’t just exist for charitable deductions. You can front-load other popular itemized deductions, like the state and local (SALT) deduction, the medical expense deduction, and even the mortgage interest deduction, to help push your deduction amount higher than the standard. Yet keep in mind that certain AGI limits and other IRS rules may apply to each itemized deduction.

3. Make a charitable IRA distribution (QCD)

A qualified charitable distribution (QCD) is a distribution from your IRA to a qualified charity of your choice. QCDs are particularly beneficial if you’re trying to avoid taking your required minimum distribution (RMD) and still want to meet your charitable giving goals for the year.

Here are the eligibility requirements for 2025:

• You must be age 70 ½ or older.
• You can donate up to $108,000 (or $216,000 if married spouses) in a single tax year.
• The distribution must be made from a traditional IRA, an inherited IRA, or an inactive SEP/SIMPLE IRA.

Although QCDs require that you “give up” a portion of your annual IRA distribution to a charity, that amount is excluded from your AGI.

This lower AGI may reduce your taxable income, thereby lowering your tax on Social Security benefits for the current year. Even better, reducing your AGI helps lower your income for the Medicare premium calculation two years later, potentially allowing you to avoid higher premiums.

But a QCD doesn’t qualify as an itemized “charitable deduction” on your income taxes, which may hamper your bunching strategy. You also can’t use a DAF to make a QCD, so be sure to review your complete charitable giving strategy before making one.

Changes to charitable donations in 2026

While we covered several notable ways to maximize your gifting strategy in 2025 if you’re a high-income earner, here are a couple of other gift tax changes going into effect in 2026:

• Increased estate tax exclusion. While the basic exclusion amount for individuals was $13.99 in 2025, the exclusion was increased to $15 million in 2026. This may affect your gifting strategy as a higher exclusion amount allows individuals to transfer more wealth to heirs estate tax-free.
• New non-itemizer charitable deduction. A federal deduction for non-itemizers up to $1,000 for single filers (or $2,000 for joint filers) will be available in 2026. However, you can’t use this deduction in conjunction with DAF or private foundations.

Of course, these changes may not affect everyone, depending on your gifting strategy. Also, state tax rules may differ. Consult with a qualified tax professional to discuss which tax strategies are best for your financial circumstances.

Read More

• 10 Retirement Tax Plan Moves to Make Before Year-End
• What is the Gift Tax Exclusion for 2025 and 2026?
• 2025 Roth Conversion Strategy: 6 Reasons to Convert (& When Not to)
• How Charitable Donations Can Reduce Your Taxes

The D.C. City Council decoupled from the new 2025 Trump tax law, thereby removing local income tax savings tied to the new "no tax on tips" deduction and the $6,000 "senior bonus" deduction. This means District of Columbia residents who qualify for these federal tax breaks won't be able to claim them on their local tax returns.

While difficult, the choice certainly wasn’t surprising. The District of Columbia is expected to lose up to $1 billion in revenue over the next four years, due to the projected loss of 40,000 federal government-related jobs, according to the D.C. Fiscal Policy Institute (DCFPI). Although the federal shutdown may be coming to an end, its effects could be felt long-term in the nation’s capital.

City Chief Financial Officer Glen Lee wrote in a letter to the mayor and council chairman late September, citing that a prolonged government shutdown could “place significant strain on the economy” in D.C., as previous shutdowns had “a range of impacts on revenue.”

The Council’s temporary decision to separate its income tax laws from federal tax provisions also underscores a broader, continuing state-level debate: Should states adopt all of the “Trump tax law,” and if not, which provisions will get bumped? Read on.

D.C. ends tax-free overtime and bonus deduction for older adults

Although the BBB is federal law, it doesn’t have to be part of state tax laws. That’s because states have three options when it comes to adopting current federal tax policy (or any combination thereof):

• Rolling conformity. States can automatically follow the latest federal rules for the current tax year.
• Static conformity. States can update their conformity date every year through legislation.
• Selective conformity. States can “pick and choose” which parts of the federal tax law to follow, rather than adopting the tax code in its entirety.

In the past, the District of Columbia has typically accepted federal tax law on a rolling basis. However, just this month, the City Council approved “emergency legislation” to decouple from federal tax code changes enacted in July, including:

• The $6,000 bonus deduction for older adults.
• The “no tax on tips” provision and the overtime pay deduction.
• Immediate expensing of research and development (R&D) costs.
• Special depreciation allowances for businesses.

By excluding these provisions from D.C. income taxes, the Council is hoping to save $95 million in fiscal year 2025 and $567 million through fiscal year 2029.

Retained revenue will be used to create a new local Child Tax Credit of $1,000 per child and expand the city’s Earned Income Tax Credit from 85% to 100% of the federal level.

Supporters of the measure, like the DCFPI and DC Guaranteed Income Coalition pointed out the growing child poverty rates in the District of Columbia. The city faces a significant challenge with child hunger, affecting approximately one in seven children. Furthermore, D.C.'s child poverty rate for those aged 6 to 17 is the fifth-highest when compared to other states, according to the DCFPI.

Federal vs. state: The complex rules of tax conformity

The “emergency amendment” that the City Council passed did not require voter approval. The effect will only last 90 days, at which point a “temporary amendment” clause will also kick in, extending the law for 225 days. After that, the law must be approved through the normal, permanent state legislative process.

Yet while D.C. is unique in how it temporarily decoupled from federal law, other former rolling conformity states are decoupling from individual tax law via more “traditional” methods:

• New York has rejected the federal "no tax on tips" and overtime deductions. The state achieved this by adhering to its tax code's static date (an enactment date before the new bill was signed), effectively ensuring these federal tax breaks do not apply to state income taxes.
• Even before the BBB was signed, Colorado passed a law requiring all overtime pay to remain subject to overtime tax. This means the overtime provision in the BBB will not benefit Colorado overtime workers on their state returns.

With COVID-era federal aid depleted and Trump tariffs raising economic uncertainty, many states are looking for ways to protect state budgets by decoupling from federal corporate tax law, too.

For instance, Michigan, Rhode Island, and Illinois decoupled from specific business tax cuts, like the 100% bonus depreciation and R&D provisions. If all states conformed with these provisions, the total projected cost would be $38.2 billion in 2026, according to the Tax Foundation.

However, in an already slowing national economy, further reduction in economic growth could be a red flag. The Tax Foundation has advocated for “judicious decoupling” of federal tax cuts that could promote economic prosperity, particularly in the nation’s capital.

The Institute of Taxation and Economic Policy also reports that greater conformity to federal rules makes state tax returns more “practical” for taxpayers, with “fewer calculations to make.”

How state tax conformity will alter your 2025 income tax bill

As the debate continues, several states have decided to either decouple from federal provisions or simply continue with existing state tax laws. Here’s a breakdown of where various states stand in adopting BBB tax provisions, according to Reuters:

• At least four states will accept most BBB individual return provisions in 2025, including Iowa, Montana, North Dakota, and Oregon.
• Several states will not conform to BBB provisions, including California, Connecticut, Hawaii, and Massachusetts.
• Waiting in the wings are states like Georgia, Maryland, and South Carolina, which plan to address changes to their state tax codes in the 2026 legislative session.

So when you file your 2025 taxes in the 2026 filing season, you should pay extra attention to your state return. The tax breaks you thought you were getting may only apply to your federal taxes, and your state tax liability may be unaffected by the new Trump tax law provisions.

Read More

• Ten Tax Breaks for Middle-Class Families in 2025
• Trump’s 2025 Tax Bill: What’s Changing and How It Affects Your Taxes
• Three Popular Tax Breaks Are Gone for Good in 2026
• New Tax Rules: Income the IRS Won’t Touch in 2025

1. What are the general rules for the deduction?

Question: I hear that individuals can now deduct interest paid on their car loans. Can you explain this tax break?

Joy Taylor: The “One Big Beautiful Bill” law that was enacted on July 4 provides several new tax breaks for individuals. One of those is the up-to-$10,000 deduction for interest paid on loans to buy a new vehicle for personal use. This deduction is temporary, first taking effect on 2025 tax returns that you file next year, and ending after 2028. It is available to people who itemize on Schedule A of Form 1040 and to filers who claim standard deductions. This is a “below-the-line” deduction, meaning it is subtracted from adjusted gross income to arrive at taxable income.

The write-off begins to phase out at modified adjusted gross income (MAGI) over $200,000 on joint returns and $100,000 on other returns, and ends at MAGI of $250,000 on joint returns and $150,000 on others.

Interest paid on the purchase of a new qualified passenger vehicle is eligible for the deduction. A qualified passenger vehicle is a car, minivan, van, SUV, motorcycle or pickup truck with a gross vehicle weight rating of less than 14,000 pounds that is bought for personal use. Also, the vehicle’s final assembly must take place in the United States. You must purchase the vehicle in 2025 or later, and you cannot deduct interest paid on a loan to buy a used vehicle.

The lender must generally file an information return with the IRS, reporting the amount of interest received from the buyer of the car and send a copy to the purchaser. The IRS is providing some transitional relief from this reporting rule. For the 2025 year, the business receiving the car loan interest may satisfy its reporting obligations by making a statement available to the car buyer stating the total amount of interest received on a qualified passenger vehicle loan. This can be provided on an online portal, in a monthly statement or annual statement given to the buyer, or something similar.

This relief gives lenders extra time to comply with the normal reporting obligations and lets the IRS make necessary program changes and updates to its tax forms, while also giving car buyers the information they need to claim the new deduction.

2. What is MAGI?

Question: I know the deduction for interest paid on car loans begins to phase out at MAGI over a certain amount. What is the definition of MAGI for this deduction?

Joy Taylor: As stated above, the tax break begins to phase out at MAGI over $200,000 on joint tax returns and $100,000 on other tax returns, and ends at MAGI of $250,000 on joint tax returns and $150,000 on other tax returns.

MAGI is often used by the IRS to determine your eligibility for certain tax benefits or tax breaks, or to determine whether you are subject to surtaxes or surcharges. True to the complexity of the federal tax code, the definition of MAGI often differs, depending on what it is used for.

MAGI for this purpose is your adjusted gross income shown on line 11 of your Form 1040 or 1040-SR, plus any foreign earned income exclusion, foreign housing exclusion, and certain excluded income received from sources in Puerto Rico, American Samoa, Guam or the Northern Mariana Islands.

3. Can I deduct interest on my 2023 car loan?

Question: I bought a new car in 2023 for personal use, and I took out a loan to finance the purchase. Will I be able to deduct the interest that I pay this year on my 2025 tax return that I file next year?

Joy Taylor: Unfortunately, no. To qualify for the deduction, you must purchase the vehicle in 2025 or later. Since you bought the vehicle in 2023, you cannot deduct the interest that you pay on the car loan in 2025 or in later years.

4. How do I report this on my tax return?

Question: I bought a new car for personal use this past March, and I took out a loan to finance the purchase. How do I deduct the interest that I paid on the car loan on my 2025 Form 1040?

Joy Taylor: You would use new IRS Schedule 1-A to compute your MAGI and to calculate the amount of the car loan interest deduction. You would then transfer the deduction amount to line 13 of your Form 1040. Note that you will need to also put in the vehicle identification number on Schedule 1-A.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Reader Questions on QCDs
• Ask the Editor: Reader Questions on QCDs and Tax Planning
• Ask the Editor: Questions on the New Tips Deduction
• Ask the Editor: Questions on Four New Tax Deductions
• Ask the Editor: Question on SALT Deduction
• Ask the Editor: Questions on the $6,000 Senior Deduction

Retirees are in a unique planning position compared with other tax filers heading into the winter season. Not only are they faced with complex withdrawal rules on RMDs, but many have access to age-specific tax deductions, including the new $6,000 “senior bonus” deduction.

Whether you leverage this time by making strategic money moves or wait until the last second to act can affect your financial position next year (and potentially this year).

Here are 10 tax moves you can make before December 31 to optimize next year’s retirement income and potentially lower your 2025 tax bill.

Retirement tax plan in 2025 and 2026

Kiplinger only considered individual income returns for the retiree tax planning checklist. As such, business taxes were excluded, as well as educational expenses or tax breaks typically associated with self-employment.

The retirement tax moves listed might be affected by a taxpayer’s income level and filing status. State retirement tax treatment may differ.

Consult with a qualified tax professional for specific advice on your financial situation.

RMDs

1. Review your 2025 RMD (and 2026) tax strategy

As a retiree, you might already be familiar with the concept of required minimum distributions (RMDs). An RMD is money that must be withdrawn from a 401(k), 403(b) or other traditional IRA every year after you reach a certain age. If you don’t make the withdrawal, you could be subject to a 25% penalty on the amount not distributed.

Here are the current age requirements for RMD withdrawals:

• If you’re 73 or older, you must take an RMD from your retirement accounts by December 31.
• If you turned 73 in the current year, your first RMD is due by April 1 of the following year, but your second RMD is still due by December 31 of that same year.

If you’re subject to RMD rules and haven’t already withdrawn your RMD for 2025, you should do so now to avoid the penalty. But you’ll also want to look at 2026’s RMD withdrawal for retirement tax planning purposes. This might help you avoid common RMD tax traps:

• Preventing the “two RMD trap.” The IRS gives an extended deadline of April 1 to take your first RMD. However, all subsequent RMDs must be taken by December 31, meaning that if you delay until April, you’ll have to take two withdrawals in one year. That could push you into a higher tax bracket and increase your overall tax liability for that year.
• Reducing investment risk. RMDs are calculated in part using your RMD account balance from the prior year. If there’s a market downturn in, say, 2026, you’ll still have to withdraw the predetermined amount at the end of 2025 (which might have been higher). This could result in the forced selling of IRA investments at a lower value just to satisfy your RMD obligation.

By reviewing your RMD withdrawal strategy now, you can minimize the effect of market volatility on your portfolio. This often means strategically withdrawing cash or bonds during downturns.

Alternatively, during an economic upturn, you’d likely want to take your RMD earlier in the year, locking in investment gains by selling fewer shares to meet the RMD amount.

You can also take steps to lower your taxable income from other revenue streams, which helps to counteract the larger taxable income resulting from RMDs and keeps your overall tax bill more manageable in 2026.

For more information, see Required Minimum Distributions: Rules, Deadlines, and Key Points to Know.

IRA Conversion and Investment Timing

2. Take advantage of capital loss carryover: Tax-loss harvesting

Tax-loss harvesting is the strategic practice of selling taxable account investments (such as trusts or brokerage accounts) to maximize tax savings. Here’s how this strategy works:

• You have at least one capital asset (such as real estate, stock, etc.) that you sell for more than you paid for it, resulting in a capital gain.
• You sell at least one investment for less than you originally paid, resulting in a capital loss.
• Then you offset the total amount of capital losses against your capital gains, effectively leading to a 0% tax on any gains offset by losses.
• If your total capital losses are greater than your gains for the year, you can use the excess to deduct up to an additional $3,000 against your ordinary income. Any remaining losses that exceed this $3,000 limit are carried forward indefinitely to offset future capital gains.*

When would tax-loss harvesting be useful? Here are a few examples:

• If you’re subject to the highest tax rate on capital gains, you can avoid that tax through tax-loss harvesting, resulting in valuable savings. Those savings can be reinvested in securities or used to help rebalance your portfolio.
• By deducting up to $3,000 of capital losses against ordinary income, you can save on taxes typically levied on retirement plan distributions, pensions, and other ordinary income sources. An unlimited amount of capital loss might be carried forward to offset gains from real estate sales, mutual funds, ETFs, etc..

However, before you commit to tax-loss harvesting, look out for the “wash sale rule,” which says you can’t reinvest in similar securities 30 days before or after you sold the capital loss ones. If you do, your capital losses won’t count as an offset to your capital gains.

*Note: The deduction amount is $1,500 for taxpayers married filing separately.

For more information, see: Capital Losses: Rules to Know for Tax Loss Harvesting.

3. Perform a Roth conversion

If you have a traditional retirement savings account (such as a 401(k), 403(b) or traditional IRA), you might be wondering: Is now the right time to convert to a Roth IRA?

The trade-off is clear: With a traditional IRA, you pay taxes when you take a distribution; with a Roth account, you pay taxes now on the funds you contribute.

Consequently, converting from a traditional IRA to a Roth means you must pay the income tax in the year of conversion, but the potential long-term benefits of tax-free growth might be worth the upfront cost.

Reasons you might consider converting your traditional IRA to a Roth account:

• You expect your 2026 income tax rate (or later) to be higher. Often, there’s a “lull” for retirees in the years after they stop working and before they start receiving Social Security, where income is at its lowest. If you’re there now, you might consider converting to a Roth before the end of 2025, and your income (and/or federal tax rate) is higher.
• You want to avoid RMDs. Those yearly required withdrawals from your IRA disappear with a Roth conversion. Your money in a Roth account grows tax-free throughout your entire lifetime and gives you greater control of when and how much you withdraw each year, which might be ideal for those who want more flexibility with their retirement tax plan.
• You plan to leave money to your heirs. If you have a valuable estate, a Roth generally offers beneficiaries tax-free withdrawals. Comparatively, traditional IRA withdrawals are taxed as ordinary income for your heirs.

*Note: If you're 73 or older at the time of the conversion, you must first take your RMD from your traditional IRA for the year of the switch.

But the grass isn’t always greener on the Roth side of things. Here are a few reasons why you wouldn’t convert a traditional IRA to a Roth:

• You expect your 2026 income tax rate (or later) to be lower or the same. If your projected future tax rate is lower than your current rate, you might not want to convert a traditional IRA to a Roth, as you would be paying taxes at a higher rate vs later (in 2026) when your rate is lower.
• You have to use IRA funds just to pay the conversion tax bill. Converting a traditional IRA to a Roth requires you to pay the federal income tax owed upfront. If you're forced to use funds from the traditional IRA to pay off the conversion taxes, the conversion can incur early withdrawal penalties. Taking an early withdrawal not only diminishes your savings but also significantly lowers the primary benefit of the Roth account: Tax-free growth.
• You need to use the converted funds within five years. If you’re under 59½, you can’t use your funds for five years after a traditional IRA to Roth conversion. Otherwise, you could be subject to a 10% early withdrawal penalty. (However, if you’re older than 59½, you might withdraw the funds penalty-free before the five years are completed, though any earnings on those funds will be subject to income tax.)

Like other checklist items on this retirement tax planning list, you’ll want to consider your overall retirement tax strategy when deciding whether to convert your traditional IRA to a Roth account. However, the deadline to complete a 2025 conversion is December 31.

For more information, check out Kiplinger's report, 6 Tax Reasons to Convert Your IRA to a Roth (and When You Shouldn't).

4. Convert a 529 to a Roth (if you can)

While we’re on the topic of conversions, let’s review an exciting (and relatively new) tax law: The Secure Act 2.0. Among other things, this law enacted a provision that allows you to convert a 529 savings plan into a Roth account.

Here are the rules for a 529 savings account to Roth IRA conversion:

• The 529 plan must have been open for at least 15 years.
• Plan contributions must have been held in the account for at least five years before conversion.
• The beneficiary for both the 529 and the Roth must be the same, and the transfer must be direct: From one plan trustee to the other trustee.
• The beneficiary must have earned income at least equal to the amount of the rollover.
• You might roll over up to $35,000 of unused 529 funds into a Roth IRA (per beneficiary). That’s a lifetime limit, meaning you’ll need to total all transfers across all 529 plans that are rolling over into Roths.

The rollover is subject to the annual Roth IRA contribution limits. (You might want to spread a large conversion over several years.) But if you can roll over your 529 plan into a Roth, the federal tax benefits might be worthwhile.

Benefits of a 529 to Roth conversion. You won’t be taxed federally on the conversion. Plus, you’ll avoid penalties for withdrawing funds from a 529 for non-educational expenses, with the added benefit of jumpstarting the beneficiary’s retirement savings.

Itemized deduction timing

5. Organize your bunching strategy for tax deductions

The tax strategy of “bunching” means you pay two years’ worth of itemized expenses in the current tax year to push your total itemized deductions higher than the standard deduction amount.

If performed correctly, you’ll gain one year of high itemization followed by one year of the standard deduction, which maximizes your total tax savings for both years.

Bunching deductions typically relies on the fact that you:

1. Can claim the itemized deduction on your income tax return (at least for the year that you “bunch”)
2. Have the flexibility to pay for some of your expenses early

You should consider bunching your deductions in 2025 if you anticipate a higher federal income tax rate in 2026. Bunching deductions might also be beneficial if you expect your tax situation to be negatively impacted by new tax legislation in 2026, such as the new AGI floor for itemized charitable deductions (more on that later).

Here are a few ways you might “bunch” your deductions and acquire tax savings in 2025:

• Maximizing the state and local (SALT) deduction. Starting in 2025, you can deduct up to $40,000 in SALT on your federal income return (if you meet income requirements). By prepaying your fourth-quarter property taxes before December 31 (if your state allows it), you could reach higher tax savings before the AGI floor kicks in in 2026.
• Front-load charitable contributions. You can use a donor-advised fund to take advantage of more favorable tax rules in 2025 (more on that below).
• Pay high medical expenses early. Do you have significant medical expenses scheduled for early 2026? If those qualified procedures are near the 7.5% AGI threshold for the medical expense deduction, consider paying them before the end of 2025 to take advantage of bunching.*

*Any medical procedures completed “substantially beyond” 2025 might not qualify for the medical expense deduction in 2025.

6. Finish your charitable donations

If you itemize, be sure to finish making your charitable contributions before the December 31 deadline. Donations can be a powerful way to reduce your taxable income for the year. (Though adjusted gross income (AGI) limits apply.)

Starting in 2026, the rules for itemizing charitable giving will get tighter, making your contributions this year even more valuable.

That’s because the Trump/GOP 2025 spending bill, known to some as the “One Big Beautiful Bill,” provides an AGI floor for itemizers as well as a deduction cap for high-income earners in 2026. Here’s a table summarizing the new tax rules for charitable deductions going into effect next year:

For 2026, a charitable contribution "floor" will be introduced for itemizers, regardless of income level. Only total contributions above 0.5% of your AGI will be deductible. For example, if you had $200,000 AGI and donated $2,000, only $1,000 would be deductible.

Charitable contributions for high-income itemizers will also be subject to a cap in 2026. The new law imposes a 35% limit on the value of all itemized deductions for high earners, meaning taxpayers in the top bracket will receive a lower tax break compared to 2025.

Both of these provisions make “bunching” deductions more valuable than ever. You can achieve this by contributing to a donor-advised fund (DAF). A DAF allows you to claim an immediate tax deduction for your contributions this year (under the more favorable 2025 rules), while the fund awards the “bunched” money to your chosen charities over time. This might help you maximize your deduction before the 2026 limits take effect.

For more information, see our guide: The Charitable Donation Tax Deduction: What to Know.

Optimize Retirement Tax Efficiency

7. Consider making a qualified charitable distribution in 2025

A qualified charitable distribution (QCD) is a distribution from your IRA to a qualified charity of your choice. However, not everyone’s eligible to make one. Here are the eligibility requirements for 2025:

• You must be age 70½ or older.
• You can donate up to $108,000 (or $216,000 if married spouses) in a single tax year.
• The distribution must be made from a traditional IRA, an inherited IRA, or an inactive SEP/SIMPLE IRA.

QCDs require that you “give up” a portion of your annual IRA distribution to a charity, effectively going without your hard-earned cash. But making a QCD goes hand-in-hand with many of the retirement tax items we’ve already covered on our list. For example:

• Avoiding the taxability of RMDs. If you don’t need all the money from your RMD, you can donate a portion as a QCD. This has the double benefit of satisfying your RMD while paying no federal income tax on the portion you donate.
• Lowering your AGI. Remember that charitable deduction cap coming into effect in 2026 for high-income earners? If you make a QCD in 2026, you can effectively reduce your AGI, potentially lowering your federal income tax bracket next year and thereby avoiding the new AGI cap.
• Reducing high taxes on Social Security benefits and Medicare premiums. Because your QCD lowers your gross income, you might see a reduction in the amount of tax you pay on Social Security in the year you made the QCD, or your Medicare premium tax two years later.

That said, a QCD doesn’t qualify as an itemized “charitable deduction” on your income taxes, which might hamper your bunching strategy. You also can’t use a DAF to make a QCD, so it might make your approach to donating less flexible.

For more information, see: What is a Qualified Charitable Distribution?

8. Update your retirement income withholding

There are two primary methods for retirees to pay federal income taxes. The first is through estimated tax payments, which are due quarterly.

The second is through automatic withholding by filling out the appropriate form (e.g., pensions and annuities use Form W-4P, Social Security benefits use Form W-4V, etc). We’re going to discuss the withholding option.

You should review your retirement withholding form(s) annually for potential changes in your tax situation. This is particularly pertinent for 2026, when the withholding forms will be updated for new tax deductions such as:

• The car loan interest deduction. Worth up to $10,000 on qualifying new vehicles, some suggest the estimated annual tax savings could average around $400 to $500 per taxpayer in 2026.
• The bonus deduction for those age 65 or older. Worth up to $6,000 for eligible individuals with less than a certain income, the Tax Policy Center estimates that about half of eligible older adults will see some benefit.

The main benefit of updating your retirement withholding is that you can take advantage of the tax deductions throughout the year instead of just at year-end.

Not only does this give you more income month-to-month, but you can also invest those extra dollars into a savings account or other security and start accruing interest right away.

The IRS considers withholding to be paid “evenly throughout the year” regardless of when you actually withheld your taxes. If you accidentally underpay your taxes during one quarter, you can increase your withholding toward the end of the year and cover the shortfall. This is another reason you should review your retirement tax withholding before December 31.

Review Important Tax Documents

9. Review health care coverage: Open enrollment for Medicare

We’re in full swing of open enrollment season (which typically lasts until December 7 for Medicare, and until January 15 for Affordable Care Act (ACA) marketplace insurance). This is the time to ensure your health care coverage and plan costs still meet your needs and compare potential alternative plans.

Reviewing your medical plans might be more important than ever. If you’re currently using ACA subsidies, those are scheduled to expire at the end of 2025 (unless Congress acts). The expiration is expected to lead to significant premium increases and higher out-of-pocket costs for many enrollees in 2026.

• Medicare premiums and IRMMA are projected to increase. As reported by Kiplinger, Medicare Part B premiums and deductibles are expected to increase by about 12%, and Part D IRMMA surcharges might increase by as much as 6%.
• Prescription drug coverage will likely see a higher maximum deductible. Current estimates place the projected 2026 out-of-pocket cost cap at $2,100, compared to $2,000 in 2025.

What should you do? Review the Annual Notice of Change (ANOC) letter you received from your current insurer to understand the plan changes going into effect in 2026. The ANOC might inform you of income-related premium increases and if your doctor network is still covered.

By using previously discussed tax strategies like QCDs or Roth IRA conversions, you might be able to reduce high anticipated Medicare premiums.

However, keep in mind that Medicare premiums are calculated on modified adjusted gross income (MAGI) from two years prior. Any change you make in tax year 2025 will not impact your Medicare premiums until 2027.

Related: Health Insurance Tax Credits and the Government Shutdown: What to Know.

10. Review your estate planning goals

Lastly, now’s a good time to review your will, power of attorney documents, and beneficiary designations on all retirement accounts and insurance policies.

Reviewing those important documents each year helps ensure that your estate-planning goals still align with your current retirement goals, especially in light of new tax rules.

Here are a couple of things to know regarding your 2026 estate tax plan:

• The annual gift tax exclusion remains the same. For both the 2025 and 2026 tax years, the annual gift amount is $19,000 (single filers) or $38,000 (married filing jointly couple). Gifting money tax-free helps minimize estate tax liability for your heirs when you pass away.
• The estate tax exclusion amount increased. While the basic exclusion amount for individuals was $13.99 million in 2025, the exclusion was increased to $15 million in 2026. This allows individuals to transfer a larger amount of wealth estate tax-free, potentially offering heirs more post-tax funds.

While the estate exemption amount remains high in 2026, you might want to make large gifts in 2025 to “lock in” asset values if you think those assets could appreciate significantly. This effectively moves that future appreciation out of the estate, avoiding estate tax on future growth.

At the same time, assets in an estate are given to heirs at a “stepped up” basis, meaning the heir receives those assets at fair market value. This effectively eliminates the capital gains tax (should your heir later decide to sell the asset) and is one of the benefits of keeping assets in an estate.

Everyone’s estate tax liability looks different. Outsource your taxes to a qualified tax adviser when necessary.

Read More

• How the IRS Taxes Retirement Income
• The Rubber Duck Rule of Retirement Tax Planning
• New Tax Rules High-Income Earners Should Know Before Donating in 2025
• Test Your Retirement Tax IQ: How Much Do You Know?

1. Can I claim medical expenses and the standard deduction?

Question: I normally claim the standard deduction when I file my Form 1040. This year, I have incurred lots of medical expenses. Can I deduct them and take the standard deduction?

Joy Taylor: No. The medical expense write-off is an itemized deduction claimed on Schedule A of Form 1040. You cannot take the standard deduction if you are itemizing deductions on Schedule A. It’s an either/or situation – either you claim the standard deduction OR you itemize deductions on Schedule A. You can’t do both.

2. Are Medicare premiums deductible?

Question: This will be the first year I am claiming medical expenses on Schedule A of the Form 1040. My spouse and I each pay monthly premiums for our Medicare coverage. Are the premiums we pay deductible medical expenses?

Joy Taylor: Yes. Taxpayers who itemize on Schedule A can deduct qualifying medical expenses to the extent that the total amount exceeds 7.5% of adjusted gross income. You can claim medical expenses that are not reimbursed by insurance for yourself, your spouse and your dependents.

To qualify as a deduction, the expense must be incurred primarily to alleviate or prevent a physical or mental disability or illness. The broad list of eligible expenses includes out-of-pocket payments for medical services rendered by doctors, dentists, optometrists and other medical practitioners; mental health services; health insurance premiums (including Medicare Parts B and D); annual physicals; amounts paid for in vitro fertilization; prescription drugs and insulin (but not over-the-counter drugs); hearing aids; transportation to and from the doctor’s office; the unreimbursed costs of long-term care; and many home improvements to accommodate a disability or illness. For more information about what qualifies, see IRS Publication 502, “Medical and Dental Expenses.”

3. Can we deduct long-term-care costs?

Question: My spouse is going into a long-term-care facility. Can we deduct our unreimbursed costs for the care that is not paid by insurance as a medical expense on Schedule A of Form 1040 if we otherwise itemize?

Joy Taylor: Medical expenses are deductible on Schedule A of the Form 1040 only to the extent the total exceeds 7.5% of your adjusted gross income. You will likely be able to deduct your spouse’s unreimbursed long-term-care costs as medical expenses. Long-term-care expenses include the costs of assisted living, in-home care and nursing home services.

The long-term care must be medically necessary for one who is chronically ill, meaning at least two activities of daily living can’t be performed without help for 90 days or more. Anyone in need of long-term care because of dementia or other cognitive impairment is also considered chronically ill if substantial supervision is needed to protect the individual’s health and safety.

The chronic illness must be certified by a licensed health care practitioner. The cost of meals and lodging at a facility or nursing home counts as medical expenses if a person is mainly there for medical care.

4. Are long-term-care insurance premiums deductible?

Question: I pay annual premiums for a long-term-care insurance policy. Can I deduct the premiums I pay as medical expenses on Schedule A of the Form 1040?

Joy Taylor: The premiums you pay for a long-term-care policy are deductible medical expenses, subject to limitations. For most taxpayers, these premiums are medical costs deductible by itemizers on Schedule A of the Form 1040 to the extent that total medical expenses exceed 7.5% of adjusted gross income. Self-employed individuals can deduct these premiums on Schedule 1 of Form 1040.

The deduction for long-term-care premiums is capped based on age. The older you are, the higher the tax break. For 2025, taxpayers who are 71 or older can deduct as much as $6,020 per person. Filers age 61 to 70 can deduct up to $4,810 per person. People aged 51 to 60 can deduct up to $1,800 each. Individuals who are 41 to 50 can take up to $900. And people age 40 and younger can deduct no more than $480. For 2026, these monetary caps are $6,200, $4,960, $1,860, $930 and $500, respectively.

Note that a tax break related to paying long-term-care premiums takes effect next year. Generally, pre-age distributions from IRAs and workplace retirement plans are hit with a 10% early withdrawal tax, in addition to any regular income tax that is due on the distribution. Beginning in 2026, you can withdraw up to $2,500 from your 401(k) or other plan each year to help pay for long-term-care premiums without having to pay the additional 10% tax if you are younger than 59½.

5. Do costs for a drug rehab program qualify?

Question: Are the costs for a drug treatment program deductible medical expenses?

Joy Taylor: Yes, the cost of treatment for drug use or alcoholism is a medical expense. And many other health and wellness costs also qualify as deductible medical costs. These include the cost of a smoking cessation program, nutritional counseling for a doctor-diagnosed disease, and a weight-loss program to help with the treatment of obesity, hypertension, heart disease or other physical illness diagnosed by a physician. Note thought that the cost of diet foods, weight-loss supplements or reduced-calorie beverages are not deductible medical expenses.

6. Are teeth whitening procedures tax deductible?

Question: I paid a dentist lots of money last year to get my teeth whitened. Can I deduct the cost as a medical expense on Schedule A of my Form 1040?

Joy Taylor: Unfortunately, no. The costs of procedures to improve your appearance generally aren’t deductible. These include, for example, a weight-reduction program, a gym membership or cosmetic surgery to improve your appearance. Teeth whitening and hair transplants don’t count either.

7. Can I deduct costs for service animals?

Question: We are getting a service dog for my child who has epilepsy. Can I deduct the cost of the dog and his veterinary bills?

Joy Taylor: Yes. Amounts you pay to purchase a service dog, and the costs of training, food, grooming and veterinary care, are deductible medical expenses. These animals assist the visually impaired and others who have physical disabilities, so the owner can write off the costs of buying and caring for their dogs on Schedule A of Form 1040 to the extent total medical expenses incurred exceed 7.5% of adjusted gross income.

In some cases, the cost of an emotional support animal may be deducted as medical expenses. The owner must show that he or she is using the animal primarily for medical care to alleviate a mental disability or illness.

Read more on tax breaks for parents of children with disabilities.

8. Is the cost of medicine from abroad deductible?

Question: I am thinking of buying medicine from another country because I cannot get it here in the U.S. Can I deduct the cost of that medicine?

Joy Taylor: It depends. Buying medicine from abroad can come with a hefty tax price. The cost is generally not deductible as a medical expense on Schedule A. That’s because federal law bars importing many drugs from other countries. There are some exceptions to this general rule. For one, you can include the cost of an imported drug in deductible medicals if the drug was imported legally, for example, as announced by the Food and Drug Administration (FDA). You can also include in medicals a drug’s cost if you purchased and used that drug in another country, provided the drug is legal in the other country and in the United States.

9. Do costs for abortion procedures qualify?

Question: Is the cost of an abortion a deductible medical expense?

Joy Taylor: It depends. People who itemize on Schedule A can include in medical expenses the amount paid for a legal abortion, meaning the procedure is performed in a state where abortion is legal. Transportation costs are also deductible. If you drive there, you can deduct out-of-pocket costs or use the standard mileage rate for medical driving, which is 21¢ per mile for 2025. Hotel expenses of up to $50 a night can also be deducted if the abortion is provided by a doctor in a licensed hospital or a medical care facility. You can deduct up to an additional $50 a night for a traveling companion’s lodging. Meals aren’t deductible.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Reader Questions on QCDs
• Ask the Editor: Questions on Capital Gains
• Ask the Editor: Questions on Four New Tax Deductions
• Ask the Editor: Questions on Inherited IRAs
• Ask the Editor: Questions on Home Sales and Taxes

How? Well, you’ll have to update your federal tax withholding.

Your withholding is the amount your employer takes out of each paycheck to pay taxes on your behalf. It’s typically a form you fill out when you start a new job, but the IRS recommends reviewing your W-4 Form annually to avoid costly mistakes.

For example, if you qualify for a new federal tax deduction, waiting until year-end to claim that tax break could lead to missing out on monthly savings, potentially giving the government an interest-free loan of your money until tax time.

So if you want to keep more of your take-home pay as you receive it in 2026, here are three critical tax changes that could boost your paycheck — if you qualify and update your Form W-4, that is.

Key tax changes to boost pay in 2026

To find the three critical tax changes for 2026 paychecks, Kiplinger considered tax breaks the IRS will soon add to its Tax Withholding Estimator that could affect workers.

• Taxpayers may use the estimator tool to help calculate federal tax withholding.
• This information can then be utilized to help fill out IRS Form W-4, Employee’s Withholding Certificate, with your employer.
• Only tax deductions with annual estimated savings above $1,000 qualified as “critical.” Estimated tax savings were referenced from the Tax Policy Center and The Tax Foundation, the latter of which sourced data originally published by the U.S. Census Bureau.

While Kiplinger notes estimates of how much you could save with these tax breaks, any actual tax savings may depend on several factors, like your filing status, applicable restrictions, and federal income tax bracket in 2026.

That said, here are three critical tax break changes that could boost your paycheck in 2026.

1. Tip income tax deduction in 2026

Tax deduction amount in 2026 (maximum): $25,000

Average estimated tax savings in 2026: $1,400

The new tip income deduction is a temporary tax break for tax years 2025 through 2028.

Although the deduction can be as high as $25,000 per tax return, the Tax Policy Center projects an average benefit of approximately $1,400 for each eligible household in 2026. That’s over $100 per month in tax savings, if you qualify and update your withholding.

Here are a few fast facts about the federal tipped pay tax deduction:

• Only “Qualified” tips are eligible, including voluntary cash and charged tips (like credit card or PayPal).
• Payroll taxes still apply (that is, the deduction doesn’t reduce Social Security or Medicare taxes).
• Your tip deduction starts to be reduced if you’re a single-filer with a modified adjusted gross income (MAGI) of $150,000 or more (married filing joint filers have a MAGI limit of $300,000 or more).

For every $1,000 your MAGI exceeds the above limits, your tip income deduction is diminished by $100. The deduction is completely phased out for single filers with $400,000 in MAGI and joint filers with MAGI of $550,000.

Plus, only certain professions qualify. The list of qualifying professions from the Treasury/IRS currently includes:

• Wait staff and bartenders.
• Food servers, chefs, and cooks.
• Dancers, musicians, singers, and digital content creators.
• Housekeeper cleaners and resort desk clerks.
• Home plumbers, electricians, and landscapers.
• Private event planners, pet caretakers, and tutors.
• Hairstylists, Tailors, makeup artists, and pedicurists.

While the IRS hasn’t released a final 2026 W-4 Form, you can start thinking about your withholdings with the draft version released late last month.

However, you’ll need to know an estimate of your qualified tip income for 2026 to plan how this federal tax break may affect your withholding. You can start by using your reported tips on last year’s tax return as a baseline and then project your qualified tips for 2026.

2. Overtime tax deduction for 2026 paychecks

Tax deduction amount in 2026 (maximum): $25,000

Average estimated tax savings in 2026: $1,400

Similar to the tax deduction for qualified tip income, qualifying non-exempt employees may be eligible to claim an overtime pay deduction from tax years 2025 through 2028.

The overtime deduction is worth up to $12,500 for single filers and $25,000 for joint filers, which the Tax Policy Center estimates could average about $1,400 per qualifying household next year.

Here are a few fast facts about the federal overtime pay tax deduction:

• You must work more than 40 hours per week.
• You must be a non-exempt employee who earns overtime under the federal Fair Labor Standards Act (FLSA).
• Single filers with more than $150,000 in MAGI will see their deduction reduced, while married filing joint couples won’t see a phase-out begin until their MAGI exceeds $300,000.

The overtime deduction is reduced by $100 for every $1,000 MAGI over the thresholds. When single filers have MAGI of $275,000 or more (and married filing jointly couples with $550,000 or more), the overtime deduction is completely phased out.

Like the tip income deduction, you can start thinking about adjusting your tax withholding for how much overtime pay you expect to receive in 2026. Begin with your 2025 overtime pay as a starting point. If you're unsure of this amount, consult your employer or refer to your pay stubs.

But keep in mind the overtime deduction only applies to the “extra” half of your time-and-a-half rate, not total overtime wages. That means your regular hourly rate is subtracted from your overtime rate when determining the deduction.

3. SALT deduction for 2026 withholding

Tax deduction amount in 2026 (maximum): $40,400

Average estimated tax savings in 2026: $4,722 to $14,974

The unlimited state and local tax (SALT) deduction was capped at $10,000 seven years ago by the Tax Cuts and Jobs Act (TCJA).

In 2025, the GOP tax bill temporarily raised the SALT deduction cap for certain taxpayers. This cap is projected to rise by 1% in 2026, increasing from $40,000 to $40,400.

Here are a few fast facts about the SALT tax deduction cap:

• Itemizing taxpayers could save up to $40,400 on federal taxable income in the 2026 tax year (returns normally filed in 2027).
• However, single filers in tax year 2026 will be subject to a phase-out of the SALT deduction when MAGI reaches $505,000 or more ($252,500 if married filing separately).
• For every dollar your income surpasses the above thresholds, your SALT deduction cap will be reduced by 30 cents.
• Your SALT cap will return to the original $10,000 limit once your income no longer qualifies for the deduction.

Claiming the SALT deduction largely depends on whether you itemize deductions on your return and how much state and local taxes you pay. So, individual tax savings may vary widely.

For example, the Tax Foundation estimates the average SALT paid per capita is between $4,722 and $14,974 annually. If you’re on the low end of that spectrum, you likely won’t see any benefit from this raised deduction cap, but if you’re on the high end, a higher SALT cap could make it worth the effort to update your federal withholding.

But beware if you’re in the highest tax bracket. That’s because those in the top 37% federal bracket for 2026 will be subject to a 35% rule on itemized deductions. This rule caps each itemized dollar to 35 cents worth of tax benefits (rather than 37 cents). Thus, if you’re a high-income earner, the 35% rule may limit the amount of estimated SALT deduction you should enter on your W-4 Form for 2026.

New federal tax withholding in 2026

While we covered three major 2025 tax breaks that could boost your monthly paycheck in 2026, the IRS will update its estimator tool with several other key tax breaks that may affect your work withholding to a lesser degree.

• The car loan interest deduction. Worth up to $10,000 on qualifying new vehicles, some suggest the estimated annual tax savings could average around $400 to $500 per taxpayer in 2026.
• The bonus deduction for those aged 65 or older. Worth up to $6,000 for eligible individuals with less than a certain income, the Tax Policy Center estimates that about half of eligible older adults will see some benefit.

The IRS is expected to release a final version of the 2026 W-4 Form by the end of December. So if you’re thinking about claiming these or other federal tax breaks on your withholding, wait until the finalized version is published to submit a new or updated form to your employer.

Also, it’s important to remember that not all tax savings may apply to you, and restrictions or certain limitations may apply to these and other tax deductions.

Double-check that you are fully eligible for the amount you claim on your Form W-4 before entering the deduction amount on your tax withholding. Otherwise, you could be in for a rude awakening at year's end with a hefty tax bill, fees, and even penalties.

The IRS Estimator may also be a helpful tax planning tool for other IRS withholding forms, like the Form W-4P (for retirees) and Form 1040-ES (for quarterly estimated tax payments). The estimator tool does not account for state income tax, so consult your tax professional for guidance on your specific tax circumstances if necessary.

Read More

• W-4 Form: Tax Withholding Tips to Optimize Your Taxes This Year
• New 2026 Income Tax Brackets Are Set: Will Your Rate Change?
• Three Popular Tax Breaks Are Gone for Good in 2026
• Standard Deduction 2026 Amounts Are Here

This new law (Public Law 119-21 and referred to by Trump as the “big, beautiful bill”) reshapes many tax rules that individuals rely on. But understanding the various changes and their implications for taxpayers can be confusing.

Essentially, the tax bill extends many of the lower tax rates and increased standard deduction base amounts from the 2017 Tax Cuts and Jobs Act (TCJA), which was enacted during Trump's first term. As a result, some concerns about "tax cliffs"— key provisions initially set to expire at the end of this year — have been alleviated.

The legislation introduces several new temporary tax deductions and credits, including those related to tips and overtime pay. However, the bill also eliminates or plans to phase out certain incentives, including the federal EV tax credit and other clean energy credits.

Some changes are effective as of this year (affecting returns typically filed in early 2026), while others don't come into play until 2026 (impacting returns filed in early 2027).

• Cost-wise, the Congressional Budget Office (CBO) projects that this law will increase federal deficits by approximately $4.1 trillion over the next decade. That includes about $700 billion in added interest costs on federal debt.
• And...the law introduces substantial cuts to Medicaid and the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps), which provide health and food support to millions of people in the United States.

Yes. It’s a lot to digest. But we’ll dive into many of the changes in more detail below, beginning with some key points.

'Big Beautiful Bill' Tax Cuts

Trump tax bill summary

Congress passed the massive bill using the budget reconciliation process. That approach allows a single party, in this case, Republicans, to approve certain legislation with a simple majority.

GOP members in the U.S. Senate narrowly approved the bill after a tie-breaking vote from Vice President JD Vance. Republicans in the U.S. House of Representatives also approved the bill along party lines.

The megalegislation is considered by many Republicans to be the signature fiscal effort of Trump's second term. Here's an overview of some key tax provisions.

• The seven tax brackets and their lowered rates stay put for now, so taxpayers won’t suddenly see higher income tax rates creep back up after 2025.
• Similarly, the standard deduction remains nearly double what it was before 2017 and will continue to be adjusted each year for inflation. (For 2025, that’s $15,750 for singles and over $31,000 for couples filing jointly.)

Also, according to separate analyses by the CBO and the Joint Committee on Taxation (JCT), the benefits from this tax law aren’t spread evenly.

People with higher incomes are expected to receive the most significant tax breaks, while many lower-income households may actually see their overall resources decrease.

Middle-income families may experience small gains or losses, depending on their individual circumstances.

Other key points:

• The State and local tax (SALT) deduction cap, which limits how much you can deduct for state and local taxes, rises sharply (subject to income limits) from $10,000 to $40,000 for 2025 and stays elevated through 2029 before dropping back in 2030.
• New temporary deductions allow taxpayers to deduct interest on car loans for new U.S.-assembled vehicles (up to $10,000 per year) purchased after 2024, with income phaseouts and expiration at the end of 2028.
• Employees in traditionally tipped jobs, as specified by the U.S. Treasury and IRS, can exclude up to $25,000 in tips from federal income tax through 2028, subject to income limits and specific eligibility requirements.
• Overtime pay up to $12,500 (or $25,000 for joint filers) can be deducted in the same period, again with income phaseouts.
• The federal Child Tax Credit of $2,200 per child remains, but requires a valid Social Security number.
• New child savings accounts (called "Trump accounts") start with a $1,000 federal deposit for kids born in 2025–2028 and allow further yearly contributions subject to limits and rules.
• Increased estate tax exemption, raising the threshold to $15 million beginning in 2026, indexed to inflation.
• Meanwhile, Medicaid and SNAP funding take significant hits, resulting in reduced eligibility or enrollment, increased work requirements, and lower funding levels. Some expect millions to lose healthcare coverage or food assistance because of those program cuts.

Here’s more of what you need to know about those provisions and how they could impact your taxes.

What’s In Trump's Tax Bill?

Note: This is not an all-inclusive list of individual tax changes in the massive bill.

Extended individual TCJA provisions

As mentioned, the new mega reconciliation legislation extends the TCJA’s seven individual income tax rates and brackets. So taxpayers avoid the “tax cliff” rate increases that were set to take effect after 2025 if Congress hadn’t acted.

For more information, see: 2025-2026 Federal Tax Brackets and Income Tax Rates.

The 2025 GOP tax bill also maintains the nearly doubled base standard deduction, which for 2025 is approximately $15,750 for single filers and $31,500 for married joint filers, indexed for inflation annually.

Related: 2025 Standard Deduction Changes to Know Now

Estate tax exemption increase

The lifetime estate and gift tax exemption was scheduled to be reduced by half in 2026 due to looming Tax Cuts and Jobs Act (TCJA) expirations.

However, under the 2025 tax bill, the lifetime estate and gift exemption increases, as of January 1, 2026, to $15 million ($30 million for married couples).

Meanwhile, gifts given before 2026 benefit from the already-high 2017 tax exemption.

Learn More: What's the New Estate Tax Exemption Amount for 2026?

SALT deduction cap change

The SALT deduction cap is raised from $10,000 to $40,000 for the years 2025 through 2029.

As a result, taxpayers who itemize deductions can deduct a larger amount of state and local taxes (including income, sales, and property taxes) from their federal taxable income.

This cap increases by 1% annually during that period but phases out for taxpayers with modified adjusted gross income (MAGI) exceeding $500,000, returning fully to $10,000 for all taxpayers starting in 2030.

Related: SALT Deduction: Three Things to Know

New Tax Deductions

Several new deductions included in the tax and spending bill are temporary.

Car loan Interest deduction

Taxpayers may deduct interest on car loans up to $10,000 per year for new qualifying vehicles assembled in the U.S., purchased after December 31, 2024. So eligible buyers may be able to reduce their overall tax liability without itemizing deductions.

The tax break applies to passenger cars, light trucks, SUVs, and motorcycles used for personal purposes.

• The deduction phases out 20% annually beginning at $100,000 MAGI for single filers and $200,000 MAGI for joint filers, with full phaseout at $150,000 and $250,000, respectively.
• Vehicle Identification Numbers (VINs) are required on tax returns.
• This deduction expires December 31, 2028.

Learn More: New Car Loan Interest Deduction: Which Buyers and Cars Qualify

'No tax on tips' deduction

Employees in traditional tipping occupations (e.g., servers, bartenders, salon workers) may exclude up to $25,000 in tips earned from federal income tax for tax years 2025–2028.

That essentially means eligible tipped workers might keep more of their earnings by paying less in federal income taxes on tips they earn through 2028. But...

• Income phaseouts start at $150,000 (single) and $300,000 (joint).
• Self-employed individuals in tipped trades are excluded.
• Payroll and state taxes still apply to tips.

See: No Tax on Tips Approved: What You Need to Know for more information.

Overtime pay tax deduction

A deduction for overtime pay of up to $12,500 (single) and $25,000 (joint) is allowed from 2025 to 2028, subject to the same income phaseouts as the deduction for qualified tip income.

See What's Happening With Taxes on Overtime Pay? for more information.

Targeted Tax Breaks

Child Tax Credit under Trump tax law

• The Child Tax Credit (CTC) maximum is $2,200 per qualifying child, indexed to inflation starting in 2026. The refundable portion of the credit is capped at $1,700 per child.
• Valid Social Security Numbers are required for taxpayers and dependents to claim the credit.

To learn more, see: Child Tax Credit 2025-2026: How Much Is It?

‘Trump Account’ for kids

New tax-exempt “Trump accounts” receive a government-seeded $1,000 for children born between 2025 and 2028, with additional non-deductible contributions capped at $5,000 per year. These funds, after age 18, can be used for education, home purchase, or retirement purposes.

For more information, see: The GOP Wants to Auto-Enroll Your Child in a Trump Savings Account.

‘Senior’ Bonus Deduction (65+)

Taxpayers over age 65 receive a bonus $6,000 deduction through 2028, phased out starting for incomes above $75,000 (single) and $150,000 (joint).

The deduction is available for eligible taxpayers whether you itemize or take the standard deduction.

For more information, see our report: New $6,000 Bonus Deduction: What It Means for Taxpayers Over Age 65.

Other Key Tax Changes

1099-K threshold reporting

The GOP tax and spending bill brings back higher thresholds for 1099-K reporting from payment apps like (but not limited to) PayPal, Venmo, Cash App, Etsy, StubHub, eBay, and Airbnb.

So, for payments you receive for 2025 (sent to you in early 2026), you should only receive a Form 1099-K if:

• You receive more than $20,000 in gross payments and
• You conduct more than 200 transactions on a single platform within a year.

For more information, see: Another IRS 1099-K Threshold Change to Know for Your 2025 Taxes.

Health Savings Account (HSA) changes

• For HSAs, the 2025 tax law expands eligibility by allowing individuals enrolled in Bronze or Catastrophic Affordable Care Act (ACA) plans to contribute starting in 2026.
• It also permanently allows telehealth services and direct primary care fees to qualify as HSA expenses, broadening the types of healthcare costs that HSAs can cover.

However, other reforms like expanding eligibility for Medicare enrollees weren’t included.

What this means for most: HSAs largely retain their prior features, including triple tax advantages on contributions, growth, and qualified withdrawals.

Student loan changes under Trump

Though not tax-related, the Trump tax and spending bill also introduces a significant overhaul of federal student loan programs.

Popular income-driven repayment plans initiated under the Biden administration will be phased out, borrowing for graduate students and parents will be restricted, and some options for deferment due to economic hardship or unemployment will be eliminated.

Though recent news reports indicate that the Trump administration might follow through with processing student loan forgiveness under certain Biden-era programs.

There's more. While the pandemic-era American Rescue Plan Act (ARPA) excluded forgiven student loan amounts from federal taxable income through 2025, the Trump/GOP tax and spending bill doesn't extend that exclusion.

That means, unless Congress acts, student loan debt forgiven after December 31, 2025, will once again be considered taxable income at the federal level.

That could leave borrowers who were counting on PSLF or other forgiveness programs facing an unexpected tax bill.

For more information, see: How Taxes and Student Loan Repayment Could Soon Change Under Trump.

Ending clean energy tax credits

The new tax law delivers a major shake-up to federal clean energy incentives, setting expiration dates for popular tax credits.

Homeowners planning to install rooftop solar or battery storage have until December 31, 2025, to qualify for the 30% residential solar tax credit; after that, the credit will disappear.

To learn more, see: Homeowners Rush to Install Solar Panels.

Electric vehicle buyers face an even tighter window. The federal EV tax credit for new, used, and commercial clean vehicles ended for vehicles acquired and put into service after September 30, 2025.

For more information, see How the EV Tax Credit Works.

The credit for installing home EV chargers remains in effect for a period of time, expiring for equipment placed in service after June 30, 2026.

With these deadlines, some analysts say the law is expected to slow the momentum of clean energy adoption and raise the cost barrier for solar and EV upgrades.

Business provisions in the Trump tax bill

The Trump/GOP tax and spending bill impacts businesses as well. Some key changes include:

• Permanent 20% small business deduction for pass-through entities like partnerships and sole proprietorships.
• Permanent 100% bonus depreciation and full expensing for business investments.

(A permanent lower corporate tax rate, initially set by the 2017 TCJA, remains.) Other key business provisions are summarized in the following table.

Health Care and Food Benefit Cuts

Medicaid cuts and rule changes

The bill enacts the most sweeping cuts to Medicaid since the program’s 1965 inception.

The legislation reduces Medicaid funding by roughly 18% over a decade — about $600 to $800 billion according to the Congressional Budget Office (CBO) — through a combination of new eligibility restrictions, asset tests, and work requirements.

• Most adults, including parents of children age 14 and older, will need to work at least 80 hours a month to keep coverage, with some exceptions.
• States will be required to reassess eligibility every six months, rather than annually.
• States could also impose co-pays up to 5% of household income and require monthly income verification.

The CBO estimates that 10 million to 12 million people could lose Medicaid coverage over the next 10 years, with additional losses expected from tighter Affordable Care Act enrollment rules.

The impact is expected to fall hardest on families with low incomes, people with disabilities and rural residents.

SNAP: Shrinking food assistance benefits

The bill’s approach to the Supplemental Nutrition Assistance Program (SNAP) is equally notable.

SNAP program funding (formerly known as food stamps) will be cut by about 20%, an estimated $230 billion over 10 years.

• Work requirements are expanded to cover adults up to age 64 (up from 50), and parents with children age 14 and older.
• States will be required to shoulder a greater share of SNAP costs or risk losing federal support entirely.

Many family advocates say these changes threaten to push millions into food insecurity, especially older workers and families in high-unemployment areas.

For more information, see Medicaid and SNAP Benefits at Risk Under Trump’s Tax Bill.

More Tax Changes Coming in 2026

Gambling losses tax deduction change

Starting in 2026, the new law limits gamblers to deducting only 90% of their losses against their gambling winnings. Previously, you could deduct 100% of your losses up to your winnings, meaning you weren’t taxed on net-zero or losing years.

This change will apply to all gamblers and related gambling expenses. However, as Kiplinger has reported, several bills have been introduced proposing to reverse this, so stay tuned.

To learn more, see: Gambling Loss Deduction Limit Sparks Debate.

Charitable donation tax deduction

Under the new tax law, a significant change has been introduced to charitable giving incentives.

• Starting in 2026, individuals who claim the standard deduction will be able to deduct up to $1,000 annually for single filers and $2,000 for joint filers in cash donations to qualified charitable organizations.
• Previously, only those who itemized deductions could benefit from the charitable donation tax deduction.

Additionally, for high-income taxpayers in the 37% tax bracket, the value of charitable deductions has been capped at 35%, meaning they can receive a maximum of $0.35 in tax savings for every $1.00 donated. This change will be effective starting in 2026.

For more information, see: Charitable Donation Tax Deduction: What to Know.

ACA Tax Credit expiration

Unless Congress acts, the premium tax credit subsidies under for Affordable Care Act (ACA) marketplace plans will expire after December 31, 2025.

• Congress originally expanded these premium tax credits during the pandemic in 2021 and later extended them through the end of 2025.
• They substantially lower health insurance costs for more than 24 million people in the U.S., or roughly 7% of the population.
• Data show the tax credits have helped make coverage more affordable for a range of people, including the self-employed, small business owners, and those who lack access to employer or other coverage.

As Kiplinger has reported, whether the credits will be extended is at the heart of the current government shutdown battle.

For more information, see: Health Care Tax Credits and the 2025 Government Shutdown.

Deficit and Impact

The fiscal impact of the GOP tax bill

Proponents argue the bill’s tax cuts and spending changes will boost growth and jobs. But the numbers tell a more complicated story.

The CBO projects the bill will add about $3.3 trillion to the national debt over 10 years, even after accounting for the spending reductions and new revenue measures.

Other independent estimates, which factor in the interest on that additional debt, put the true cost closer to $4.5 trillion or more over a decade.

Public Perception

Who benefits from Trump's tax bill?

A Tax Foundation analysis shows the largest tax cuts will go to households earning above $400,000. The top 1% would receive a disproportionate share of benefits compared with those making under $100,000.

• Data show that most tax benefits will go to wealthier taxpayers, with the top 10% receiving approximately 80% of the total tax breaks.
• Meanwhile, lower-income Americans generally see fewer gains — or even lose resources — especially when cuts to Medicaid and food assistance programs like SNAP are taken into account.
• Middle-income families are expected to experience mixed results, depending on their individual circumstances.

What the polls say about the tax bill

What about the public? Some public skepticism was reflected in a CBS News/YouGov poll conducted in early June. About 47% of respondents said the bill would hurt the middle class, 54% believed it would negatively affect low-income people, and 60% expected the wealthy to benefit most.

More recent polling also shows public opinion is generally running against the bill.

According to a recent Pew Research Center poll, only 27% of Americans believe the big bill will help people like them, while 51% think it will hurt the middle class.

A Kaiser Family Foundation’s survey echoes those concerns: 56% of respondents say they are “very worried” or “somewhat worried” that the bill’s benefits will primarily go to the wealthy and corporations, rather than to ordinary families.

Because the megabill was passed by the GOP without Democratic support, the law has added to political divisions.

• Many are concerned about the hardship Medicaid and SNAP cuts could bring to vulnerable populations.
• New deductions for tips, overtime pay, and car loan interest may help some taxpayers but add complexity to filing.
• Some environmental advocacy groups criticize the rollback of clean energy tax credits.

Republican lawmakers have focused on aspects of the law they believe support working families, while Democratic lawmakers often point to the high price tag and loss of medical insurance and care for millions.

Trump tax bill 2025: Bottom line

Understanding the fine print in the new tax law — including exactly which deductions expire when and income thresholds for phaseouts — can help you better prepare your finances and tax filings in the years ahead.

As always, consult a trusted and qualified tax professional or financial planner who can guide you and devise a strategy that fits your situation and goals.

This article has been updated to provide additional information about student loans.

Read More

• Ten Tax Breaks for Middle-Class Families in 2025
• New Tax Rules: Income the IRS Won't Touch
• What's the 2025 Standard Deduction?
• New 2026 Income Tax Brackets Are Set: What to Know

As Kiplinger has noted, this extra standard deduction — which can be claimed in addition to the regular standard deduction — can help lower taxable income for many eligible retirees and older adults.

Adding to those familiar annual adjustments, the GOP’s recently enacted so-called “big, beautiful bill” introduces a new bonus deduction for qualifying older adults. This extra benefit, which is available to itemizers as well, takes effect for the 2025 tax year and remains available through 2028.

Here’s more to know to plan for tax returns you'll file in early 2026 and 2027.

Related: The Extra Standard Deduction for Those 65 and Older

Over 65 additional standard deduction for 2026 announced

For single filers and heads of households age 65 and over, the additional standard deduction increased slightly — from $2,000 for 2025 (returns you'll file earlier next year) to $2,050 for 2026 (returns you’ll file in early 2027).

For 2026, married couples over 65 filing jointly will also see a modest benefit.

• The extra deduction per qualifying spouse increased from $1,600 in 2025 to $1,650 for 2026, a $50 increase per qualifying spouse.
• For couples where both partners are 65 or older, this translates to a total increase of $100 in their additional standard deduction.

New: 2026 Extra Standard Deduction Age 65 or Older (Single or Head of Household)

New: 2026 Extra Standard Deduction Age 65 and Older (Married Filing Jointly or Separately)

Those 65 or older and blind continue to receive double the additional amount. For 2026, that means an extra $4,100 for single filers or heads of household. (Twice the $2,050 for those 65 or older or blind.)

• Meanwhile, the 2026 amount will be $3,300 per qualifying spouse for those married filing jointly (i.e., $1650 x 2).
• These changes are typically an issue for those deciding between taking the standard deduction and itemizing.

While the inflation-adjusted amounts may seem small, depending on the financial situation and federal income tax bracket, some taxpayers over 65 may benefit from a modest tax reduction.

It’s also worth noting that the IRS announced inflation-adjusted federal income tax brackets for 2026.

For more information on 2025 tax changes targeted to taxpayers over age 65, see our report: 2025 Tax Deduction Changes Those Over Age 65 Should Know.

Regular standard deduction rises for 2026

The IRS adjustments to the extra standard deduction for older adults come alongside increases in the standard deduction for all taxpayers.

The Tax Policy Center and other groups estimate that around 90% of people take the standard deduction rather than itemizing.)

• The new Trump tax bill (enacted July 4, 2025) changed the 2025 standard deduction to $15,750 for single taxpayers, $31,500 for joint filers, and $23,625 for head of household.
• With the latest inflation adjustments, the standard deduction amounts are as follows for 2026 (returns filed in early 2027):

New: Standard Deduction 2026 Amounts

For more information, see: Standard Deduction 2026 Amounts Are Here.

$6,000 bonus deduction 2025-2028

Additionally, as Kiplinger has reported, the big bill introduces a new temporary and separate $6,000 bonus deduction for those age 65 and older.

• The bonus deduction will be available to individuals age 65 and older, with eligibility set at $75,000 in income for single filers and $150,000 for couples, and phasing above those levels.
• But the provision is temporary. It will only be available from 2025 through 2028.
• It will supplement, but not replace, the existing extra standard deduction already available to older adults who take the standard deduction.

Note: The new bonus deduction applies regardless of whether you itemize or take the standard deduction.

So, it could help those with sufficient deductible expenses to itemize, but who also want to further reduce their taxable income.

For more information, see our report: How the 'Senior Bonus Deduction' Works.

Impact of 2026 deduction changes for 'seniors'

Because Trump's new tax bill was recently enacted, the IRS is working to issue guidance and regulations to implement the many tax changes in the bill.

And while the new bonus deduction for older adults could help many taxpayers, how it impacts you depends on your specific tax situation.

Consider consulting with a tax professional to understand how new inflation-adjusted amounts may (or may not) affect your overall tax liability for the upcoming tax season and beyond.

Related

• The Extra Standard Deduction for People 65 or Older
• New Tax Rules: Types of Income the IRS Won't Touch
• IRS Reveals New 2026 Tax Brackets: Will You Rate Change?
• Calculating Taxes on Social Security Benefits

The IRS adjusts these amounts for each filing status every year. Since these adjustments are based on inflation, the standard deduction is higher for 2026 compared with last year. The increased standard deduction amount was recently made permanent under the 2025 GOP spending bill, also referred to by some as the “One Big Beautiful Bill” (OBBB).

Knowing the standard deduction amount for your status can help you determine whether you should plan to itemize or claim the standard deduction next year.

Here's more to know.

For information on the current standard deduction, see: What's the 2025 Standard Deduction?

What is the new standard deduction amount for 2026? (Returns normally filed in 2027)

The IRS has just announced that the standard deduction amounts are increasing between $350 and $700 from the 2025 numbers.

Below are the 2026 amounts:

2026 standard deduction age 65 and older 

Taxpayers age 65 and older, as well as those who are blind, can claim an additional standard deduction. For 2026, that additional amount will be $1,650 ($2,050 if unmarried and not a surviving spouse).

Those eligible can add the extra standard deduction to the regular amount for their filing status. A single taxpayer 65 or older (or who is blind) can claim a total standard deduction of $18,150 on their 2026 federal tax return.

Additionally, as Kiplinger has reported, the OBBB introduces a new bonus standard deduction of $6,000 for those age 65 and older. This might be added per eligible individual to the additional standard deduction for 2026; however, the "bonus" amount is temporary and phases out for incomes above certain thresholds. (It's also available for those who itemize.)

Standard deduction if you're claimed as a dependent

Your standard deduction amount might differ if you can be claimed as a dependent on another taxpayer’s federal tax return.

The 2026 standard deduction for dependents is limited to either $1,350 or the sum of $450 and the dependent’s earned income, whichever is greater.

Note: The standard deduction for dependents cannot exceed the regular standard deduction for your filing status, even if your earned income is higher than the basic standard deduction amount.

What's the highest standard deduction amount possible?

The standard deduction is adjusted for inflation each year, and the OBBB further increased those amounts in 2025. The new law also introduced a $6,000 temporary bonus deduction for qualifying adults age 65 and older ($12,000 if both spouses qualify).

For 2026, the IRS is raising the standard deduction amount from anywhere from $350 to $700. The extra standard deduction has been increased by $50.

This brings the highest possible 2026 standard deduction amount to $47,500. This amount is for married, filing jointly couples who are both age 65 and older, qualify for the bonus deduction and can claim the extra standard deduction for both spouses.

For more information on how to calculate your total standard deduction, see: The Extra Standard Deduction for People Age 65 and Older.

Read More

• Federal Tax Brackets and Income Tax Rates for 2026
• 10 Tax Breaks for Middle-Class Families That Claim the Standard Deduction
• What’s the 2025 Standard Deduction?
• Claiming the Standard Deduction? Here are 5 Tax Breaks for Those 65 and Older

Data from the IRS shows that 90% of taxpayers choose the standard deduction over itemizing at tax time, including retirees.

Where do you start? When federal tax breaks, such as the deduction for medical expenses, are disallowed for non-itemizers, claiming the standard deduction can seem counterintuitive.

Fortunately, there might be some good news this tax season for retirees. Five tax breaks are available to those 65 and older who are claiming the standard deduction on their 2025 income tax return (if you’re eligible). Here they are.

What tax deductions and credits can I claim with the standard deduction as a retiree 65 and older?

To find the five tax breaks available to those age 65-plus and retired (and who claim the standard deduction), Kiplinger first referenced IRS tax breaks available to this age group.

• Only tax credits and deductions were considered.
• Of those selected, tax breaks that could not be claimed with a standard deduction were disqualified.
• Additionally, federal tax breaks that required one or both spouses to work or go to school were excluded.
• Finally, information was gathered about state income tax breaks at large.

Even then, keep in mind that this listing is not exhaustive, and it’s important to check with your state’s Department of Revenue website regarding additional tax breaks for which you might be eligible. Consult with a qualified tax professional when necessary.

1. Extra standard deduction for retirees who are 65-plus

Not to be confused with the new standard deduction, the “extra standard deduction” is a tax break designed for those 65 and older to claim additional tax relief come filing time.

However, the amount of federal income tax relief you receive from the extra standard deduction depends on your filing status for the 2025 tax year:

• For married, filing jointly couples and surviving spouses, the amount of the extra standard deduction is $1,600 per qualifying individual.
• For single filers or heads of household, the amount of the extra standard deduction is $2,000.

Additionally, if you or your spouse is blind, you might receive more relief. The extra standard deduction is $3,200 per qualifying individual age 65 or older and blind (if married filing jointly) and $4,000 if single filing.

These amounts are stacked onto your regular standard deduction. For instance, if both you and your spouse are 65 and older, and your spouse is blind, the combined total of the standard deduction and extra standard deduction would be $36,300.

For more information on this tax break, check out Kiplinger’s report, The Extra Standard Deduction for People Age 65 and Older.

2. Bonus deduction for retired older adults

Introduced by the 2025 GOP spending bill, also referred to by some as the One Big
Beautiful Bill (OBBB), retirees might qualify for a new federal tax break, the bonus deduction.

Similar to the extra standard deduction, this temporary tax break is meant to provide relief to Americans 65 and older. It also stacks on top of the regular standard deduction and the extra standard deduction (though it can be claimed if you itemize).

Does this sound too good to be true? Maybe it is. Unlike the extra standard deduction, the bonus deduction has income limits that might preclude some retirees from claiming the tax break.

• The maximum deduction amount for married filing jointly couples is $12,000, while single filers might qualify for up to $6,000.
• However, the deduction amount begins to phase out for married couples who have $150,000 or more in income (single filers have a phaseout for income $75,000 or more).*
• The deduction is reduced by 6 cents for every $1 that’s above the phaseout threshold.
• The bonus deduction phases out completely when income is above $250,000 for couples and $175,000 for single filers.

For instance, if a qualifying single filer were 65-plus and had $80,000 in income, their bonus deduction would be $5,700 ($5,000 above the threshold multiplied by 6 cents, then subtracted from $6,000).

Check out Kiplinger’s report for more information on the bonus deduction and what it means for taxpayers age 65-plus.

*Note: “Income” for the bonus deduction is based on a taxpayer’s modified adjusted gross income (MAGI).

3. Car loan interest deduction for those 65-plus in retirement

According to the National Highway Traffic Safety Administration, 89% of people 65 and older drive. What’s more, data show that over one-quarter of new car purchases are made by this age group.

If you’re looking to buy a vehicle, there’s a new federal tax deduction for which you might be eligible. The OBBB introduced a temporary car tax break for qualifying taxpayers in 2025:

• The car loan interest deduction is worth up to $10,000 per year on qualifying vehicle loans.
• Single filers with income exceeding $100,000 (married filing joint couples with income above $200,000) will face a $200 phaseout of the deduction for every $1,000 of income above the income limit.*
• When income levels reach $150,000 for single filers ($250,000 for married filing joint couples), the car loan interest deduction is eliminated.

But while the car loan tax break might help some folks save on car buying costs, it’s important to note a couple of caveats. This federal tax break only applies to new, American-made vehicles purchased for personal use between 2025 and 2028.

For more information, check out Kiplinger’s report, New GOP Car Loan Tax Deduction: Which Vehicles and Buyers Qualify.

*Note: “Income” for the car loan interest deduction is based on a taxpayer’s modified adjusted gross income (MAGI).

4. Tax credit for low-income older adults claiming the standard deduction

Like all the other tax breaks on this list, you don’t need to be working or itemize your deductions to claim the tax credit for low-income older adults. The total tax credit amount is worth up to $7,500.

You must meet specific eligibility requirements. For instance:

• You must be 65 years of age or older to qualify, OR
• Under 65 but retired and on permanent and total disability, AND you received taxable disability income.

Additionally, your income must meet two income limit tests to qualify for the low-income older adult tax credit.

• The first income test is based on adjusted gross income (AGI).
• Your AGI must be under $17,500 if you’re single, a surviving spouse or head of household.
• Your AGI must be under $20,000 if you’re married and only one spouse is eligible for the credit. Otherwise, you’re subject to the $25,000 AGI limit if both spouses qualify.
• The second income test is based on your combined total nontaxable Social Security, pension, annuity and disability income. Single-filer income must be under $5,000, while married filing jointly couples must have under $7,500 (if both spouses qualify; otherwise, the limit is $5,000).

If, after all that, you’re not eligible for this retiree tax break — never fear. We have one more tax break on our list for retirees who claim the standard deduction.

*Note: Married filing separately couples who lived apart for the entire tax year may also qualify for the low-income older adult tax credit. However, these filers are subject to different income limits. The AGI limit is $12,500, and the combined total income limit is $3,750.

5. Property tax credits on your state income return (if you have one)

Did you know that nearly every state offers some type of property tax relief for retirees?

Whether it’s a homestead exemption, exclusion, property tax deferral or freeze on your property tax bill, there might be different types of relief from property taxes for older adults in many U.S. states.

However, here are a few states that offer a credit on your state income taxes, which you must claim come tax filing time to get relief. The selections below are worth up to $1,150 or more and are available to “older adults.”

• Massachusetts offers a “senior” property tax credit of up to $2,730 per year (annually adjusted).
• Michigan adults 65 and older might qualify for up to $1,200 through the state’s homestead property tax credit, provided their property taxes exceed 3.5% of their income.
• Montana “seniors” who are 62 or older might be eligible for a credit worth up to $1,150.

Eligibility rules apply, and the above list is not exhaustive. Property tax breaks aren’t just for homeowners. If you’re renting in retirement, check out your state’s Department of Revenue website to see if you qualify for property tax relief on your state income return.

Read More

• Test Your Retirement Tax IQ: How Much Do You Know?
• Retirement Taxes: How All 50 States Tax Retirees
• Most-Overlooked Tax Breaks for Retirees and People Over 65
• The Rubber Duck Rule of Retirement Tax Planning

1. How do I substantiate my write-off?

Question: I donated money to charity earlier this year, and I would like to deduct the contribution on my tax return since I will be itemizing on Schedule A of Form 1040. What documents do I need to keep to support the tax write-off?

Joy Taylor: The required documentation for substantiating a charitable contribution write-off differs based on whether you are donating property or cash and the amount of the donation. I've set forth some of the rules here. For charitable gifts of cash:

• Keep cancelled checks, electronic fund transfer receipts, credit card statements or a letter from the charity
• For cash donations of $250 or more, receipt of a contemporaneous written acknowledgment from the charity is required

For charitable gifts of property:

• A letter or receipt from the charity suffices for property donations under $250
• For property donations of $250 or more, receipt of a contemporaneous written acknowledgment from the charity is required
• Attach Form 8283 to your tax return if your property donation exceeds $500
• Obtain a written appraisal for a donation of property over $5,000

You can find more information on the substantiation rules for charitable donations in IRS Publication 526, Charitable Contributions.

2. Will the IRS audit me?

Question: I am planning on making a big donation to charity closer to year-end. Will my IRS audit odds go up because of the large charitable contribution deduction I claim on Schedule A of my 1040?

Joy Taylor: It depends. You won’t automatically be audited by the IRS for claiming big deductions on your tax return. But if your write-offs are disproportionately large when compared with the income reported on your return, your risk of an audit rises because that is a key factor in the IRS’s process of selecting returns for examination. Make sure to keep good records and to comply with the substantiation rules for charitable contributions, which you can find in IRS Publication 526 (as above).

3. What if I donate an annuity contract?

Question: I am thinking of donating an annuity contract I own to charity. Can you explain the tax consequences if I decide to do this?

Joy Taylor: You will generally be treated as receiving taxable income equal to the difference between the annuity’s cash surrender value and your investment in the contract. For example, say you have a small variable annuity in which you invested $20,000 years ago, and it’s now worth $43,000. If you donate it to charity, you’ll have to report $23,000 of the appreciation as additional income on your tax return in the year of the transfer. You will also be able to take a charitable deduction on Schedule A of Form 1040. The charitable write-off will equal the value of the annuity in most cases.

4. Any changes for next year?

Question: I heard that the “One Big Beautiful Bill” (OBBB) allows nonitemizers to deduct charitable contributions. When does this take effect?

Joy Taylor: The OBBB has mixed news for individuals who make charitable donations. Two new rules begin in 2026, meaning they will first affect your 2026 tax return that you file in 2027. First, the good news. Nonitemizers will be able to deduct up to $1,000 of their charitable cash contributions. The amount is $2,000 for joint filers.

Now, the bad news. Charitable donations claimed by itemizers on Schedule A will be subject to a haircut. Beginning with 2026 returns, the charitable write-off is deductible only to the extent that total charitable gifts exceed 0.5% of adjusted gross income. For example, say your AGI is $232,000 and you donate $14,000 to charity in 2026. If you itemize on Schedule A, you can only deduct $12,840 of charitable contributions ($14,000 – ($232,000 x 0.005)).

5. Will I owe tax if I donate I bonds?

Question: I own Series I savings bonds that have not yet matured. Can I donate the I bonds to charity before they mature and avoid a federal income tax hit?

Joy Taylor: No. Series I (and EE) bond buyers have a choice when they acquire the bonds. They can pay federal income tax each year on the interest earned or defer the tax bill to the end. Most people choose the latter. They report the interest income on their Form 1040 for the year the bonds mature (generally 30 years) or when they’re cashed in, whichever comes first.

I assume you have deferred reporting for federal income tax purposes the annual interest that you earned on the savings bonds. Gifting away EE or I bonds to someone else, including a charitable organization, before those bonds mature, doesn’t let you avoid the tax on previously untaxed interest. Instead, it will accelerate interest reporting. You will owe federal income tax on all the previously deferred interest in the year you make the donation.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication.
Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the OBBB and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Reader Questions on QCDs
• Ask the Editor: Tax Questions on The SALT Deduction
• Ask the Editor: Questions on Four New Tax Deductions
• Ask the Editor: Questions on Inherited IRAs
• Ask the Editor: Questions on Home Sales and Taxes

Just as noteworthy as the new rules are those that extend provisions from the 2017 Tax Cuts and Jobs Act (TCJA). The OBBBA makes permanent the reductions in federal income tax rates that the TCJA implemented. (Otherwise, those tax rates would have expired on December 31.)

In addition, the OBBBA increases the federal estate tax exemption from $13.99 million per person in 2025 to $15 million per person, or $30 million for a married couple, in 2026. It will be adjusted annually for inflation.

Without congressional action, the exemption would have dropped to about $7 million after 2025. Because of the exemption’s size, the vast majority of taxpayers don’t need to worry about paying federal estate taxes.

You may want to schedule an appointment with your financial planner or tax preparer to discuss how the bill will affect your 2025 tax liability.

“You’ve got to run the numbers, because there’s so much that’s changing,” says Tim Steffen, director of advanced planning at Baird.

To get you started, we have guidance here on how to get the most from some of the significant provisions in the OBBBA.

A BONUS DEDUCTION FOR OLDER ADULTS

Starting with the 2025 tax year, taxpayers who are 65 or older will be eligible for an additional standard deduction of $6,000. The bonus deduction, which is scheduled to expire at the end of 2028, comes on top of an existing extra standard deduction of $2,000 for single filers who are 65 or older or, for married couples who file jointly, $1,600 for each spouse who is 65 or older.

The expanded deduction means a single taxpayer who is 65 or older will be able to deduct up to $23,750 from taxable income, while a married couple who file jointly will qualify for a deduction of up to $46,700, assuming both are 65 or older.

That can translate to significant savings for older taxpayers. For example, an older married couple in the 22% tax bracket (for 2025, that includes income of $96,951 to $206,700) could see tax savings of $2,640 a year, says Marilou Davido, a certified financial planner in Milwaukee.

Older taxpayers in lower tax brackets could save $600 to $1,200 a year, she says.

The legislation won’t eliminate taxes on Social Security benefits. But because the taxability of benefits is based on a calculation involving your adjusted gross income, the OBBBA will reduce the number of beneficiaries who pay the taxes from 36% to 12%, according to the White House Council of Economic Advisers.

Now for the caveats: The bonus standard deduction will affect only eligible taxpayers whose income exceeds the amount of the deduction, so low-income people won’t benefit from this tax break.

At the other end of the spectrum, higher-income taxpayers could see the amount of the bonus deduction reduced or eliminated altogether.

The deduction starts to phase out for couples with modified adjusted gross income of more than $150,000 ($75,000 for single filers) and is fully phased out at MAGI of $250,000 ($175,000 for singles). Your modified adjusted gross income is your adjusted gross income with certain deductions added back.

The higher standard deduction won’t shield Medicare beneficiaries who pay a surcharge, known as the income-related monthly adjustment amount (IRMAA), on their Part B and Part D premiums. The surcharge is based on a version of your MAGI that’s specific to Medicare and is calculated before the standard deduction applies.

Taxpayers whose MAGI is close to surpassing the eligibility threshold for the bonus standard deduction should consider avoiding moves that could reduce this tax break’s value.

For example, converting funds in a traditional IRA to a Roth IRA could reduce or eliminate the bonus deduction by increasing your MAGI, says Davido.

If you want to convert to a Roth, consider spreading out the conversions over several years to keep your MAGI below the threshold, she says.

One argument in favor of doing a Roth conversion is that it protects your nest egg from future tax increases, because Roth withdrawals are tax-free as long as you’re 59½ or older and have owned the Roth for at least five years.

But now that the OBBBA has extended current tax rates, individuals can spread out conversions without fear of a tax increase, at least under the current presidential administration, Davido says.

Timing matters, too: Converting to a Roth before age 65 would avoid the potential loss of the bonus deduction.

Capital gains distributions and withdrawals from traditional IRAs will also increase your MAGI. But there are steps you can take to offset that income and preserve the bonus deduction.

If you’re still working, increasing pretax contributions to 401(k) plans and health savings accounts (HSAs), for example, will reduce your MAGI.

Individuals who are 70½ or older can reduce their MAGI by making qualified charitable distributions from their IRAs, says Todd Calamita, a CFP in Charlotte, N.C.

In 2025, taxpayers can make QCDs of up to $108,000 from their IRAs to qualifying charities. If you’re 73 or older, a QCD will also count toward your required minimum distribution (RMD). A QCD isn’t deductible, but it’s excluded from taxable income.

Davido recommends working with your tax preparer or financial planner before year-end to adjust income-tax withholding and estimated tax payments for 2026. The bonus standard deduction could enable you to reduce the amount of tax withheld from your Social Security benefits and IRA withdrawals; you may also be able to lower your quarterly estimated tax payments.

A BIGGER BREAK FOR HOMEOWNERS

The OBBBA contains a valuable tax break for homeowners who live in high-tax states, and like the bonus standard deduction, the change could affect your 2025 tax bill.

Starting in 2025, those who itemize will be able to deduct up to $40,000 in state and local taxes (SALT), up from a cap of $10,000. The cap will increase by one percentage point each year through 2029, then return to $10,000 in 2030.

The SALT deduction includes state income, property and sales taxes; it’s often most useful for property taxes, which have soared as home values have risen in recent years. The primary beneficiaries will be homeowners in states with high property taxes, such as New Jersey and New York.

The cap is gradually reduced for those with MAGI above $500,000 ($250,000 for a married individual filing separately), and taxpayers with MAGI of $600,000 or more will be limited to deducting $10,000 on their tax returns.

Consequently, homeowners who are eligible for the higher cap need to be even more mindful of their 2025 MAGI, says Robert Keebler, a CFP with Keebler and Associates in Green Bay, Wis. This phaseout is potentially more costly than the phaseout for the bonus standard deduction, he says.

Keebler offers this example: Suppose you’re married, file jointly and have a MAGI of $500,000. Your itemized deductions include $40,000 in state and local taxes. If you convert $100,000 from a traditional IRA or 401(k) to a Roth, your gross income rises to $600,000, and your state and local tax deduction is reduced to $10,000. While your gross income went up by $100,000, your taxable income rose by $130,000.

At a 35% marginal rate, your effective rate on the conversion is 45.5%.

As is the case with older taxpayers, homeowners who are eligible for the higher SALT cap should consider spreading out Roth conversions and taking other steps to keep their MAGI below the thresholds.

Homeowners in high-tax states may get even more out of the higher cap by bunching their itemized deductions.

For example, if you paid your 2025 property taxes earlier this year and receive a bill for 2026 in December, pay it before December 31 so you can deduct both payments on your 2025 tax return, Davido says.

Using the bunching strategy, you would claim the standard deduction in 2026 and make two property tax payments in 2027 so you can itemize in that year.

Bunching your charitable contributions is also an effective way to increase your itemized deductions and lower your tax bill.

A donor-advised fund is a useful tool for this strategy. These funds, offered by major financial institutions, allow you to make a large contribution, deduct the donation on the current year’s tax return, and decide later which charities you want to support.

However, there are other provisions in OBBBA that could reduce the effectiveness of this strategy, which we’ll discuss below.

NEW STRATEGIES FOR CHARITABLE CONTRIBUTIONS

As you consider your year-end charitable contributions, it’s important to understand new tax breaks for givers — along with new limits on how much some donors will be allowed to deduct.

Starting in 2026, taxpayers who don’t itemize can deduct up to $1,000 in charitable contributions, or up to $2,000 for married couples who file jointly. Donations to donor-advised funds and private foundations aren’t eligible for this new deduction.

If you don’t itemize and want to take advantage of this tax break, consider making the charitable contributions you’d ordinarily make by the end of this year in January 2026 instead.

Meanwhile, taxpayers who itemize on their tax returns and deduct charitable contributions will be subject to a new limit on the amount they can deduct. The maximum amount of cash gifts donors can deduct will remain at 60% of AGI.

However, starting in 2026, the deduction will be limited to the amount of charitable contributions that exceed 0.5% of adjusted gross income, Steffen says.

For example, a married couple with AGI of $100,000 who donate $700 to charity will be permitted to deduct only $200.

To avoid that new floor, itemizers may want to make their 2026 contributions in 2025, keeping in mind how that will affect other aspects of their tax bill.

Taxpayers in the top tax bracket (for 2025, that includes income higher than $626,350 for singles or $751,600 for joint filers) may also want to accelerate charitable contributions into 2025 because of a cap on all itemized deductions those taxpayers can claim.

Starting in 2026, the amount of itemized deductions taxpayers in the 37% tax bracket can claim will be limited to 35% of their taxable income.

MORE BENEFITS FOR HEALTH SAVINGS ACCOUNTS

A health savings account can be a valuable tool to set aside money for both current and future health care expenses. An HSA provides a triple tax break: Your contributions are tax-deductible (or pretax if made through your employer), the money grows tax-deferred, and you can use it tax-free for eligible medical expenses in any year.

After you turn 65, you can also withdraw money tax-free from the HSA for Medicare premiums, in addition to other out-of-pocket health care costs.

The new law has three HSA-related provisions. Starting on January 1, 2026, you can withdraw up to $150 per month ($300 for couples) from an HSA tax-free to pay monthly or annual fees for direct primary care arrangements (also known as concierge medicine), in which doctors provide services in exchange for a membership fee.

The law also clarifies that enrolling in a direct primary care arrangement does not disqualify someone from being able to contribute to an HSA if they also have an eligible high-deductible health policy.

Not all concierge practices qualify under the new law as direct primary care arrangements — there are limits to the types of services they can provide beyond primary care.

Additionally, the law permanently exempts telehealth services from the HSA-qualified plan deductible. Most medical care, except for some preventive care, must be subject to the deductible for a health insurance policy to be HSA-qualified.

During the COVID pandemic, you could receive some telehealth services without first paying the plan’s deductible — typically with a $5 or $10 co-payment — but that rule expired at the end of 2024. The OBBBA permanently exempts telehealth from the deductible requirements, retroactive to January 1, 2025.

Finally, bronze plans and catastrophic plans sold on the Affordable Care Act insurance marketplace will automatically be HSA-qualified, starting with the 2026 plan year.

Using an HSA-eligible bronze plan and making tax-free withdrawals from your HSA to pay for direct primary care could be a win-win, says Roy Ramthun, founder and president of HSA Consulting Services LLC in Silver Spring, Md.

You can sign up for direct primary care for your regular doctor’s visits but have a high-deductible bronze plan as a backstop if you end up needing expensive medical care. You’ll be eligible to contribute to an HSA, and you can also use HSA money tax-free to pay the monthly direct primary care fees.

Notably, the version of the OBBBA that originally passed the House of Representatives would have allowed people who sign up for Medicare Part A to contribute to an HSA. But that provision wasn’t included in the final law, so the current rules still stand: You can make HSA contributions only if you haven’t enrolled in either Medicare Part A or Part B.

If you or your spouse is still working and you have health insurance from an employer with 20 or more employees, you can delay signing up for Part A and Part B. But you must enroll within eight months of losing that coverage; otherwise, you could face a lifetime late-enrollment penalty for Part B.

If you sign up for Part A after you turn 65, that coverage takes effect up to six months retroactively. Keep that time frame in mind when calculating your HSA contribution.

CHANGES TO THE HEALTH INSURANCE MARKETPLACE

Several administrative changes are coming to Affordable Care Act marketplace coverage because of provisions in the OBBBA, as well as new rules from the Centers for Medicare & Medicaid Services.

The open-enrollment period to sign up for a marketplace plan will be shorter. Next year, open enrollment for the federal marketplace (HealthCare.gov) will run from November 1, 2026, to December 15, 2026. States that operate their own marketplaces won’t be allowed to extend open enrollment past December 31. Currently, open enrollment goes to January 15, and even longer in some states.

Before you enroll in a marketplace plan, you’ll need to provide evidence of income eligibility for tax credits for your premiums. (Currently, you have 90 days after you enroll to submit the information.)

If your income increases after you enroll and you don’t update your information with the marketplace, you may have to pay back the extra subsidy when you file your income tax return.

Under the previous rules, there were limits to how much you have to pay back if you underestimate your income.

Enhanced subsidies are scheduled to expire

Perhaps the most consequential outcome for ACA plan enrollees is that the OBBBA didn’t extend enhanced premium subsidies for marketplace coverage. The enhanced subsidies are set to expire at the end of 2025, and Congress probably won’t pass additional legislation to extend them.

So the size of the subsidies and the income levels to qualify are likely to shrink significantly on January 1, 2026. People who earn more than 400% of the federal poverty level will no longer be eligible for any subsidies after 2025. For 2026 marketplace plans, 400% of the poverty level is $62,600 for singles and $84,600 for couples.

If you have individual health insurance from the ACA marketplace and you plan to do Roth conversions, you may want to convert more money before the end of 2025 than in 2026, when the extra income may make you ineligible for the subsidy.

“For a retired client, we’ve been able to do about $100,000 of Roth conversions yearly with the enhanced premium tax credits,” says Mark Whitaker, a CFP and founder of Retirement Advice LLC, a fee-only financial planning firm in Provo, Utah.

“Going forward, to hit their ACA subsidy levels, they will only be able to do about $60,000 of Roth conversions a year.”

But be sure to consider other variables, too, such as your tax rate and other income cut-offs. (For more, see the section above on the bonus deduction for older people.)

UPDATES FOR FAMILIES

If you have kids at home, you may benefit from multiple provisions in the OBBBA.

More-generous tax credits for parents

The OBBBA permanently extends the child tax credit and increases it to $2,200 per child, up from $2,000. The credit phases out for singles with modified adjusted gross income of $200,000 or more and married couples who file jointly with MAGI of $400,000 or more.

The OBBBA also makes permanent a separate credit of up to $500 for families with other dependents, such as parents or adult relatives.

The adoption tax credit is more valuable, too. If you adopted a child this year, you can claim a credit for up to $17,280 in eligible expenses. Here’s what’s new: $5,000 of the tax credit will be refundable.

In other words, taxpayers with tax liability of less than $5,000 can still claim that portion of the credit, which means some of that amount could be returned to parents as a refund.

Starting in 2026, the maximum tax credit parents can claim for child and dependent care expenses, such as the cost of day care or a nanny, will increase to 50% of as much as $3,000 in expenses for one dependent and 50% of as much as $6,000 for two or more dependents (both up from 35%).

The credit decreases based on adjusted gross income to as little as 20% of expenses, but OBBBA increased the income thresholds. For married couples with AGI between $150,000 and $210,000, the credit ranges from 35% to 20%. Couples with AGI of $210,000 or more are eligible for a credit of 20% of expenses.

Expanded uses for 529s

Originally designed as a tax-advantaged way to save for college, 529 plans have been expanded over the past several years to permit tax-free withdrawals for certain non-college expenses, too. The OBBBA extends these uses even further.

“The new rules allow up to $20,000 per year to be used for elementary and secondary school tuition, course materials, tutoring, fees for standardized tests, and more,” says Robert Farrington, founder of the website The College Investor.

Previously, tax-free withdrawals of 529 money for K-12 students were limited to tuition, up to $10,000 annually.

The legislation also permits tax-free 529 withdrawals for certain other expenses, such as non-degree credential programs for plumbing, electrical, HVAC and some other trades; certification and licensing expenses; and continuing education required to maintain those licenses.

That means beneficiaries who don’t go to college will have additional ways to benefit from tax-advantaged 529s.

The law permanently allows rollovers from 529 plans to ABLE accounts, where the money can continue to grow tax-deferred for people with disabilities who may not go to college.

Most of the changes related to 529 distributions took effect as soon as the law was signed on July 4, although the increased, $20,000 annual limit for K-12 expenses doesn’t apply until the 2026 tax year.

Keep in mind that not all states have altered their rules to follow the federal expansion. “For example, California doesn’t allow 529 plans to be used for elementary or secondary school expenses,” says Farrington.

Trump accounts for kids

The OBBBA introduces a new investment account — known as a Trump account — for kids younger than 18, and the government will seed the account with $1,000 for children born between January 1, 2025, and December 31, 2028.

Parents and others can contribute up to $5,000 a year to the account until the child turns 18. Contributions are invested in a fund that tracks a broad U.S. stock index, and they grow tax-deferred.

You may have better options for your child’s long-term savings. Annual contributions are not tax-deductible, and earnings are taxed at the beneficiary’s income tax rates when withdrawn.

Unless the money is used for certain expenses, such as education or up to $10,000 for a first-time home purchase, you’ll have to pay a 10% early-withdrawal penalty before age 59½.

“The only advantage of Trump accounts is the $1,000 birthday gift for newborn children. Families should, of course, accept the free money,” says Mark Kantrowitz, a college-savings expert and author of How to Appeal for More Financial Aid.

But for your child’s future college expenses, you’re better off contributing to a 529 plan, because withdrawals for qualified educational expenses are tax-free.

LAST CHANCE TO CLAIM TAX CREDITS FOR THESE ENERGY-SAVING MOVES

The OBBBA speeds up the deadlines to take advantage of certain tax credits related to saving energy.

The Energy Efficient Home Improvement Credit, which provides a 30% tax credit toward the cost of energy-efficient windows, home energy audits, heat pumps and other energy-saving home improvements, was previously scheduled to phase out in 2033. (The law imposed annual limits for certain projects, such as $600 for exterior windows and skylights.)

But now, the credit expires at the end of 2025. The Residential Clean Energy Credit, which provides a tax credit of up to 30% for more-ambitious projects, such as solar electric panels and solar water heaters, will also expire on December 31. The equipment must be installed and operational by year-end to qualify for the credit.

Additionally, the $7,500 EV tax credit to buy or lease qualified electric vehicles, along with the $4,000 credit for eligible used EVs, ends September 30, 2025.

At the same time, however, the OBBBA provides a new tax break for car buyers: a deduction of up to $10,000 in interest on loans for cars purchased between 2025 and 2028.

You don’t have to itemize to claim this deduction, but it’s available only for loans taken out to buy new cars assembled in the U.S., which rules out many popular models. The deduction phases out for individuals earning more than $100,000 or married couples making more than $200,000.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

Related content

• The TCJA: Key Facts on the 2017 'Trump Tax Cuts' and What's Extended for 2025
• Three Strategies to Take Advantage of OBBB Changes, From a Financial Planning Pro
• New Trump Tax Bill: Five Changes Homeowners Need to Know Now
• How Will the One Big Beautiful Bill Shape Your Legacy?
• How to Maximize Your Social Security Now That the One Big Beautiful Bill Is Law

This multibillion-dollar legislation impacts everything from car loan interest to overtime pay and reported cash tips.

While it may provide some taxpayers with opportunities to save, the bill also creates some confusion regarding which income types are really non-taxable and what, if any, new rules apply.

So, here’s more to know about non-taxable income and updates from the 2025 tax law that could affect your next tax bill.

Taxable and nontaxable income examples

When people talk about income and taxes, it’s important to distinguish between nontaxable income and tax deductions.

• Nontaxable income is exactly what it sounds like: income that the IRS doesn’t consider taxable.
• It is excluded from your gross income/exempt from federal income tax by law.
• You generally don’t report most of this income on your tax return, since it’s not subject to tax. (More on types of nontaxable income below.)

On the other hand, tax deductions reduce your taxable income but don’t necessarily transform taxable income into nontaxable income.

So, for example, you may have heard about the new car loan interest deduction, which allows eligible taxpayers to deduct up to $10,000 of interest paid on new U.S.-assembled, qualifying vehicle loans.

That tax break will reduce taxable income for those who properly claim it, but it doesn’t mean that car loan interest is “nontaxable income.” (Loan interest isn't classified as income to the borrower — it's an expense, and sometimes, expenses are tax-deductible).

Understanding the difference is key to interpreting tax changes and managing expectations when it comes to your tax burden. So, let’s dive into some types of income the IRS doesn’t tax.

How much of a financial gift is tax-free?

Financial gifts are a well-known category of non-taxable income. That's due in part to the generous annual federal gift tax limit.

The annual federal gift tax exclusion increased to $19,000 per individual for 2025, enabling folks to give that amount to any recipient without triggering gift tax or filing requirements. Recipients also don’t pay tax on these gifts.

• Unfortunately, gifts given by employers to employees that are akin to cash, i.e., gift cards, are usually considered taxable by the IRS.
• Charitable gifts are generally nontaxable (the donor doesn't pay tax on the amount given). Be sure to get receipts and ensure the charities you give to are legitimate, since the gift/donation may reduce taxable income as a deduction.

Related Deduction: Starting in 2026, taxpayers who take the standard deduction can claim an above-the-line deduction for charitable contributions — up to $1,000 for individuals and $2,000 for joint filers. Donations to donor-advised funds and private foundations will be excluded.

Are inheritances taxable?

Inheritances remain non-taxable at the federal level. That includes inheritances of cash, property, etc.

But remember that if the money you receive from an inheritance subsequently generates income, like the earnings from an interest-bearing account, it might be taxable.

Also, states like Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania continue to impose inheritance taxes at varied rates.

• Meanwhile, the current federal estate tax exemption amount for 2025 is $13.99 million per individual and $27.98 million for married couples filing jointly.
• This means estates valued below these thresholds generally avoid federal estate tax in 2025.
• About a dozen states have estate taxes.

Notable: Under the 2025 Trump tax law, the estate tax exemption amount will increase to $15 million per individual and $30 million for married couples beginning in 2026, indexed for inflation thereafter.

Roth account rules

Qualified distributions (i.e., from a Roth account at least five years old since you first contributed and when you're age 59½ or older) are tax-exempt.

The IRS now allows you to make regular contributions to your Roth IRA at any age. You can leave any amount in your Roth IRA for as long as you live.

• Earnings are tax-free if the account has been open for at least five years and the owner is 59½ years old or older.
• Early withdrawal of earnings is taxable and penalized unless exceptions apply (e.g., disability, first-time homebuyer expenses).

Are Roth Conversions Taxable? Roth conversions are taxable. The amount converted is added to your taxable income for the year of the conversion and taxed at ordinary income tax rates. Consult a trusted tax professional with questions or concerns about your retirement savings account(s).

Nontaxable fringe benefits and HSA contribution tax benefits

Employer-paid health insurance remains tax-exempt, along with up to $50,000 of group term life insurance and employer contributions to Health Savings Accounts (HSAs).

Qualified HSA distributions for medical expenses are tax-free; non-qualified distributions face tax and a 20% penalty unless the account holder is age 65 or older.

Is Social Security taxable in 2025?

Disability payments, workers’ compensation, Supplemental Security Income (SSI), and Veterans Affairs disability pensions generally remain non-taxable.

Important: Despite the Trump administration's claims to the contrary, Social Security benefits are not universally tax-free in 2025. Instead, up to 85% of benefits remain subject to federal tax depending on your income level.

For more information, see No Social Security Tax Changes in Trump's New Bill.

Also, some states tax Social Security income in 2025.

Life insurance proceeds

Life insurance death benefits paid to beneficiaries generally escape income tax.

However, interest earned on the proceeds might be taxable, and tax rules can get complex if the policyholder surrenders the policy for cash. Loans against policies are usually non-taxable if policy conditions are met.

Note: The IRS has an online tool that can help determine whether life insurance policy proceeds you've received are taxable.

Capital gains and muni bond interest

Interest from government-issued bonds is mostly tax-exempt, though some municipal bond interest may be taxable. U.S. Treasury securities are taxable federally, while corporate bond interest is taxable at both federal and state levels.

The capital gains exclusion for primary residence is $250,000 for single filers and $500,000 for those married filing jointly, subject to ownership/use rules.

Capital losses can offset gains, with up to $3,000 deductible annually, and excess losses may be carried forward.

What about overtime pay and no tax on tips?

The new tax deductions for overtime pay and reported tips allow some workers to reduce their taxable income by amounts up to set limits.

But it's important to remember that overtime pay and tips are still considered taxable income subject to payroll taxes and reporting.

‘No tax on tips’ explained

Under the 2025 tax bill, eligible workers can deduct up to $25,000 annually from taxable income for “qualified tips" starting in 2025 and through 2028.

The deduction phases out above $150,000 MAGI for singles and $300,000 for joint filers.

The IRS and Treasury Department have identified 68 occupations that typically receive tips, including but not limited to:

• Food and beverage workers (bartenders, wait staff, cooks)
• Entertainment workers (musicians, dancers, DJs)
• Hospitality staff (bellhops, maids, concierges)
• Home service providers (plumbers, electricians)
• Personal care professionals (hairstylists, massage therapists)

Tips must be voluntary cash or equivalent (includes electronic tips).

No tax on overtime pay?

Under the 2025 tax bill, eligible workers can deduct up to $12,500 of overtime pay ($25,000 for joint filers) from their federal taxable income for tax years 2025 through 2028.

The tax break applies to the portion of overtime pay that exceeds your regular hourly rate — typically the half-time premium mandated under federal labor law.

• The benefit phases out for incomes above $150,000 (single) or $300,000 (married filing jointly).
• This deduction applies only to W-2 employees whose overtime meets federal standards and reduces income tax liability without affecting payroll taxes like Social Security or Medicare.

Other types of non-taxable income

Long-Term Care Insurance: Benefits received from tax-qualified long-term care policies are generally tax-free.

Alimony and Child Support: Alimony payments received under divorce or separation agreements executed after 2018 are not taxable income to the recipient, nor deductible by the payer. Child support payments are nontaxable income and aren’t tax-deductible.

Annuities: Generally, annuities purchased with after-tax dollars are not taxed on the principal when withdrawn; only earnings (investment gains) are taxable when payments or withdrawals are made. Annuities funded with pre-tax dollars have different rules.

States with no income tax

As mentioned, some states tax inheritances, estates, or Social Security benefits even though they are federally exempt.

If you live in one of the nine states without personal income tax — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming — you won't be taxed on your earned income at the state level. But worthy of note:

• Washington State has a capital gains tax.
• New Hampshire eliminated its interest and dividend income tax.

Additionally, while some portion of your Social Security benefits might be subject to federal tax, most states don't tax Social Security income.

For more information, see Kiplinger's list of states that still tax Social Security.

Tax changes 2025: Bottom line

New rules and changes in the 2025 tax law mean it’s more important than ever to understand taxable and nontaxable income.

Consult a tax professional for personalized advice to help ensure you take full advantage of federal and state tax incentives available to you and avoid any potential pitfalls that could arise.

Related

• New No Tax on Tips Deduction: What to Know
• What's Happening With Taxes on Overtime Pay?
• The 2025 Gift Tax Exclusion: How Much Is It?
• QUIZ: How Much Do You Know About Income Tax Brackets?

During his first presidency, Donald Trump signed the Tax Cuts and Jobs Act (TCJA) into law. The largest tax bill in recent decades temporarily halted several tax breaks, including deductions for individual investment costs, personal tax preparation fees and home office expenses for employees.

In his second term, Trump and the GOP have extended many of the TCJA tax cuts and enacted several new temporary tax benefits in a law Trump often refers to as the One Big Beautiful Bill (OBBB).

This extensive tax and spending law, enacted on July 4, 2025, includes new incentives such as the car loan interest deduction, while also removing several tax credits and deductions that the TCJA previously suspended.

Here’s a list of tax breaks that will end in 2026 — and what that might mean for your household moving forward.

This article addresses personal income tax breaks on federal returns. Sole-proprietorships, S-corps, limited liability corporations (LLCs) and all other businesses might be subject to different rules under IRS regulations. Consult with a qualified professional for tax advice.

1. Which clean energy tax credits are going away?

Although most clean energy tax breaks were temporary, their expiration dates weren’t until 2032 or later, thanks to the Inflation Reduction Act passed during the Biden administration. Yet the new Trump tax bill eliminates several key residential energy tax breaks, effective 2026 (though some are expiring earlier).

Here are a few examples:

• Federal Electric Vehicle (EV) Tax Credit worth up to $7,500 (expiring after September 30, 2025).
• Residential Clean Energy Credit worth up to 30% of qualifying installations (until December 31, 2025).
• Energy Efficient Home Improvement Credit worth up to $3,200 (until December 31, 2025).

About 1.2 million households have used credits for residential clean energy investments, resulting in $6 billion in savings, according to the latest data released by the U.S. Department of the Treasury. That amounts to an average tax benefit per family of around $5,000.

Without these incentives, some taxpayers wanting to make the same investments will lose on tax savings in 2026 compared with just one year prior.

However, it’s important to note that the federal tax credit for at-home EV charger equipment isn’t ending until June 30, 2026. This means you might be able to save up to $1,000 in federal income taxes if you install qualifying charging equipment by the deadline next year.

Related: Homeowners Rush to Install Solar Panels Before 'Trump Tax Bill' Cuts Credit.

2. Itemized deductions are not allowed, and the home office deduction for employees is gone

Before the TCJA, many miscellaneous itemized deductions could be claimed on your individual federal income tax return.

The deductions below were subject to a 2% adjusted gross income (AGI) floor, meaning you could only claim these tax benefits if the total of these expenses exceeded that threshold.

Here are a few examples of tax deductions that are expiring in 2026:

• Unreimbursed work expenses, such as those for travel and transportation.
• Investment expenses, such as custodial fees and safe deposit box rentals.
• Hobby expenses (up to the amount of hobby income).
• Tax preparation fees (personal). (The rules are different if you have business income.)
• Home office deduction for employees.

These tax breaks were to return in 2026 with the expiration of the TCJA, but the 2025 GOP tax bill ended them.

Of all the miscellaneous itemized deductions, unreimbursed employee expenses, non-business tax preparation fees and investment expenses were the most popular, according to the Tax Foundation. More than 21 million households used these deductions about 10 years ago.

Republican lawmakers initially eliminated the miscellaneous itemized deductions to help fund the increased standard deduction. However, whether the standard deduction truly offsets these itemized deductions might vary from taxpayer to taxpayer (more on that below).

*Note: The moving expense deduction for work, although not a miscellaneous itemized deduction, was also eliminated by the OBBB (exceptions may apply to military personnel).

3. Family tax credits and exemptions: What the trade-off could mean for you

The personal and dependency exemption will also end in 2026.

This exemption, designed to connect tax liability to family size, was worth $4,050 per qualifying person in 2018, though the amount was adjusted for inflation annually.

The year before the TCJA was enacted:

• About 292 million people (PDF) claimed the personal and dependency exemption.
• This resulted in about $1.2 trillion in taxpayer savings, according to the IRS.

As with the miscellaneous itemized deductions, the elimination of this exemption was used to offset the increased standard deduction and higher child tax credit, according to the Tax Policy Center.

Yet, if you claim itemized deductions and have a large family, this trade-off might increase your taxable income compared with the law before the TCJA.

For example, consider a married, filing jointly couple with five children before the TCJA and after the OBBB was enacted.

*Inflation adjustment amount calculated as of September 2025 via USAfacts.org.

In the example, the family’s taxable income increases under the pre-TCJA law compared with what it will be under the 2025 tax law. That’s because the increased standard deduction didn’t offset the combined itemized deductions and personal and dependency exemptions for the hypothetical household.

However, once the higher child tax credit is factored in, that same family could achieve a lower tax liability if they meet the updated eligibility requirements to claim the credit.

While the example shows a lower tax liability for 2025 than the law before the TCJA, the benefit a taxpayer could see for trading off the personal and dependency exemption for the increased child tax credit and standard deduction varies based on a taxpayer’s circumstances.

For instance, while a married couple with kids might save on income taxes owed with a higher child tax credit, a single filer with no children might not.

As noted earlier, the child tax credit also has new eligibility rules in the 2026 tax filing season. This includes a requirement that qualifying children and at least one parent must have a work-eligible Social Security number. As a result, about 2.7 million children who used to qualify for this tax credit might not be eligible next year.

Note: The personal and dependency exemption was subject to AGI phaseouts, and the child tax credit has a modified adjusted gross income (MAGI) phase-out.

Is the ‘AMT tax’ back from the dead?

Before the TCJA, 5.2 million Americans paid the Alternative Minimum Tax (AMT), per Tax Policy Center data. This "parallel tax system" was implemented to ensure that higher-income taxpayers pay a minimum amount of tax.

However, data from the Tax Policy Center shows that previous AMT rules might have disproportionately affected upper-middle-income taxpayers.

Through the TCJA, the individual AMT threshold was raised in a couple of ways:

• Increasing the exemption amount from $84,500 to $137,000 for married filing joint couples (single filers from $54,300 to $88,100).
• Raising the phase-out threshold from $160,900 to $1,252,700 for married filing joint couples (single filers from $120,700 to $626,350).

The result was that the number of taxpayers who paid AMT dropped from about 5 million to just 200,000 in 2018, according to the Tax Policy Center. Under the OBBB, the individual AMT exemption amounts were made permanent.

Starting in 2026, the phaseout will be lowered to $500,000 for singles and $1 million for married couples filing jointly. Once more, the phaseout rate for every dollar above this threshold was increased from 25% to 50%.

This means more income from higher earners will be subject to AMT next year.

In addition to the permanent elimination of tax breaks on this list, you could qualify to pay AMT in 2026 even if you haven’t in recent years.

Read More

• Ten Tax Breaks for Middle-Class Families Who Claim the Standard Deduction
• IRS Paper Checks Deadline: What Happens After September 30?
• Tax Deadlines by Month for 2025
• 2026 Family Tax Credits: Three IRS Changes You Need to Know Now

1. What is the tips deduction?

Question: I work as a hairdresser. I heard that my tips will now be tax-free. Can you explain how this works?

Joy Taylor: The “One Big Beautiful Bill” enacted lots of tax breaks, with some important ones beginning this year. One of these is the deduction for up to $25,000 of tipped income. It’s available for taxpayers taking standard deductions and for those who itemize on Schedule A of Form 1040. The deduction is below-the-line, meaning it’s subtracted from adjusted gross income to arrive at taxable income. This deduction is temporary, first taking effect on 2025 tax returns filed next year and ending after 2028.

There are lots of rules and limitations. For example, there’s an income limit. The deduction begins to phase out at modified adjusted gross income (modified AGI) over $300,000 for joint filers and $150,000 for others. And the taxpayer who received the tips must include a Social Security number on Form 1040.

Only qualified tips are deductible. They must be paid voluntarily without negotiation in an amount chosen by the payer. Tips received through a tip-sharing arrangement are also qualified tips. Service charges or other amounts automatically added to a customer’s bill don’t qualify unless customers can disregard or modify them without consequences. Individuals in certain professional service businesses can’t take the deduction. The tips must generally be reported on IRS Form W-2, 1099 or similar form. Self-employed individuals must include the tips in their Schedule C income.

The tips must be from an occupation that traditionally receives tips. The IRS lists 68 job titles in eight categories that meet this rule. Many of the job titles make common sense. These include bartenders, restaurant wait staff, maids, caterers, casino dealers, parking valets, taxi and rideshare drivers, hairdressers, manicurists, massage therapists, tour guides, chefs, musicians and singers, bellhops, tutors, pet sitters, nannies, golf caddies and tattoo artists. Others aren’t as intuitive, such as digital content creators, home heating and air conditioning mechanics, and home plumbers and electricians.

2. Is the write-off higher for married filers?

Question: I am married and file a joint return with my husband. We both receive tips. Is the $25,000 maximum tips deduction doubled for us?

Joy Taylor: No. The maximum deduction is $25,000, regardless of whether you file a joint return, single return or head-of-household return. Note that if you are married, you must file a joint return with your spouse to claim the tips deduction. Married couples who file separate tax returns cannot take the write-off for tipped income.

3. What is modified AGI?

Question: What is the definition of modified AGI for purposes of the tips deduction?

Joy Taylor: The tips deduction begins to phase out at modified AGI over $300,000 for joint filers and $150,000 for other filers. More specifically, the write-off is reduced, but not below zero, by $100 for each $1,000 by which the taxpayer’s modified AGI exceeds the $300,000 or $150,000 thresholds.

The federal tax law has many different definitions of modified AGI. For this purpose, modified AGI is AGI plus any foreign earned income exclusion, foreign housing exclusion, and certain excluded income because it was received from sources in Puerto Rico, Guam, American Samoa or the Northern Mariana Islands.

4. What does cash tips mean?

Question: I heard that only cash tips are deductible. Is that correct?

Joy Taylor: Yes and no. While the relevant statute defines qualified tips as cash tips received by an individual, the statute and the IRS’s proposed regulations broadly define cash tips. Per the regulations, they include tips paid by cash, check, debit card, credit card, gift card, casino chips that can be readily exchanged for cash, or through an electronic or mobile payment app. Tips received through a tip-sharing arrangement or tip pool also qualify.

5. What about automatic gratuities?

Question: I work as a server at a restaurant, and we add a 20% automatic gratuity to each customer’s check. Can I deduct my share of these gratuities?

Joy Taylor: It depends. Service charges, automatic gratuities or other mandatory amounts automatically added to a customer’s bill aren’t eligible to be deducted as qualified tips unless the customer is expressly provided an option to disregard or modify it without consequences. The IRS’s proposed regulations provide several examples to illustrate this concept.

6. How do I claim the tips deduction?

Question: Where do I report the tips deduction on my Form 1040 or 1040-SR?

Answer: The IRS has released a draft new schedule for eligible taxpayers to claim the tips deduction, as well as the $6,000 senor deduction for filers 65 or older ($12,000 if both filers are age 65 or older), the up-to-$12,500 of overtime pay ($25,000 for joint filers), and the deduction for up to $10,000 of interest paid on loans to buy a new automobile. Eligible taxpayers will use Schedule 1-A titled “Additional Deductions” to calculate the modified AGI and to claim the tax breaks for which they qualify. They will then transfer the total to new line 13-b on the 2025 Form 1040.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication.
Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the OBBB and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

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A recent survey found that roughly two-thirds of U.S. taxpayers don’t understand how federal rates and brackets actually affect their taxes.

Take our quiz to see if you can get it right, bust common tax myths, and get clear on how federal income taxes work.

Want to keep testing your tax knowledge? Try our other quizzes on nontaxable income and the standard deduction.

Read More on Income Taxes:

• Income Tax Brackets and Rates for 2025
• Types of Income the IRS Doesn't Tax
• How the IRS Taxes Retirement Income

These benefits have become particularly attractive to homeowners recently as anticipation surrounding the interest rate cut by the Federal Reserve in September drove down mortgage rates. And that led to a surge of refinancing applications and the strongest week of borrower demand in decades, according to the Mortgage Bankers Association (MBA).

“Homeowners with larger loans jumped first,” said Mike Fratantoni, MBA’s SVP and Chief Economist, regarding their weekly survey of mortgage applications for the week ending Sept. 12 . “The average loan size on refinances reached its highest level in the 35-year history of our survey.”

But as mortgage rates slide, homeowners considering a refinance should be aware of associated tax implications to maximize any potential benefits. Here's more to know.

Are cash-out refinances considered taxable income?

A cash-out refinance enables homeowners to tap into their home equity, freeing up funds to cover expenses like college tuition, medical bills, or home improvements.

The best part of a cash-out refi is that you won’t owe income taxes on the cash received. That’s because you are borrowing against your home’s equity, and the IRS expects that you’ll pay those funds back to the bank.

Additionally, money received from a home equity line of credit (HELOC) or home equity loan is also tax-free.

Aside from being tax-free money in your pocket, a cash-out refinance could provide other tax advantages. Let’s dive in.

Permanent cap on mortgage interest deduction

One of the most popular tax breaks some homeowners claim is a mortgage interest deduction when refinancing their home loan. However, you’ll need to itemize using a Schedule A of Form 1040 to claim this deduction.

There’s also a limit on the amount you can deduct on mortgage interest. President Donald Trump’s recently enacted tax cuts and spending legislation, dubbed the ‘big beautiful bill,’ makes that cap permanent for refinanced and original home loans. But there are income limits.

For 2025 and onward, you can deduct mortgage interest on the first:

• $750,000 if single or filing jointly
• $375,000 if married filing separately

For a deeper dive into how Trump’s megabill reshapes tax breaks for homeowners, see our related story: New Trump Tax Bill: Five Changes Homeowners Need to Know Now.

Tax-deductible home improvements for a cash-out refi

There are also other cash-out refinance tax rules that impact what you can claim as a tax deduction.

For instance, proceeds from the cash-out refi used to fund capital home improvements may qualify for a deduction. Capital improvements are permanent residential upgrades to enhance your property, outlined in IRS Publication 523.

If you’re a retiree in search of home improvement tax breaks, or have a family member who needs certain renovations done to make your home accessible. Some remodeling projects may also qualify for a medical expense deduction that you must itemize.

Some popular tax-deductible home improvements may include:

• Adding a swimming pool
• Implementing a new bedroom, office, or bathroom
• Installing home security systems

As a note, some tax breaks are expiring this year due to Trump’s new tax law. For example, clean energy tax credits for home improvements are being eliminated sooner rather than later. That includes tax incentives some homeowners could claim for installing energy-efficient home improvements like solar panels.

Tax breaks for buying down your rate

When you’re about to close on a mortgage refi, you have the option to buy down your rate via discount points.

Points paid during a traditional or cash-out refinance aren’t deductible in full the year you pay them. Some exceptions may allow you to deduct points fully in the year paid, like if you use part of the refinanced proceeds to substantially improve your main home.

However, discount points paid during a mortgage refi are generally deducted over the life of the loan, so you’ll have to plan accordingly.

So, what are mortgage points?

• Points are prepaid interest, which you pay upfront to lower the interest rate on your mortgage.
• One point equals 1% of the loan amount. That means that paying 1 point on a $300,000 mortgage would cost you $3,000, and could reduce your rate by about 0.25%.

To deduct mortgage points, you must meet all IRS requirements, and they should be included as an itemized deduction claimed on IRS Form 1040, Schedule A.

Rental property tax deduction

Here’s some good news: You can also claim tax deductions when refinancing a rental property, but they are generally amortized across your refinance loan term.

The rules are slightly different. For instance, when refinancing a primary residence, you can only deduct qualified points and interest, as well as certain renovations.

By contrast, refinancing a rental property also allows you to also deduct closing costs associated with obtaining a new mortgage, like loan origination fees. Other tax-deductible costs may include:

• Application fee: These are processing fees when applying for a refinance, and may include credit report fees as well.
• Appraisal costs: An appraisal for a rental property includes an analysis of potential rental income in your designated area.
• Discount points: As mentioned, these are points purchased to buy down the rate on your mortgage.
• Mortgage insurance premiums: A mortgage insurance premium can generally be deducted as a business expense in full the year they are paid.

Ensure you consult with a tax professional to determine what may qualify as a tax break when refinancing your rental property.

When to consider refinancing your mortgage

More than 81% of homeowners have a mortgage rate below 6%, according to data from Realtor.com. That’s at least 4 in 5 U.S. homeowners with outstanding mortgages, who may not be interested in refinancing at today’s rates.

However, refinancing a mortgage may be worth considering if interest rates have fallen considerably below the current loan rate. Some folks may also be interested in a refinance if they want to change their mortgage loan term, switch to a fixed-rate loan, or want to pull cash from their home equity to fund certain expenses.

All of these reasons may sway homeowners to refinance their mortgage, especially as market rates are on a downward trend.

Before refinancing your home loan, keep track of potential tax benefits you may claim, which are generally through itemized deductions. As mentioned, some may include deductions for qualifying home improvements or closing costs of the loan.

To get the best outcome, consult a trusted tax advisor who can guide you regarding potential tax breaks associated with home refinancing.

Related

• Save More with Tax Credits for Energy-Efficient Home Improvements While You Still Can
• Ten Tax Breaks for Homeowners and Homebuyers in 2025
• New Trump Tax Bill: Five Changes Homeowners Need to Know Now

Most taxpayers claim the standard deduction, but do you know exactly how it works in 2025? Take this quick quiz to test your knowledge — you might be surprised by what you find out.

If you miss a question or two, there are links to Kiplinger tax team articles at the end of the quiz to refresh your memory before tax season arrives.

Read More on the Standard Deduction:

• What’s the Standard Deduction for 2025?
• The Extra Standard Deduction for People Age 65 and Older
• 2025 Standard Deduction Changes for Those Over 65
• New Standard Deduction Changes Under Trump's Tax Bill

1. How did the OBBB affect the SALT deduction?

Question: What changes did the “One Big Beautiful Bill” (OBBB) make to the state and local tax (SALT) deduction?

Joy Taylor: The 2017 Tax Cuts and Jobs Act (TCJA) imposed a $10,000 federal cap on the deduction for state and local taxes claimed by itemizers on Schedule A of Form 1040. Specifically, under the TCJA, filers could deduct on Schedule A any combination of state and local property taxes, and income or sales taxes, up to a total of $10,000. Married couples filing separate federal tax returns could deduct only up to $5,000 apiece. The cap was temporary and was set to expire at the end of 2025.

The OBBB increased the SALT deduction cap to $40,000 for five years (2025-2029). It goes back down to $10,000, beginning in 2030, unless Congress otherwise acts to raise it again at that time. The cap for married couples who file separate returns is $20,000 apiece for 2025-2029.

There is also an income limit. For 2025, the SALT write-off begins to phase out, but not below $10,000, for filers with modified adjusted gross incomes (modified AGI) over $500,000 ($250,000 for married couples who file separate returns). More specifically, the $40,000 cap is reduced by 30% of the excess of the taxpayer’s modified AGI over the $500,000/$250,000 levels. When modified AGI reaches $600,000 or higher, the $10,000 SALT deduction cap applies.

Modified AGI for this purpose is AGI plus any foreign earned income exclusion, foreign housing exclusion, and certain income excluded from gross income because it was received from sources in Puerto Rico, American Samoa, Guam or the Northern Mariana Islands.

The $40,000 cap and $500,000 modified AGI threshold will increase 1% each year through 2029. For example, for 2026 returns, the SALT deduction cap will be $40,400 and the income limit at which the deduction will begin to phase out will be modified AGI over $505,000.

2. When does the new cap apply?

Question: When does the $40,000 cap on deducting state and local taxes kick in? Can I deduct it on my 2025 Form 1040 if I itemize?

Joy Taylor: As discussed in the first question, the $40,000 cap is for 2025-2029. That means that the higher limit will apply to your 2025 federal tax return that you file next year, provided you itemize on Schedule A of Form 1040.

3. Can I claim the standard deduction and SALT?

Question: Can people who claim the standard deduction on Form 1040 also deduct their state and local taxes that they pay?

Joy Taylor: Generally, no. If you claim the standard deduction on your Form 1040, then you can’t also itemize and deduct your state and local taxes. Note, however, that if you are self-employed, you can deduct your property and sales taxes in full on Schedule C. Farmers can fully deduct state and local property taxes on Schedule F. And landlords can deduct on Schedule E the property taxes they pay on real estate.

4. How does the OBBB affect state workarounds?

Question: Did the OBBB restrict state workarounds for owners of partnerships, LLCs and other pass-through entities?

Joy Taylor: No. Most states enacted workarounds after 2017 to help lawyers, accountants, doctors and other individuals who are partners in partnerships, members of LLCs or shareholders in S corporations, circumvent the then-$10,000 SALT deduction cap. These workarounds, commonly known as the pass-through entity tax (PTET) regime, allow partnerships and other pass-through entities to elect to pay an entity-level state income tax instead of having the entity’s owners pay state tax on the entity’s income that is passed through to them. The owners then get a state tax break for their pro-rata share of tax paid by the firm. When an election is made, state income tax payments shift from the business owners, who are subject to the SALT cap, to the pass-through entities, which are not.

The House version of the OBBB included language that would have ended these popular state PTET workarounds. The Senate version, which ultimately became law, removed that language.

5. SALT write-off and AMT

Question: How does the SALT deduction claimed on Schedule A interact with the alternative minimum tax (AMT)?

Joy Taylor: AMT is due to the extent it exceeds regular federal income tax liability. Prior to 2018, many upper-income individuals who were subject to AMT did not get a tax benefit from SALT write-offs. That's because in figuring alternative minimum taxable income, taxpayers have to add back in SALT deductions taken on Schedule A. The 2017 TCJA temporarily defanged much of the AMT through 2025, resulting in far fewer taxpayers paying AMT now, compared with pre-2018 years.

The OBBB made the 2017 easings to the AMT permanent — with some changes. This means that the vast majority of taxpayers will not be subject to the AMT. However, since the SALT deduction is still not allowed for AMT purposes, taxpayers who claim the up to $40,000 SALT deduction on Schedule A and who are subject to the AMT might owe more AMT than in 2018-2024. But the new modified AGI phaseout rules for deducting state and local taxes on Schedule A will more likely adversely impact upper-income taxpayers than the interaction of the SALT deduction and AMT.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication.
Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the OBBB and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Questions on the New Tax Law
• Ask the Editor: Questions on the $6,000 Senior Deduction
• Ask the Editor: Questions on home sales and taxes
• Ask the Editor: Questions on Inherited IRAs

Tucked into President Donald Trump’s 2025 tax bill, this provision is designed to give retirees and older taxpayers extra relief at filing time. While the idea sounds simple enough, the new deduction has stirred questions about who qualifies and how the deduction works with other tax breaks.

For example, if you’re 65 or older and have been itemizing your tax deductions, you might wonder if this new bonus deduction could benefit you.

Most taxpayers claim the standard deduction — and those who do can stack the bonus deduction on top of the regular standard deduction and the existing extra standard deduction for those 65 and older.

Here’s more to know about what the new bonus deduction means for those age 65 and older.

Related: Standard Deduction 2025 Quiz: How Much Do You Really Know?

What is the bonus deduction for older adults in the Trump tax bill?

A new bonus deduction kicks in beginning with the 2025 tax year due to recently enacted GOP tax legislation, which Trump calls the “One Big Beautiful Bill” (OBBB).

This bonus allows taxpayers age 65 and older to claim an additional deduction — up to $6,000 for singles, or $12,000 for married couples when both spouses qualify.

Key points:

• You must be 65 or older by December 31, 2025.
• The bonus amount tops out at $6,000 for individuals and $12,000 for married couples when both spouses are 65 and older.
• This deduction phases out above a certain income level: Modified Adjusted Gross Income (MAGI) of $75,000 for singles and $150,000 for those married, filing jointly. It phases out completely for MAGI above $175,000 and $250,000, respectively.
• The IRS says you must “include the Social Security Number of the qualifying individual(s) on the return, and file jointly if married, to claim the deduction.”

Because the deduction applies regardless of whether you itemize or take the standard deduction, it can be helpful for those with sufficient deductible expenses to itemize but who also want to further reduce their taxable income.

Keep in mind: This new tax break is temporary, set to be available from 2025 through 2028 unless Congress renews it.

How it works for standard deduction takers

As Kiplinger has reported, taxpayers 65-plus who typically claim the standard deduction can claim the up to $6,000 bonus deduction (or $12,000 for married couples when both are age 65-plus).

That’s in addition to the existing extra standard deduction for those 65 and older ($2,000 for singles, $1,600 per qualifying individual married, filing jointly).

For example, a single filer age 65 or older could have a standard deduction of $15,750 (the new base amount), plus $2,000 (existing age deduction), plus $6,000 (bonus), for a total deduction of $23,750, assuming total income is below the phase-out threshold.

How the 65-plus bonus deduction works for itemizers

The existing extra standard deduction for individuals age 65 and older only benefits those who claim the standard deduction. They add the appropriate extra standard deduction amount for those 65 and older to their existing standard deduction.

However, the 2025 bonus deduction for older adults temporarily offers a separate tax benefit. (You aren’t required to take the standard deduction to claim it.)

Even if you itemize your deductions — claiming mortgage interest, charitable giving or medical expenses, for example — you might still benefit from the new separate bonus deduction for those 65 and older as part of your retirement tax plan.

What about taxes on Social Security benefits?

Despite what you might have heard, the bonus deduction doesn’t necessarily eliminate taxes on your Social Security benefits.

Trump’s tax bill does not directly change Social Security taxation and makes no changes to the Social Security program.

Instead, as mentioned, the new law, enacted on July 4, 2025, provides a temporary, income-based bonus 65-plus tax deduction rather than a full repeal of Social Security benefit taxes. That deduction boost could, for some, indirectly impact how much Social Security income is subject to tax.

For more information, see Kiplinger's report: No SS Tax Cut in Trump's Big Bill.

'Senior bonus deduction' 2025: What to do now

The new bonus deduction is a temporary tax break that could benefit a broader range of older adult taxpayers, including those who itemize and those who choose the standard deduction.

Here are a few things to consider as we head toward the final quarter of 2025:

Review your income. Think about your expected MAGI to gauge how much of the $6,000 deduction you can claim.

Keep track of all deductible expenses. This helps ensure that claimed deductions are documented, which can result in a lower taxable income and prevent paying more taxes than necessary.

Consult a tax professional. Since the rules are new and income phaseouts apply, professional advice can help you optimize your retirement tax strategy for 2025 and beyond.

Read More

• The Extra Standard Deduction for Those 65 and Older
• What’s Wrong With Trump’s Pledge to End Taxes on Social Security
• Types of Income the IRS Doesn't Tax
• Claiming the Standard Deduction? Here Are 5 Tax Breaks for Retirement

A recent Pew report found that a family of three could be considered in the “middle” of upper and lower incomes when annual household earnings are from $56,600 to $169,800*.

For these middle-income homes, there might be good news come tax time: The IRS has several key tax breaks available for federal income returns, regardless of whether you claim the standard deduction or itemize (which is even better news for the 90% of Americans who opt for the standard deduction).

Here are 10 tax breaks available to eligible middle-income taxpayers who claim the standard deduction on their 2025 income tax return.

*Note: Pew Research is based on 2022 Census Bureau Data and varies significantly by city and state.

New: Tax Refund Alert: House GOP Predicts 'Average' $1,000 Payouts in 2026

What tax deductions and credits can I claim with the standard deduction as a middle-class working family?

Kiplinger used the $56,600 to $169,800 “middle-income” range released by the Pew Research Center to find 10 tax breaks available to middle-class families in 2025.

However, it’s important to note that specific geographic location, number of children and other financial and personal circumstances factor into whether an individual or household might be considered “middle-class.”

Additionally, the list below doesn't include tax-incentivized benefits, such as those for health coverage, tax-free investments, such as municipal bonds, or tax-advantaged savings accounts, such as IRAs.

Only federal tax credits and deductions meeting these income criteria were considered.

Even then, keep in mind this listing is not exhaustive, and it’s important to check with your state Department of Revenue website regarding additional tax breaks for which you could be eligible. Consult with a qualified tax professional when necessary.

Child care and other dependents tax breaks

1. The Child Tax Credit (CTC) for middle-class families

Single-filer income limit before phaseout begins: $200,000*

Joint-filer income limit before phaseout begins: $400,000*

According to recent data, taxpayers with incomes from $100,000 to $200,000 receive the largest average federal Child Tax Credit (CTC) compared with lower and upper income groups.

If you want to learn more about the CTC as a middle-class taxpayer, here are some fast facts:

• For 2025, the credit is worth up to $2,200 per qualifying child under age 17 (age 16 and younger).
• The refundable portion of the credit (the amount you receive even if you owe no tax) is $1,700.
• For every $1,000 that your income is above the income limits, your CTC is reduced by $50.

Starting in 2025, a Social Security Number (SSN) is also required for parents or guardians claiming this tax break. Households with non-citizen parents are likely to be ineligible to receive the credit.

*Note: “Income” for the CTC is based on a taxpayer’s modified adjusted gross income (MAGI), though other types of excluded income (like foreign earned income) may be added back to calculate your CTC amount.

2. Child and Dependent Care Credit for middle-income families

Single-filer income limit before phaseout begins: $15,000*

Joint-filer income limit before phaseout begins: $15,000*

The Child and Dependent Care Tax Credit (CDCTC) is designed to reimburse families for qualifying child care expenses while the parents are working (or looking for work).

The total 2025 CDCTC amount is worth up to $3,000 for one child or $6,000 for two or more children.

Although the CDCTC has a low beginning phaseout limit of $15,000, it might be considered a “middle-class” tax break for two reasons.

• First, the CDCTC is nonrefundable (meaning low-income families who are owed a tax refund can't receive the full benefit).
• Secondly, higher earners receive a diminished benefit relative to their total income.

Additionally, the CDCTC has no upper phaseout limit, meaning many middle-class families with children might see some potential tax benefit.

• Families with an income of $15,000 or less qualify to have 35% of their qualifying child care expenses reimbursed.
• A 1% phaseout exists for each $2,000 your income exceeds the $15,000 amount.
• Families with $43,000 or more will receive the minimum credit rate of 20% on qualifying expenses. This translates to a CDCTC of $600 to $1,200, depending on the number of qualifying children.

The federal CDCTC is available to those with qualifying child care expenses for children under age 13 (age 12 and younger) (or dependents with disabilities). Qualifying expenses might include before- and after-school care, babysitters, day care, and preschool.

For more information on qualifying expenses, see Kiplinger’s report, The Child and Dependent Care Credit: How Much Is It?.

*Note: “Income” for the CDCTC is based on a taxpayer’s adjusted gross income (AGI).

3. Tax Credit for Other Dependents: The 'Family Tax Credit' for middle-class families

Single-filer income limit before phaseout begins: $200,000*

Joint-filer income limit before phaseout begins: $400,000*

The credit for other dependents might be beneficial for middle-income families with qualifying children age 17 and older (so they no longer qualify for the CTC). Other dependents might also be considered “qualified.”

The maximum $500 credit amount is available to taxpayers who have:

• Income below $200,000 (single filers) or $400,000 (married filing jointly).
• A qualifying dependent. This might include a child, parent, or other qualified individual. (See the IRS website for qualifying dependency rules.)

The credit phases out by $50 for every $1,000 (or fraction thereof) that your income goes beyond the income limits.

For more information, check out Kiplinger’s report How Caregivers for Adults Can Save on Taxes in 2025.

*Note: “Income” for the credit for other dependents is based on a taxpayer’s adjusted gross income (AGI).

4. Adoption Credit for middle-income families

Single-filer income limit before phaseout begins: $259,190*

Joint-filer income limit before phaseout begins: $259,190*

The National Council for Adoption (PDF) surveyed more than 4,200 adoptive parents across all 50 states and Washington, D.C. Of the responses, more than half had income above $75,000, which is within the Pew Research Center’s “middle income” range.

Families who finalize an adoption in 2025 can save up to $17,280 in qualified child expenses. This includes a new refundable portion of the credit worth up to $5,000, meaning that if you owe no federal tax, you might still get up to that amount refunded to you after you file.

Here are some other important facts about the federal adoption credit:

• Qualified adoption costs eligible for the credit include adoption fees, court costs or legal expenses, any travel costs, home study fees, and expenditures associated with re-adoption in your home state (if foreign adoption applies).
• Families adopting a U.S. child with special needs can claim the full tax credit without having any qualified adoption expenses.
• Parents with an income of more than $259,190 will receive a reduced credit, with a complete phaseout at $299,190 or more.

Any remaining nonrefundable adoption credit can be carried forward for up to five years to offset future tax liabilities.

*Note: “Income” for the federal adoption credit is based on a taxpayer’s modified adjusted gross income (MAGI).

Education Tax Breaks

5. The American Opportunity Tax Credit (AOTC) for middle-class families

Single-filer income limit before phaseout begins: $80,000*

Married-filing jointly income limit before phaseout begins: $160,000*

The American Opportunity Tax Credit (AOTC) is designed to help families afford college. This partially refundable tax break phases out completely for single filers with incomes above $90,000 and married couples filing jointly with incomes above $180,000.

You can claim the AOTC on:

• 100% of the first $2,000 spent on qualified education expenses (such as books, tuition and fees), plus
• 25% of the next $2,000 you spend on these qualifying expenses.

Thus, the AOTC combined total is worth up to $2,500.

Once more, if the credit amount exceeds your tax bill, you’ll get a refund for 40% of the remaining amount (up to $1,000 per qualifying student).

However, there are various eligibility requirements you must meet to qualify for the AOTC:

• You (or your dependent or spouse) must be enrolled in school at least half-time.
• The qualifying individual must attend an eligible educational institution, AND
• Pursue a degree or other educational credential.

Furthermore, you can only use the AOTC for the first four years of enrollment. For more information on eligibility requirements, check out Kiplinger's report, What Is The American Opportunity Tax Credit (AOTC)?

*Note: “Income” for the AOTC is based on a taxpayer’s modified adjusted gross income (MAGI).

6. The Lifetime Learning Credit (LLC) for middle-income families

Single-filer income limit before phaseout begins: $80,000*

Married, filing jointly, income limit before phaseout begins: $160,000*

The Lifetime Learning Credit (LLC) is similar to the AOTC, but with one major difference: The LLC can be used for non-degree courses.

This means that, while you might only use the AOTC four times per tax return, you can claim the LLC as long as you are meeting eligibility requirements:

• The qualifying individual must be enrolled for at least one academic period (semester, trimester, etc.) during the tax year at an eligible educational institution.
• You don’t need to be enrolled half-time, and the coursework can be used to improve job skills (instead of a degree program). You can also be a graduate student.
• Books, tuition, and fees might be qualified expenses if purchased from the educational institution as a condition of enrollment. Room and board, insurance, and transportation are not considered qualifying expenses for purposes of the LLC.

While the credit isn’t refundable, it is worth up to $2,000 per tax return (20% of $10,000 of qualified education expenses).

*Note: “Income” for the LLC is based on a taxpayer’s modified adjusted gross income (MAGI).

7. Student Loan Interest Deduction for middle-income families

Single-filer income limit before phaseout begins: Up to $85,000*

Married, filing jointly, income limit before phaseout begins: Up to $170,000*

Qualifying middle-class earners looking to further save on educational costs might be eligible to claim the student loan interest deduction. To qualify for this tax break, worth up to $2,500, taxpayers must:

• Have a private or federal student loan taken out to pay for higher education expenses (room and board, tuition and fees, books, supplies, and other necessary costs).
• Pay interest on the loan and be legally responsible for repaying the amount due.

The full $2,500 student loan interest deduction starts to phase out for incomes above $85,000 (single) and $170,000 (married filing jointly).

For tax year 2025, incomes exceeding $100,000 (single) and $200,000 (married filing jointly) are ineligible to claim this deduction.

*Note: “Income” for the student loan interest deduction is based on a taxpayer’s modified adjusted gross income (MAGI).

Income Tax Breaks

8. Tip Income Deduction for working middle-class families

Single-filer income limit before phaseout begins: $150,000*

Joint-filer income limit before phaseout begins: $300,000*

Due to the passage of the GOP reconciliation bill dubbed the “One Big Beautiful Bill” (OBBB), eligible taxpayers can now claim a new temporary tip income deduction for tax years 2025 through 2028. This could provide tax relief for up to 4 million tipped workers in the U.S..

The tip income tax deduction might be claimed regardless of whether you itemize or claim the standard deduction on your federal income tax return.

• The maximum deduction amount for tip income in 2025 is $25,000.
• “Qualified” tips include both voluntary cash and charged tips (such as credit card or PayPal).
• Payroll taxes still apply (that is, the deduction doesn’t reduce Social Security or Medicare taxes).

For every $1,000 your income exceeds the above limits, your tip income deduction is diminished by $100. The deduction completely phases out for single filers with income of $400,000 and joint filers with income exceeding $550,000.

As first reported by Axios, the U.S. Treasury Department has recently released a list of qualifying professions for this tax break. Qualified professions might include:

• Wait staff and bartenders.
• Food servers, chefs and cooks.
• Dancers, musicians, singers and digital content creators.
• Housekeeper cleaners and resort desk clerks.
• Home plumbers, electricians and landscapers.
• Private event planners, pet caretakers and tutors.
• Hairstylists, Tailors, makeup artists and pedicurists.

The total list has more than 65 jobs across eight categories.

*Note: “Income” for the tip income tax deduction is based on a taxpayer’s modified adjusted gross income (MAGI).

9. Overtime Tax Deduction for middle-income families

Single-filer income limit before phaseout begins: $150,000*

Joint-filer income limit before phaseout begins: $300,000*

Similar to the tip income deduction, qualifying non-exempt employees might be able to claim an overtime deduction on their 2025 federal income tax return.

This temporary deduction (only available until 2028) is worth up to $12,500 for single filers and $25,000 for joint filers who work more than 40 hours per week.

Here are a few more fast facts about the federal overtime pay tax deduction:

• You must be a non-exempt employee who earns overtime under the federal Fair Labor Standards Act (FLSA).
• The deduction only applies to the “extra” half of your time-and-a-half rate and not your entire overtime wages.
• The deduction is reduced by $100 for every $1,000 of income over the above income thresholds.
• You can claim the deduction regardless of whether you itemize or take the standard deduction.
• When single filers have income of $275,000 or more (and married filing jointly couples make $550,000 or more), the overtime deduction is completely phased out.

*Note: “Income” for the overtime pay tax deduction is based on a taxpayer’s modified adjusted gross income (MAGI).

Purchasing Tax Breaks

10. Car loan interest tax deduction for middle-income families

Single-filer income limit begins: $100,000*

Married, filing jointly, income limit begins: $200,000*

The OBBB also introduced a new temporary deduction for car loan interest. The car tax break is available for taxpayers, whether they itemize or claim the standard deduction:

• The car loan interest deduction is worth up to $10,000 per year on qualifying vehicles.
• Single filers with income exceeding $100,000 (married, filing jointly, with income above $200,000) will face a $200 phaseout of the deduction for every $1,000 of income above the income limit.
• When income levels reach $150,000 for single filers ($250,000 for married filing joint couples), the car loan interest deduction is eliminated.

A recent survey indicates that one-third of middle-income households plan to buy a car in 2025.** But while the car loan interest deduction might help some save on car buying costs, there are a couple of caveats to keep in mind:

• The personal-use car interest loan deduction only applies to new, American-made vehicles purchased from 2025 to 2028.
• Different tax rules apply to vehicles used for business.

For more information, check out Kiplinger’s report, New GOP Car Loan Tax Deduction: Which Vehicles and Buyers Qualify.

*Note: “Income” for the car loan interest deduction is based on a taxpayer’s modified adjusted gross income (MAGI).

**Santander US surveyed 2,200 U.S. households with income levels between $50,000 and $148,000.

Read More

• 'Most Americans' Outsource Their Taxes By a Certain Age. Should You?
• 12 Education Tax Credits and Deductions to Know
• The GOP Wants to Auto-Enroll Your Child in a 'Trump Account' for Savings
• Best States for Middle-Class Families Who Hate Paying Taxes
• 3 Critical Tax Changes Could Boost Your Paycheck in 2026

After all, most taxpayers take the standard deduction. So, it makes sense that eligible older adults who do could stack the new bonus deduction on top of the regular standard deduction and the existing extra standard deduction for 65+.

But what if you choose to itemize your deductions — can you still claim this new tax break? Here's more to know.

What is the bonus deduction for older adults in the Trump tax bill?

A new bonus deduction kicks in beginning with the 2025 tax year due to recently enacted GOP tax legislation, which President Donald Trump calls the “big beautiful bill.”

This bonus allows taxpayers age 65 or older to claim an additional deduction — up to $6,000 for singles, or $12,000 for married couples where both spouses qualify.

Key points:

• You must be 65 or older by December 31, 2025.
• The bonus amount tops out at $6,000 for individuals and $12,000 for married couples where both spouses are over 65.
• This deduction phases out above a certain income level: Modified Adjusted Gross Income (MAGI) of $75,000 for singles and $150,000 for married filing jointly. It phases out completely for MAGI above $175,000 and $250,000, respectively.
• The IRS says you must “include the Social Security Number of the qualifying individual(s) on the return, and file jointly if married, to claim the deduction.”

Because the deduction applies regardless of whether you itemize or take the standard deduction, it can be helpful for those with sufficient deductible expenses to itemize but who also want to further reduce their taxable income.

Keep in mind: This new tax break is temporary, set to be available from 2025 through 2028 unless Congress renews it.

How the over 65 bonus deduction works for itemizers

The existing extra standard deduction for individuals over 65 only benefits those who claim the standard deduction. They add the appropriate extra standard deduction amount for those 65 or older to their existing standard deduction.

However, the 2025 bonus deduction for older adults temporarily offers a separate tax benefit. (You aren’t required to take the standard deduction to claim it.)

So, even if you itemize your deductions — claiming mortgage interest, charitable giving, or medical expenses, for example — you may still benefit from the new separate bonus deduction for those 65 and older.

How it works for standard deduction takers

As Kiplinger has reported, taxpayers 65+ who typically claim the standard deduction can claim the up to $6,000 bonus deduction (or $12,000 for married couples where both are age 65+). That’s in addition to the existing extra standard deduction for those 65 and older ($2,000 for singles, $1,600 per qualifying individual married filing jointly).

For example, a single filer age 65 or older could have a standard deduction of $15,750 (the new base amount), plus $2,000 (existing age deduction), plus $6,000 (bonus), for a total deduction of $23,750, assuming their income is below the phase-out threshold.

Will I still pay taxes on Social Security benefits?

Despite what you may have heard, the bonus deduction doesn’t necessarily eliminate taxes on your Social Security benefits.

In fact, Trump’s tax bill does not directly change Social Security taxation and makes no changes to the Social Security program.

Instead, as mentioned, the new law, enacted on July 4, 2025, provides a temporary, income-based bonus over-65 tax deduction rather than a full repeal of Social Security benefit taxes. That deduction boost could, for some, indirectly impact how much Social Security income is subject to tax.

For more information, see Kiplinger's report: No SS Tax Cut in Trump's Big Bill.

'Senior bonus deduction' 2025: What to do now

The new bonus deduction is a temporary tax break that could benefit a broader range of older adult taxpayers, including those who itemize and those who choose the standard deduction.

Here are a few things to consider as we head toward the final quarter of 2025:

Review your income. Think about your expected MAGI to gauge how much of the $6,000 deduction you can claim.

Keep track of all deductible expenses. This helps ensure that claimed deductions are documented, which can result in a lower taxable income and prevent paying more taxes than necessary.

Consult a tax professional. Since the rules are new and income phaseouts apply, professional advice can help you optimize your retirement tax strategy for 2025 and beyond.

Read More

• The Extra Standard Deduction for Those 65 and Older
• What’s Wrong With Trump’s Pledge to End Taxes on Social Security
• Types of Income the IRS Doesn't Tax

Well, actually, some state lawmakers are already looking for ways to avoid some of the policy revisions enacted in the OBBB — and they might do so as early as their next state legislative session.

For instance, while the OBBB phases out the federal electric vehicle (EV) tax credit very soon, California officials are trying to enact a state EV tax break that could help counteract the elimination.

Meanwhile, many states have passed workarounds to the federal state and local tax (SALT) deduction cap, and still others may never accept the OBBB as part of their state tax code.

What does all of this mean for you and your tax bill? Here’s more of what you need to know.

Related: Emergency Tax Bill Ends $6,000 Senior Deduction and Tip, Overtime Tax Breaks in D.C.

Gavin Newsom calls for EV tax credit replacement

The latest challenge to the new Trump tax law began before the OBBB was officially signed into law on July 4, 2025.

In June, President Trump enacted three resolutions preventing California from setting stricter emissions standards than those established by the federal government.

Governor Gavin Newsom issued an executive order in response (in addition to a lawsuit), directing California agencies to devise strategies for promoting zero-emission vehicles. And late last month, the California Air Resources Board (CARB) delivered on that directive.

CARB, which is tasked with the state’s public welfare and ecological resources, has outlined a strategy to support clean transportation production. The report includes:

• Backfilling federal tax credits. CARB intends to sustain sales of new and used zero-emission electric vehicles by utilizing state funds for point-of-sale rebates, vouchers, and other credits.
• Developing more educational pathways to EV jobs. The plan also aims to facilitate equitable access to college courses, apprenticeships, and certification programs within the clean transportation sector.

If accomplished, the items outlined in the CARB report could counteract the expiring EV tax credits in the OBBB. So even when the federal EV tax credit goes away, California residents may still reap the benefits of a state tax break if it becomes law.

SALT deduction cap: State workarounds

The OBBB temporarily raises the SALT deduction cap to $40,000 from $10,000. This means itemizing eligible taxpayers below a certain income limit may only deduct up to this amount on their federal income tax return until 2029 (with an annual 1% increase beginning in 2026).

After that time, the cap reverts to the Tax Cuts and Jobs Act (TCJA) cap of just $10,000.

However, many states have sought strategies to circumvent the SALT cap ever since the TCJA set a limit. The principal avoidance method is through Pass-Through Entity Taxes (PTETs).

• PTETs enable businesses like limited liability companies, S corporations, and partnerships to pay state taxes at the entity level instead of at the individual level.
• This effectively bypasses the SALT cap of $10,000, as this limit does not apply to entity-level returns.
• According to the Tax Foundation, 36 states have adopted PTETs since 2018, the year the TCJA was enacted.

As reported by Kiplinger, taxpayers in high-property tax states are often hit the hardest by a SALT deduction cap. And as property taxes are one of the top hidden home costs among buyers with regrets, states may continue to search for ways to circumvent the federal SALT limit.

Does my state have to accept Trump’s tax law?

Even though the OBBB is federal law, it doesn’t have to be part of state tax laws. That’s because states have three options when it comes to adopting current federal tax policy:

• Rolling conformity. States can automatically follow the latest federal rules for the current tax year. There are approximately 20 states and the District of Columbia that follow this standard.
• Static conformity. About 17 states currently conform to federal tax law as of a specific date, according to the Tax Foundation. Typically, static states update their conformity date every year through legislation.
• Selective conformity. Four states can choose to have selective conformity, meaning they can “pick and choose” which parts of the federal tax law to follow, rather than adopting the tax code in its entirety.

The states with selective conformity — Arkansas, Mississippi, New Jersey, and Pennsylvania — have the most relative leeway in determining how much of the federal tax code to accept in their state individual income tax codes. They may choose “the best parts” of the OBBB for their constituents, while leaving the rest on the table.

And although most state legislature sessions had closed by the time OBBB was passed, that hasn’t stopped some states, like Colorado and Louisiana, from calling special sessions to discuss the implications of the new federal tax law on state taxpayers.

During state legislative special sessions, lawmakers can enact new laws to sometimes lessen the impact of new federal legislation.

With many states having depleted COVID-era federal aid, and the OBBB potentially lowering state revenue projections, 2026 could be an interesting (and perhaps tumultuous) year for state tax legislation. Stay tuned.

Read More

• Five States Are Worse Off After Trump’s Cuts to SNAP and Medicaid
• Could Tax on Overtime End for Your State This Year?
• New SALT Deduction Could Save Californians Thousands
• States Considering Elimination of Taxes on Tips

The cost of hosting a memorable wedding day surrounded by family and friends can add up: From venues to catering and flowers.

Some couples might wonder: Are there situations in which wedding expenses can be written off on taxes, or is that idea a myth?

To sort it out, let's break down the facts and clarify what tax rules say about weddings and taxes.

Are wedding expenses tax-deductible?

Before looking at specific scenarios, it's good to understand the general IRS guidelines for tax deductions and how they apply to personal events such as weddings.

Here’s what the rules say about deducting event expenses and wedding-related costs.

• While you won’t be able to write off the majority of your wedding expenses, you might be able to claim a tax deduction through charitable giving.
• Charitable contributions or targeted cash gifts, or noncash donations to a qualified charity or nonprofit organization, are a popular way to recover certain expenses from your wedding.
• Just make sure that the organization you’re donating to is an IRS-recognized 501(c)(3) tax-exempt nonprofit or charity.

Finally, you must also keep a record of the donation, such as a bank statement or a letter from the organization you donated. Make sure it includes the value of the donation, date and name of the qualifying organization.

With those IRS rules in mind, here are three wedding costs you might be able to write off in 2025 as part of a charitable donation.

1. The church or wedding venue

If you’re getting married in a church, it’s customary to make a donation to reserve your date. The donation amount can vary depending on the services provided or the church of your choice. Some churches also keep flower arrangements from your ceremony as a donation.

The IRS considers churches to be 501(c)(3) organizations. If you make a charitable donation to a church, you can generally write off the expense as a tax deduction for federal income tax purposes.

You can also write off donations to other types of wedding venues, as long as they're considered a 501(c)(3) organization. That might include national parks or supporting organizations, a historical site, or a museum.

2. Wedding favors and decor

As part of your wedding preparations, several items can make your day memorable for you and your loved ones.

These include wedding favors or souvenirs to commemorate your special day, glow sticks to send off the newlywed couple and the decorations purchased for the venue. All those items can be donated, and you might be able to recover some of those costs through a charitable donation tax deduction.

Note: If you itemize your tax deductions, new tax changes start in 2026 related to charitable giving. Next year, a 0.5% floor will apply to charitable tax deductions.

3. Food and drinks

After the wedding celebrations are finished, a large portion of food and drinks might be left over. Some qualifying charitable organizations might accept food donations, but make sure to check with your local food bank or charity first.

If you don’t want that food to go to waste, you might be able to donate leftovers to food banks or other nonprofit organizations in your community. Food banks and pantries accept noncash donations; make sure to ask for a receipt indicating the value of the food for your tax return.

As mentioned, noncash gifts or donations must be itemized to be considered for a tax break under the new IRS rules for charitable donations. Starting next year, only cash gifts worth up to $1,000 ($2,000 for joint filers) are eligible for a tax deduction without having to itemize.

Tax savings for your 2026 wedding?

The Trump administration's 2025 tax reform package includes several provisions that take effect in 2026 that will impact charitable giving. That means if you're planning your nuptials next year, some key changes are worth keeping track of to maximize your savings.

Here's what's changing for charitable donations in 2026 that will apply to tax returns typically filed in early 2027.

• Cash gifts to public charities: Taxpayers can deduct cash contributions up to 60% of their adjusted gross income (AGI). This is now permanent.
• Cap on itemized deductions: The new law implements a 35% cap for all itemized deductions. That means, a $10,000 charitable deduction is worth $3,500 tax cut. From 2018 through 2025, there is no cap on itemized deductions.
• Standard deduction for non-itemizers: Starting in 2026, individuals can deduct up to $1,000 ($2,000 for couples filing jointly) in charitable contributions without itemizing. This rule only applies to cash gifts. The provision replaces the Biden-era CARES Act ruling, which allows an above-the-line deduction of $300 ($600 filing jointly) until December 2025.
• Charitable deduction floor: Charitable donations that are itemized (generally non-cash gifts) must exceed 0.5% of your adjusted gross income before qualifying for a tax deduction.

All those changes will likely impact how you handle charitable donations. Keeping track of these provisions and making intentional donations after your wedding might help you recover some costs related to your big day.

Lower your tax bill with charitable donations

Donating items from your wedding to a charitable organization might help you lower your tax bill indirectly through a charitable donation tax deduction, while giving to good causes.

As mentioned, changes coming in 2026 due to President Donald Trump's new tax bill involving charitable deduction rules will allow those who take the standard deduction to claim cash donations up to $1,000 or ($2,000 for married taxpayers filing jointly).

For now, if you plan ahead of time, by making sure certain items can be donated and keeping track of their value through receipts, you might be able to write off some of your donated wedding items next tax season.

Speak to a trusted certified public accountant (CPA) or financial planner to help you save the most on your tax return.

Related

• 2025 Standard Deduction Changes Under New Trump Tax Bill
• Five Ways Trump’s 2025 Tax Bill Could Boost Your Tax Refund (or Shrink It)
• How Charitable Donations Can Reduce Your Taxes

1. What are the new amounts for 2025?

Question: Did the “One Big Beautiful Bill” (OBBB) make any changes to standard deductions?
Joy Taylor: Yes, the 2017 Tax Cuts and Jobs Act nearly doubled the standard deduction amounts, but only on a temporary basis through the end of 2025. The recently enacted OBBB not only made permanent the 2017 enhancements to the standard deduction but also further increased the amounts. Beginning with 2025 tax returns that taxpayers file next year, standard deduction amounts increase by $1,500 for joint filers, $750 for single filers and $1,125 for head-of-household filers. For 2025 returns, the standard deductions are:

• $31,500 for joint filers (plus $1,600 for each spouse 65 or older)
• $15,750 for single filers (plus $2,000 if 65 or older)
• $23,625 for head-of-household filers (plus $2,000 if 65 or older)
• $15,750 for married-filing-separately filers (plus $2,000 if 65 or older)
• Blind people get an extra $1,600 on joint returns and $2,000 on single or head-of-household returns

2. Can I claim the $6,000 senior deduction?

Question: I am married, and my spouse and I are both over age 65. We don’t itemize on Schedule A of the Form 1040. Can we claim the new $6,000 senior deduction and the standard deduction on our 2025 Form 1040?

Joy Taylor: Yes, provided that your modified adjusted income doesn’t exceed the threshold for claiming the senior deduction. The OBBB provides for a new senior tax deduction of $6,000 per filer age 65 and older. Married couples with both spouses 65 and older can deduct $12,000 on a joint return. This deduction is available to taxpayers who claim the standard deduction and to those who itemize on Schedule A of the Form 1040 or 1040-SR. This is a temporary write-off, first taking effect on 2025 tax returns that you file next year and ending after 2028.

Not every senior qualifies. The deduction begins to phase out at modified adjusted gross incomes (or modified AGI) above $150,000 on joint returns and $75,000 on single and head-of-household returns. The deduction is fully phased out once modified AGI reaches $175,000 for single and head-of-household filers and $250,000 for joint filers. Modified AGI for this purpose is AGI plus any foreign earned income exclusion, foreign housing exclusion, and any amounts excluded from gross income because they were received from sources in Puerto Rico or American Samoa. Also, each eligible spouse must have a Social Security number to claim this write-off.

On your 2025 jointly filed Form 1040, you will be able to claim the standard deduction of $34,700 ($31,500 plus $3,200 since both of you are 65 or older) and, provided your modified AGI doesn’t exceed the monetary thresholds discussed above, the $12,000 senior deduction ($6,000 for each of you since you are both 65 or older).

3. Is there an income threshold for standard deductions?

Question: I know there is a modified AGI threshold for determining eligibility for the new $6,000 senior deduction. Is there a similar limitation for claiming standard deductions?

Joy Taylor: No. In answer 2 above, I explained that the senior deduction begins to phase out at modified AGI above $150,000 on joint returns and $75,000 on single and head-of-household returns. The standard deductions are not subject to a modified AGI threshold. So upper-income taxpayers can claim standard deductions without worrying about the write-off being phased out based on income levels.

4. Itemizing on Schedule A

Question: I always itemize deductions on Schedule A when I file my Form 1040. Can I also claim the higher standard deduction for 2025?

Joy Taylor: No. You cannot take the standard deduction if you are itemizing deductions on Schedule A. It’s an either/or situation – either you claim the standard deduction OR you itemize deductions on Schedule A. You can’t do both.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter and The Kiplinger Letter can ask Joy questions about tax topics. You'll find full details of how to submit questions in The Kiplinger Tax Letter and The Kiplinger Letter. (Subscribe to The Kiplinger Tax Letter or The Kiplinger Letter.)

We have already received many questions from readers on tax changes in the OBBB. In this column, we have addressed questions on changes to standard deductions. We will answer more queries on the OBBB in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• Ask the Editor: Questions on the new tax law
• Ask the Editor: Questions on tax deductions and IRAs
• Ask the Editor: Questions on home sales and taxes
• Ask the Editor: Questions on Inherited IRAs
• Ask the Editor: Questions on capital gains

At the center of Trump’s megabill (sometimes called the "One Big Beautiful Bill" or OBBB) is the extension and temporary enhancement of tax cuts first implemented in the Tax Cuts and Jobs Act (TCJA) of 2017.

Signed into law on July 4, the GOP legislation is projected to add nearly $3.4 trillion to the national debt over the next 10 years.

The measure also pays for new tax cuts, estimated to decrease federal revenues by $4.5 billion through 2034, through significant funding cuts to key programs, including Medicaid and food stamps.

Some of the changes in the new tax law may be beneficial for some households, while others are barred from accessing key tax breaks.

Here’s a breakdown of which taxpayers stand to benefit — and which could pay more — under Trump’s sweeping new tax plan for 2025 and beyond.

Trump’s new tax law: Biggest losers

Rural hospitals and clinics that rely on Medicaid

Rural hospitals and clinics, already underdogs, now face even harsher struggles under Trump’s new tax landscape.

As Kiplinger has reported, hundreds of rural hospitals across the U.S. are anticipating imminent closures and potential service reductions due to Trump’s steep Medicaid cuts.

The Trump administration’s ‘big beautiful bill’ slashes Medicaid spending by an estimated $1.02 trillion to offset tax cuts. That’s the largest federal rollback to Medicaid to date.

Historically, patients in rural hospitals and clinics rely on Medicaid or the Children’s Health Insurance Program (CHIP) to pay for services.

As a result of Medicaid cuts, over 300 rural hospitals face immediate closure. Some experts predict that nearly every state will be impacted, with most expected to see more than 25% of hospitals shut down. In 11 states, some 50% or more of hospitals are at risk of closing their doors.

For more information, see Is Your Local Hospital Closing Soon Due to Medicaid Cuts?

People earning under $53,000 a year

The lowest earners in the U.S. will see little benefit from Trump’s tax cuts and spending bill.

• A household earning up to $18,000 a year would lose an estimated $165 in after-tax dollars by 2027; that’s a 1.1% loss of income.
• By 2033, households in this income group would see a loss of up to $1,520 on average, according to the Penn Wharton Budget Model.

Meanwhile, folks earning up to $53,000 a year could lose $65 on average by 2033 under the newly enacted ‘big beautiful bill.’

Families that rely on food stamps

To help pay for major tax cuts in the ‘one big beautiful bill,’ the Trump administration enacted significant changes to the Supplemental Nutrition Assistance Program (SNAP). That program was previously/also known as “food stamps.”

Trumps’s tax legislation cuts SNAP funding by about 20%, or $186 billion over the next decade, putting millions of families at risk of losing food stamps.

The new provisions to the program are projected to cause 22.3 million families to lose some or all of their benefits, according to the Urban Institute.

On average, households are projected to lose $146 each month in SNAP support under Trump’s tax legislation. That’s a loss of $1,752 for a full-year recipient.

Undocumented people with children

If you are undocumented or currently on the pathway to citizenship, Trump’s new tax legislation will impact your access to tax breaks.

This includes access to SNAP benefits, tax breaks for marketplace health insurance like the Premium Tax Credit (PTC), and key family tax credits like the federal Child Tax Credit (CTC).

• As a snapshot, 4.5 million children, the majority of whom are U.S. citizens, would no longer be eligible for the CTC under the OBBB as new rules require a parent to have a Social Security Number (SSN).
• Other education tax breaks you won’t have access to unless you have a SSN include the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).

The new tax law also increases immigration fees and imposes new fees to take effect immediately.

For instance, a parole application now has a new fee of $1,000, and the temporary protected status (TPS) application fee increases from $50 to $500.

These are just some provisions that will impact undocumented individuals and households.

Student loan borrowers

The Trump administration is restructuring student loan borrowing as we know it. Under the new law, the Biden-era SAVE (Saving on a Valuable Education) plan is suspended.

This will impact 8 million borrowers enrolled in the program who rely on income-driven repayment programs as a path to loan forgiveness. Borrowers with loans in SAVE forbearance will see loans begin accruing interest on Aug. 1, 2025.

The OBBB eliminates the requirement that borrowers have a partial financial hardship to qualify for income-driven repayment (IBR) plans. Other changes include placing loan limits on part-time students, undergraduate, and parent borrowers.

The measure also reduces the number of repayment plans to just two programs.

For more information, see Trump Targets Student Loan Forgiveness: What it Means for Taxes and Repayment.

Biggest winners from Trump’s tax law

Homeowners in high-tax states

One provision in Trump’s ‘one big beautiful bill’ could help homeowners in expensive states put thousands of dollars back into their pockets.

The bill temporarily raises the cap on the state and local tax (SALT) deduction from $10,000 to $40,000 annually for folks with incomes up to $500,000.

The SALT deduction allows taxpayers who itemize to subtract certain state and local taxes from their federal taxable income. This can help you reduce your property tax, income tax, and sales tax burden.

As an example, see our report on how Californians can benefit from the new SALT cap.

Households with incomes above $96,000

If you earn $96,000 per year, Trump’s new tax cuts and spending legislation will put more money into your pocket.

• Those who make $96,000 annually can expect to receive $3,955 in after-tax income in 2027.
• Households earning $179,000 per year are projected to get $6,690 in after-tax dollars by 2027.
• Anyone who earns $272,000 annually will receive $9,455 in after-tax income by 2027, and that figure continues to grow the more you make.
• Those in the top 0.1% can expect to get up to $301,550 in after-tax dollars by 2027.

According to the Penn Wharton Budget Model analysis, most of the gains for high-earners come from “a boost to corporate profits” from reinstating the TCJA's initial cost recovery system and upholding reduced tax rates for multinational corporations.

By 2030, some of those gains will be reduced as the SALT cap reverts to $10,000, impacting high earners.

Workers who rely on tips

Millions of workers across the country rely on tips to support their income, and the ‘big beautiful bill’ allows some of that hard-earned cash to go untaxed starting this year.

The new tax law incorporates a measure known as the ‘No Tax on Tips Act.’ The provision allows workers who receive tips to deduct up to $25,000 in reported cash tips from their taxed wages at the federal level.

The deduction phases out for those earning over $150,000 ($300,000 for joint filers) and is scheduled to expire after 2028.

Data show that about 4 million people in the United States, or one out of every forty workers, depend on tips to pay for food on the table. No tax on tips is a big win for hospitality, services, and gig workers for the time being.

For more information, see: No Tax on Tips Bill Approved: What it Means for You.

Older adults 65 and older

Another win tucked within the so-called ‘One Big Beautiful Bill’ is a bonus deduction for older adults.

The new $6,000 deduction will be available to individuals age 65 and older, with eligibility set at $75,000 in income for single filers and $150,000 for couples. The deduction phases out above those levels.

This provision is temporary and will be available from 2025 through 2028, so you won’t want to miss out. It will also supplement the existing extra standard deduction available to older adults.

What’s missing from Trump’s campaign promise? GOP lawmakers didn't end federal taxes on Social Security benefits as part of Trump’s megabill. Economists had long warned that eliminating taxes on SS benefits was riddled with problems.

Raising the standard deduction for older adults appears to be a middle-ground effort to make up for this failed promise.

For more information, see 2025 Tax Deduction Change for Those Over 65.

Families with children

If you have children or are planning on growing your family, Trump’s new tax law includes some major expansions to existing family tax breaks.

To start, the federal child tax credit increases from $2,000 to $2,000 per qualifying child on your 2025 tax return. If Congress had failed to expand the tax break, the maximum child tax credit would have reverted to $1,000 in 2026.

Additionally, the maximum refundable portion is $1,700 in 2025. That’s the amount you’ll be able to claim on the tax return you generally file in 2026. The bad news: Not everyone will be able to claim the child tax credit.

To claim the CTC, the child and the taxpayer (parent or guardian) must have a Social Security number.

The Child and Dependent Care Tax Credit (CDCT) is also permanently enhanced from 35% to 50% for qualifying expenses under the newly enacted OBBB.

Lastly, the measure enhances the federal adoption tax credit for the 2025 tax year by allowing parents to claim up to $5,000 in credits and making the tax break partially refundable. The credit is now worth up to $17,280 (up from $16,810 in 2024).

For more information, see our report: The Child Tax Credit 2025: How Much Is It?

More on the OBBB

• New GOP Car Loan Deduction: Which Cars and Buyers Qualify
• ‘Unprecedented’ Private School Voucher Tax Credit in Trump’s Megabill
• How Trump's Tax Bill Will Boost or Shrink Your Next Tax Refund

1. Do tax breaks begin in 2025?

Question: Can taxpayers claim the new senior deduction and the write-offs for tips, overtime and interest on automobile loans, on their 2025 tax returns?

Joy Taylor: Yes, these tax breaks are available for 2025. The so-called “One Big Beautiful Bill” (OBBB) includes four brand new temporary deductions that eligible individuals can claim on their tax returns, depending on their modified adjusted gross income. These are the deductions for up to $25,000 of qualified tips, $12,500 ($25,000 on joint returns) of qualified overtime compensation, $10,000 of interest paid on loans to buy a new vehicle after 2024, and the $6,000 senior tax deduction for each person who is age 65 or older. These write-offs are temporary, first taking effect on 2025 tax returns that you file next year and ending after 2028. They are available to taxpayers who itemize on Schedule A of the Form 1040 and to filers who claim the standard deduction.

2. Are deductions above, or below-the-line?

Question: Are the new senior deduction and the write-offs for tips, overtime and interest on automobile loans “above-the-line” or “below-the-line?”

Joy Taylor: These four deductions, which are available to itemizers and to taxpayers who claim standard deductions, are “below-the-line” deductions, meaning they are subtracted from adjusted gross income (AGI) to arrive at taxable income.

3. Modified AGI and the new tax breaks

Question: The new senior deduction, the $40,000 cap on state and local tax (SALT) deductions, and the deductions for tips, overtime and interest on automobile loans all begin to phase out once modified adjusted gross income (“modified AGI”) exceeds a certain amount. What is the definition of modified AGI for these new tax breaks?

Joy Taylor: Modified AGI is often used by the IRS to determine your eligibility for certain tax benefits or tax breaks or to determine whether you are subject to surtaxes or surcharges. True to the complexity of the federal tax code, the definition of modified AGI often differs, depending on what it is used for.

For purposes of the modified AGI thresholds for taking the five above-described deductions in the OBBB, you begin with your adjusted gross income on line 11 of your Form 1040 and add any foreign earned income exclusion, foreign housing exclusion, and any amounts excluded from gross income because they were received from sources in Puerto Rico or American Samoa.

Note that these tax breaks have different modified AGI threshold amounts:

• The $40,000 cap on state and local tax deductions claimed on Schedule A of the Form 1040 begins to phase out at modified AGI over $500,000 ($250,000 for married couples who file separate returns).
• The $6,000 deduction for people age 65 and older ($12,000 on joint returns if each spouse is 65 or older) begins to phase out at modified AGI over $150,000 on joint returns and $75,000 on other returns.
• The deductions for up to $25,000 of qualified tips and up to $12,500 ($25,000 on joint returns) of qualified overtime compensation begin to phase out at modified AGI over $300,000 on joint returns and $150,000 on other returns.
• The deduction for up to $10,000 of interest paid on automobile loans begins to phase out at modified AGI over $200,000 on joint returns and $100,000 on other returns.

For more information, see The Many Definitions of Modified Adjusted Gross Income (MAGI)

4. How does the deduction for overtime pay work?

Question: I have heard conflicting reports about the new deduction for overtime pay. What pay can be deducted? Is it the entire amount of overtime pay or just the overtime premium pay? For example, if someone is paid time-and-one-half for overtime, can the taxpayer deduct the full time-and-one-half pay or only the 50% extra amount?

Joy Taylor: The OBBB offers a brand-new deduction for up to $12,500 ($25,000 on joint returns) of qualified overtime compensation. This tax break is available for eligible taxpayers who claim the standard deduction and for those who itemize on Schedule A of the Form 1040. It is a temporary deduction, first taking effect on 2025 tax returns filed next year and ending after 2028. The write-off begins to phase out at modified AGI over $300,000 on joint returns and $150,000 on other returns.

The new statute defines the term “qualified overtime compensation” as overtime paid to an individual under Section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate at which the individual is employed. So that means only the portion above the worker's regular rate qualifies for the deduction (meaning the extra 50% for employees who get one-and-one-half their regular pay rate for overtime pay). Employers must report overtime pay on Form W-2 (or Form 1099 for contractors).

This new tax break requires guidance from the IRS, and it is expected that the guidance will describe in more detail exactly what pay is considered qualified overtime compensation. In the meantime, I have included below an excerpt from a report by the staff of the bipartisan congressional Joint Committee on Taxation, that describes the Fair Labor Standards Act of 1938 for this purpose.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter and The Kiplinger Letter can ask Joy questions about tax topics. You'll find full details of how to submit questions in The Kiplinger Tax Letter and The Kiplinger Letter. (Subscribe to The Kiplinger Tax Letter or The Kiplinger Letter.)

We have already received many questions from readers on tax changes in the OBBB. In this column, we have addressed questions on four new tax breaks for individuals. We will answer more queries on the OBBB in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• Ask the Editor: Questions on the new tax law
• Ask the Editor: Questions on tax deductions and IRAs
• Ask the Editor: Questions on home sales and taxes
• Ask the Editor: Questions on Inherited IRAs
• Ask the Editor: Questions on capital gains

That’s because the so-called "One Big Beautiful Bill" (OBBB), signed into law on July 4, 2025, introduces a cap on deductions for gambling lossses.

Starting January 1, 2026, gamblers will be able to deduct only 90% of their gambling losses against their winnings on federal taxes. (That’s a shift from the previous policy that allowed a full 100% deduction of gambling losses, against/but not to exceed winnings.)

The Joint Committee on Taxation (JCT) has projected that the measure will raise roughly $1.1 billion over ten years.

Already, some lawmakers are unhappy and pushing to repeal the provision. Curious? Here’s more of what you need to know.

Trump gambling losses tax deduction: What’s changing?

President Trump’s new tax bill was enacted on Independence Day (July 4, 2025). The mega legislation, which preserves many of Trump’s tax cuts from 2017 (the Tax Cuts and Jobs Act (TCJA), introduces a new limit on a popular deduction for gambling losses.

• If Congress doesn't repeal the provision, beginning in 2026, taxpayers will only be able to deduct 90% of their gambling losses against their winnings on their federal income tax returns.
• Under the traditional system (still in place for the 2025 tax year, with returns typically filed in early 2026), an itemizing taxpayer who wins and loses the same amount in a year, with proper documentation, can generally deduct 100% of their losses, not to exceed their winnings.

So, for example, if someone gambling wins $210,000 and loses $210,000 in a year, they could deduct the full $210,000 in losses. Under the new law, beginning in 2026, only $189,000 of that amount would be deductible. That could result in a taxable income from those bets of $21,000, even though the gambler broke even.

Note: As written, the OBBB deduction change would likely apply to both casual and professional gamblers.

'Phantom income' problems in new Trump tax bill?

Historically, the IRS has required all gambling winnings to be reported as taxable income, regardless of whether they are from casinos, sports betting, lotteries, or fantasy sports.

Taxpayers who itemized deductions could fully offset winnings with losses, but only up to the amount of their winnings. So, taxes were paid only on net profits.

The new 90% cap, some argue, would disrupt that. According to some opponents of the measure, the new limit could result in gamblers paying taxes on income they didn’t receive.

A key complaint is that if a taxpayer won and lost $100,000 in a year, for example, the new rule would mean that the bettor would be taxed on $10,000 of what some consider to be “phantom income,” since they effectively broke even.

What is Phantom Income? Phantom income refers to money that is taxable to an individual or entity in the eyes of the IRS, even though that person or entity hasn’t actually received the cash.

In other words, it's the notion that you may owe taxes on income that only exists "on paper," not in your bank account.

Enter the FAIR BET Act.

In response to the outcry, Rep. Dina Titus (D-Nev.), along with Rep. Ro Khanna (D-Calif.), introduced the Fair Accounting for Income Realized from Betting Earnings Taxation (FAIR BET) Act just days after the OBBB was signed.

The bill proposes to restore the previous standard, allowing taxpayers to deduct 100% of their gambling losses. Supporters of the FAIR BET Act argue that the new cap unfairly penalizes recreational and professional gamblers.

In an official release, Titus states that the FAIR BET Act would “bring fairness back to gaming taxation, making sure that gamblers can fully deduct losses when they report their winnings.”

It's worth noting that after the OBBB was signed into law with the 90% limitation, Democratic Sen. Catherine Cortez Masto of Nevada introduced a bill called the Full House Act (“Facilitating Unbiased Loss Limitations to Help Our Unique Service Economy”) to restore the ability of gamblers to deduct 100% of their losses.

But on July 10, 2025, Senate Republicans blocked the repeal attempt when Sen. Todd Young (R-Ind.) objected to the unanimous consent request. So for now, the repeal effort is stalled.

In response, Cortez Masto said in a release: “This is a Republican piece of legislation that is actually causing people to pay taxes on money they lost. It makes no sense.”

When it comes to industry response, CNN reported that the American Gaming Association (AGA) initially supported Trump’s tax megabill, but has reportedly voiced support for restoring the full gambling loss deduction.

Reporting gambling losses on taxes

In any case, all gambling winnings must be included on your tax return, regardless of the amount or whether you receive official documentation from the casino or organizer.

• Losses from gambling may be deducted, but only if you itemize your deductions on Schedule A of Form 1040.
• Gambling losses are deductible only up to the total amount of gambling winnings reported, meaning you cannot deduct more than you won.
• (As mentioned, under the OBBB, the percentage of losses that can be written off is set to change to 90% in 2026.)

To claim the deductions, you should keep thorough and specific records of all wagers, including receipts, statements, tickets, or a personal log that documents each session's details: date, place, type of gambling, and amounts won or lost.

Bottom line: What’s at stake with the Trump gambling tax change

The debate over the gambling loss deduction cap highlights broader questions about how the tax code should treat gambling activity.

Some potential Implications:

Tax Liability Despite Breaking Even: Gamblers could owe federal income tax even if their actual winnings and losses cancel each other out.

Increased Costs for High-Volume Bettors: The larger the volume of gambling activity, the greater the impact of the non-deductible 10% on taxable so-called “phantom income."

Proponents of the FAIR BET Act argue that taxing only net winnings is a matter of fairness. At the same time, critics of the previous system view the cap as a means to increase tax revenue and discourage excessive gambling.

With the new deduction cap scheduled to take effect in 2026, the outcome of this legislative battle will have implications for millions of U.S. bettors. Stay tuned.

Read More

• Taxes on Gambling Winnings and Losses: What to Know
• States That Won't Tax Your Powerball Winnings
• Types of Income the IRS Doesn't Tax
• Is the IRS Coming for Your Gambling Winnings?

1. Social Security Benefits

Question: I am retired and receive monthly Social Security benefits. I heard that the newly enacted so-called “One Big Beautiful Bill” (OBBB) eliminates federal income tax on Social Security benefits. Is that accurate?

Joy Taylor: No, the OBBB doesn’t make Social Security benefits fully tax-free. Many Social Security recipients now pay federal income tax on up to 85% of their benefits, depending on their provisional income. President Trump promised to end the tax. But the process that Republican lawmakers used to pass the OBBB while circumventing the 60-vote filibuster rule in the Senate didn’t allow this income tax change to Social Security benefits. So lawmakers found an alternative means of tax relief for seniors in the OBBB.

There is now a new senior tax deduction of $6,000 per filer age 65 and older. Married couples with both spouses 65 and older can deduct $12,000 on a joint return. This deduction is available to taxpayers who claim the standard deduction and to those who itemize on Schedule A of the Form 1040 or 1040-SR. This deduction is temporary, first taking effect on 2025 tax returns filed next year, and ending after 2028.

Not every senior will qualify. The deduction begins to phase out at modified adjusted gross incomes (or modified AGIs) above $150,000 on joint returns and $75,000 on single and head-of-household returns. The deduction is fully phased out once modified AGI reaches $175,000 for single and head-of-household filers and $250,000 for joint filers. Also, each eligible spouse must have a Social Security number to claim this write-off.

2. How to Itemize on Schedule A

Question: I itemize deductions on Schedule A of the Form 1040 every year instead of claiming standard deductions. Can I take the $6,000 senior deduction even through I itemize?

Joy Taylor: Yes, the deduction is available to taxpayers who claim the standard deduction and to those who itemize on Schedule A of the Form 1040 or 1040-SR. I am guessing that the IRS will add another line to the 2025 Form 1040 after the line for standard deductions to account for this new senior deduction.

3. Filers 65 and Older Who Don’t Receive Social Security Benefits

Question: My wife and I are both retired federal employees, and we are older than 65. We receive a Civil Service Retirement System pension, but we do not receive Social Security benefits. Can we claim the $6,000 senior deduction on our 2025 Form 1040 even though we do not get Social Security benefits?

Joy Taylor: Yes, you would be able to claim the $6,000 senior deduction (per spouse) on your 2025 Form 1040, subject to the modified AGI phaseouts discussed in Question 1. Since you are filing a joint return with your wife, and you are both 65 or older, you can deduct $12,000. You do not have to receive Social Security benefits to take the deduction.

4. Modified Adjusted Gross Income

Question: I am married and file a joint tax return. I know that the $6,000 senior deduction for filers age 65 and older begins to phase out at modified adjusted gross incomes over $150,000 for joint filers. What is modified adjusted gross income?

Joy Taylor: Modified adjusted gross income (or modified AGI) is often used by the IRS to determine your eligibility for certain tax benefits or tax breaks or to determine whether you are subject to surtaxes or surcharges. True to the complexity of the federal tax code, the definition of modified AGI often differs, depending on what it is used for.

To calculate modified AGI for purposes of the income threshold for taking the $6,000 senior deduction, you begin with your adjusted gross income on line 11 of your Form 1040 and add any foreign earned income exclusion, foreign housing exclusion, and any amounts excluded from gross income because they were received from sources in Puerto Rico or American Samoa.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter and The Kiplinger Letter can ask Joy questions about tax topics. You'll find full details of how to submit questions in The Kiplinger Tax Letter and The Kiplinger Letter. (Subscribe to The Kiplinger Tax Letter or The Kiplinger Letter.)

We have already received many questions from readers on tax changes in the OBBB. In this column, we have addressed questions on the new $6,000 deduction for taxpayers who are age 65 and older. We will answer more queries on the OBBB in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• Ask the Editor: Questions on the new tax law
• Ask the Editor: Questions on tax deductions and IRAs
• Ask the Editor: Questions on home sales and taxes
• Ask the Editor: Questions on Inherited IRAs
• Ask the Editor: Questions on capital gains

1. Effective Date of Tax Changes

Question: Are the tax provisions in the so-called “One Big Beautiful Bill Act” (OBBB) retroactive to Jan. 1, 2025, or do they start in 2026?

Joy Taylor: The new law permanently extends most of the tax provisions in the 2017 Tax Cuts and Jobs Act that were slated to expire on December 31 and enhances some of them, provides brand new tax breaks, repeals several clean-energy credits in the 2022 Inflation Reduction Act, and more. Many of the changes begin in 2025, and others take effect next year.

Here are several examples of tax changes that take effect beginning in 2025:

• Higher standard deductions.
• The $6,000 bonus deduction for seniors.
• The bigger child tax credit.
• The $40,000 cap on deducting state and local taxes on Schedule A of the Form 1040.
• The new tax deductions for tip income, overtime pay and auto loan interest.
• 100% first-year bonus depreciation for business assets.
• And the higher “Section 179” expensing limit for business assets.

Here are some examples of tax changes that are scheduled to begin in 2026:

• The new $15 million lifetime estate and gift tax exemption.
• The higher child and dependent care credit.
• A new above-the-line deduction of up to $1,000 ($2,000 on joint returns) for charitable cash contributions.
• And a couple of haircuts for taxpayers who itemize deductions on Schedule A of the 1040.

2. Tax Credit for Solar Panels on Home

Question: I am thinking of installing solar panels on my primary home. Can I still get a federal income tax credit for this?

Joy Taylor: Yes, but the project must be completed by December 31 at the latest. The residential clean-energy credit equals 30% of the cost of materials and installation of alternative energy systems (such as solar panels) that you install in your home. The OBBB ends the tax break for post-2025 years.

Also repealed after this year is the smaller energy-efficient home improvement credit for homeowners who make smaller energy-saving purchases, such as for efficient central air-conditioning systems, water heaters, heat pumps, exterior doors, and windows. So if you’re thinking of making any of these energy-saving upgrades to your home, you’ll have to pay for the upgrades and complete them by December 31, 2025, to ensure a tax credit.

3. Interest on Auto Loans

Question: I bought a new car earlier this year, and I took out a loan to finance the purchase. Will I be able to deduct the interest that I pay this year on my 2025 tax return that I file next year?

Joy Taylor: It depends. The OBBB allows individuals who buy a new vehicle (car, minivan, SUV, van, pickup truck or motorcycle) for personal use after 2024 to deduct in each of 2025 through 2028 up to $10,000 of interest that they pay on their vehicle loans. This new car loan interest deduction is an above-the-line deduction, meaning it is available to taxpayers who take the standard deduction and to those who itemize on Schedule A of the 1040. The deduction begins to phase out at modified adjusted gross incomes over $200,000 for joint filers and $100,000 for other filers, and ends at modified AGIs over $250,000 for joint filers and $150,000 for others. Additionally, the vehicle’s final assembly must occur in the U.S.

4. Name Change

Question: I heard the newly passed tax law that President Trump signed on July 4 is no longer named the “One Big Beautiful Bill Act.” Why did the name change?

Joy Taylor: The short title of the new law was originally the “One Big Beautiful Bill Act.” However, shortly before the Senate voted on its version of the legislation, Senate Minority Leader Chuck Schumer (D-NY) argued that the title of the bill violated the technical budget reconciliation rules that Senate Republicans were using to pass the bill on a simple majority vote in the upper chamber. The short title was then struck from the bill prior to the Senate vote. The full title of the law is “An Act to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14.” Unfortunately, this doesn’t roll off the tongue quite as easily as the “One Big Beautiful Bill Act.” So you will see many people, including myself, continue to refer to the law as the “One Big Beautiful Bill.”

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter and The Kiplinger Letter can ask Joy questions about tax topics. You'll find full details of how to submit questions in The Kiplinger Tax Letter and The Kiplinger Letter. (Subscribe to The Kiplinger Tax Letter or The Kiplinger Letter.)

We have already received many questions from readers on tax changes in the new “One Big Beautiful Bill Act.” We’ve addressed a few here, and we will answer more of these queries in a future Ask the Editor round-up. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• Ask the Editor: Questions on tax deductions and IRAs
• Ask the Editor: Questions on home sales and taxes
• Ask the Editor: Questions on Inherited IRAs
• Ask the Editor: Questions on Trump's Big Beautiful Bill (part 1)
• Ask the Editor: Questions on capital gains

How? First, you can take advantage of all the deals on energy-efficiency items on sale during Prime Day. Next, some of your home improvement projects qualify for tax credits. And now is the time to take advantage of those credits while they're still available.

President Donald Trump signed into law the One Big, Beautiful Bill, which will end the energy-efficient home improvement credit designed to help homeowners save on upgrades like adding exterior doors, central air conditioners, water heaters, electric or natural gas pumps, and more. This credit expires after December 31, 2025.

Therefore, now is a great time to invest in home improvements while they're on sale, reduce your home's energy costs — and claim tax credits for them.

Before diving into the deals, you'll need an Amazon Prime account to do so. If you're new, you can try it free for 30 days:

Save on exterior doors during Amazon Prime Day

A strong exterior door not only provides a sense of security but can also lower your energy costs. The U.S. Department of Energy states you can save up to 10% on your utility bills by replacing your exterior door with an energy-efficient model.

The savings extend further, as you can earn a tax credit on them. Per the IRS, exterior doors that meet Energy Star requirements qualify for a tax credit of 30% of the costs of the door, up to $250 per door, with a $500 annual cap.

Here is one of the best deals you can score right now:

Water heater deals for Amazon Prime Day

Another way to lower energy costs is with a tankless water heater. Tankless water heaters can improve energy efficiency in your home by heating water only when you need it, instead of running more continuously like other models.

The U.S. Department of Energy states it can improve energy efficiency in smaller homes by up to 34% and in larger homes by as much as 14%. What's more, some water heaters qualify for a tax credit of up to $600 per unit if they meet or exceed the Consortium for Energy Efficiency (CEE) highest efficiency tier.

And during Amazon Prime Day, you can receive a great deal and earn tax credits on this tankless water heater:

Other Prime Day deals to lower energy costs

While some of these items won't qualify for tax credits, you can still save money during Amazon Prime Day and lower your energy costs:

• Govee Smart Plug with Energy Monitoring (4-Pack) – Now $39.99. Save 20%
• Emerson Sensi Touch Wi-Fi Smart Thermostat (ST75) – Now $134.99. Save 23%
• Google Nest Learning Thermostat (4th Gen) + Nest Temperature Sensor – Now $249.99. Save 17%
• Blackout Curtains (84” Ivory, 2 Panels) – Now $39.99. Save 20%
• Stopwatt Energy Saving Device (4-Pack) – Now $79.99. Save 15%

How do I receive tax credits for my Amazon Prime Day purchases?

You can claim expenses related to any qualifying home improvements installed during the year you're filing your taxes. To do so, you'll need to file Form 5695, Residential Energy Credits, with your tax return.

Amazon Prime Day gives you the opportunity to save on energy-efficiency items that can lower your energy bills. On top of this, some of these items come with tax credits, where, as long as you install them before the end of the year, you can save even more.

However, time is limited on both savings opportunities. Amazon Prime Day runs through October 8. Meanwhile, the tax credits for home energy improvements will end at the end of this year.

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That may be an understatement. When Susan died in February 2024, her collection was showcased throughout the couple’s 7,000-square-foot home in Louisville, Ky. The overflow that didn’t fit into their home filled seven climate-controlled storage units — each 20 feet by 30 feet — to the ceilings.

After Gary put the house on the market and it sold within 10 days, he was forced to face the elephant, or, in his case, the antiques, in the room: “I said, ‘What are we going to do with this stuff?’”

That’s a question many of the more than 70 million baby boomers are likely asking themselves as they think about downsizing. Among generations, boomers — born from 1946 to 1964 — own the largest share of houses in the U.S. with three or more bedrooms, according to a report by real estate company Redfin. Although most older adults want to age in place, 44% expect to relocate at some point, according to AARP.

Whether they move by choice or necessity, boomers may end up in a situation similar to the one that Gary, who is 77, faced after he sold his home. When he moved in with his younger daughter in Cincinnati, he took a bed, a dresser, and a couple of chairs. The rest had to go.

The obvious choice for boomers looking to unload belongings is to pass them on to their adult children. But the next generation isn’t necessarily eager to get Mom and Dad’s china, crystal, silver and collectibles.

“These adult children already have their own stuff,” says Amy Wilson, founder of Estate Transitions, a project management company in Louisville that helps people redistribute belongings when downsizing. “They don’t have room for more.”

It can be hard for boomers to hear that their children don’t want some or all of their things, especially if they thought those items would be heirlooms. “I hear it time and again: ‘These were all supposed to be worth something,’” Wilson says.

However, just because your children aren’t interested in your belongings doesn’t mean they’re worthless. Gary’s daughter in Cincinnati and his other daughter, in Louisville, took some furniture and artwork they knew their mother loved. Gary hired Wilson to find buyers for the rest of his wife’s collection and gave the profits from what was sold to his daughters.

The key to cashing in on items that you’re ready to part with is knowing which are worth trying to sell and the best way to sell them for top dollar. You shouldn’t expect to make enough to fund your retirement, but you might be able to supplement your nest egg, pay down some debt or even share the wealth with your kids, as Gary did. After all, they probably won’t say no to cash.

Decide what should stay and go

Whether you’re downsizing or just trying to declutter, start by taking inventory of what you have. This will also help you create or update estate-planning documents, such as a will or trust.

As you go through your things, do so with an eye toward identifying which items matter most to you. “Focus first on prized possessions,” says Laura Olivares, president and co-founder of Silver Solutions, which is headquartered in West Palm Beach, Fla., and provides senior-focused home services, including help with downsizing.

If you’re moving, consider whether those possessions will fit in your new space and accommodate your physical needs, she says. For example, you might have furniture that is difficult to access or rugs that could be tripping hazards. Taking a practical approach will help you establish a hierarchy of what to keep. Once you’ve done this, then you can figure out how to handle what is left.

Talk with your children. Have conversations with your children or other family members about which of your items they might want now or in the future. This also gives you an opportunity to let the next generation know what things have sentimental or monetary value.

“It’s okay if they don’t want all of the items,” Olivares says. The point is to establish what your children plan to take so you know which things you can sell or donate without regret.

Identify items worth selling. In general, it’s worth trying to sell things that cost a lot to purchase and are in good condition, Wilson says. This includes artwork, antiques, furniture, oriental or high-end rugs, fine jewelry, gold, and sterling silver.

Vintage toys, clothing, and electronics such as tape decks and turntables are currently selling well among younger generations looking for unique items, says Sarah Hersh, co-owner of Ben Hersh Estate Sales in Cherry Hill, N.J. Instruments such as guitars also are popular.

In general, collectibles are hit or miss. The market for sports memorabilia, comic books, and coins is strong compared with the market for stamp collections, which has declined over the past 30 years, says Molly Gron, managing director of the Trusts, Estates and Private Clients Group at Freeman’s | Hindman auction house in Chicago.

“But a rare Inverted Jenny stamp can sell for six figures,” she says. (The Inverted Jenny is a misprinted postage stamp that bears an image of an inverted Curtiss biplane, known as a Jenny.)

Most mass-produced Hummel and Lladró figurines are hard to sell. Crystal, china dinnerware, and silver-plated platters and serveware aren’t popular, either, Wilson says.

Upright pianos can be the most difficult to unload. “If it’s not a pristine Steinway, start looking for a home for it today, even if you’re not moving,” Hersh says. In fact, you’ll likely have to offer to pay the cost of moving a piano to get someone to take it.

Adjust your expectations

Get an idea of what people are willing to pay before you sell anything. Prepare for the amount to be significantly lower than the original purchase price.

For example, top-of-the-line furniture that is mass-produced won’t command a high price even if it’s relatively new. “Most people aren’t interested in buying that kind of furniture,” Olivares says. They’re more interested in unique items, such as mid-century modern furniture.

Gary, with the help of Wilson, realized that the market for antiques had changed drastically since his wife bought the items he wanted to sell. “I had to accept the fact that we were not going to get anywhere close to what she paid for it,” he says.

If you’ve worked with an interior designer in the past, that person might help you get a sense of what your items are worth. You could contact antique dealers, who might charge a fee for reviewing your items. Online auction sites such as eBay can help you see how much items similar to yours are selling for. For used home furnishings, check out sites such as AptDeco.com and Chairish.com.

Get an appraisal for high-value items. If you have items that were appraised years ago, Gron recommends having them reevaluated because their value might have changed. You can find an appraiser through the International Society of Appraisers (www.isa-appraisers.org) and the Appraisers Association of America (www.appraisersassociation.org/find-an- appraiser). Most charge an hourly rate, she says.

Best ways to sell

There are several avenues to sell your stuff. The method you choose depends on the types of items you want to sell, the effort required, costs and commissions, estimated proceeds, and what feels most comfortable for you.

Consignment shops. Furniture and home decor that are in good condition are relatively easy to sell through a local consignment store. You might be required to send pictures of the items you want to sell so the store can vet them. Otherwise, you simply drop off your items, and the store does all the work to sell them. (Some stores will pick up items from your home for a fee.) Typically, consignment stores will keep 50% of the sale price, Wilson says.

With online furniture consignment stores such as AptDeco and Chairish, you can take photos of your items and list them for free on the sites. AptDeco will pick up your items and deliver them to buyers; it keeps 30% of the sale price. Chairish also provides pickup and delivery, and it takes a 40% commission on sales.

Antique dealers. If you want to find a buyer on your own for your antiques, contact several antique stores in your area to let them know what you have. They likely will ask for photos, dimensions and descriptions of your items, Wilson says. If they’re interested, they’ll want to see your items in-person, which means you might have to take your items to them.

If possible, get two or three bids for your antiques. Be aware that the price antique dealers offer will be 50% to 80% of the price they expect to sell the item for because they have to make money from the sale, Wilson says.

Estate sales. Estate sales are no longer just for wealthy families with a lot of antiques, Hersh says. “Now it’s an anything-goes marketplace,” she says. “As long as you have enough stuff, almost anyone can qualify for an estate sale.” You can expect high-quality items made by a well-known company to sell for about one-third of what you paid for them.

Typically, estate sale companies will come to your home to evaluate the items you want to sell, manage all aspects of the sale and clean out whatever is left over. They operate on commission. In the Northeast, where Hersh is, the commission is usually 35% of gross sales. However, some companies charge a variety of fees, so make sure you’re aware of what you’ll be charged before agreeing to an estate sale.

Be aware that the sale will be held in your home. “If you’re not comfortable with people coming into your house, an estate sale is not for you,” Hersh says. If you choose the estate-sale route, hold the sale as close to your move-out date as possible. Leave your home during the sale because it can be emotionally difficult to watch your belongings being sold, she says.

Auction houses. An auction house can be ideal for selling valuable artwork, jewelry, first-edition books, collectibles and furniture. The bidding process can help drive up prices. Plus, the transparency of an auction is attractive to a lot of people because the selling prices are public record, Gron says.

Auction houses require that you send photos of the items you’re interested in selling. Appraisals of your items are helpful but not necessary. The auction house will provide you with a low and high estimate for the amount at which your item could sell.

“Opening bids typically start somewhere below the low estimate but, depending on the interest and bidding, can sometimes far exceed the high estimate,” Gron says.

The standard seller’s commission ranges from 10% to 30%, plus any shipping and insurance costs for items. After the sale, you can expect to receive your proceeds within 30 to 35 days, Gron says.

Downsizing specialists. Hiring someone to assist you is ideal if you have several high-end items and are willing to pay an expert to create an inventory of them, assess their value and help you get the best price possible. This sort of service can also be a good fit if your age and health will make it difficult to manage the sale of your items on your own.

Look for professionals who have a background in interior design or home organization and can help you create a senior-friendly home if you’re downsizing to address physical and health needs.

The fee structure can vary for downsizing services. Wilson charges a fee based on the size and time frame of the project, plus any expenses incurred with the sale or shipping of items. Olivares says that Silver Solutions’ pricing varies by market but starts at $995 per day. Ask a real estate agent for a recommendation to find professionals who help with downsizing, Wilson says. Retirement communities may also provide a list of services.

Where not to sell. Both Wilson and Olivares caution against trying to sell your items on online marketplaces because of the time and effort required and the risk involved. “It opens you up to scammers,” Olivares says. They also discourage garage sales because the return isn’t worth the effort, and there’s a risk in allowing strangers to come to your home outside of an event such as an estate sale, where professionals are present. The easier and safer option is to take items to a consignment store.

Donating may lower your tax bill

In some cases, donating items and claiming a tax deduction may produce a better payoff than selling them. You must itemize on your tax return to claim charitable contributions, and the majority of taxpayers — particularly retirees — claim the standard deduction. However, donating several valuable items in one year might help you reach the threshold to itemize if you have other deductible expenses, such as mortgage interest, state taxes and unreimbursed medical costs.

Plenty of places other than typical donation centers (such as Goodwill) might want your items. For example, churches and other places of worship may accept your china and silver-plated platters to use for special events, says Amy Wilson, founder of Estate Transitions, a project management company in Louisville, Ky., that assists with downsizing.

Refugee centers will accept furniture, small appliances and other items. And organizations supporting families impacted by natural disasters may welcome household items you no longer want.

You can deduct the fair market value of your items, which you can determine based on an appraisal or by checking the prices of similar items being sold on online consignment or auction sites. You must file Form 8283 with your tax return if the amount of your deduction for each donated item is more than $500 or if a group of similar items exceeds a $500 total.

Be sure to get a receipt for your donated items. You’ll need a contemporaneous written acknowledgment (CWA) from the charity for items that are worth between $250 and $5,000. You must have an appraisal for items you donate that are worth more than $5,000.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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1. The IRS and Paper Checks

Question: I heard that the IRS will no longer accept paper checks from taxpayers after September 30. Is that accurate?

Joy Taylor: Yes and no. President Trump signed an executive order earlier this year mandating that the Treasury Department get rid of paper checks for recipients of benefits, tax refunds and other payments, effective October 1. He is ordering all federal departments and agencies to use electronic funds transfers, including direct deposit, prepaid card accounts and other digital payment options. That means that after September 30, the IRS should no longer be sending out tax refunds in the form of paper checks. There will be limited exceptions.

That executive order also discusses prohibiting people from mailing paper checks to the government, such as when a taxpayer sends in a tax payment via paper check to the IRS. However, it doesn’t appear that the September 30 deadline applies to government receipts, as it does to government disbursements. Instead, the White House executive order doesn’t set a date, but uses the phrase “as soon as practicable” for this purpose.

2. Traditional IRA and Roth IRAs

Question: Can an individual have a traditional IRA and a Roth IRA at the same time, and can they make contributions to both accounts in the same year?

Joy Taylor: Yes, an individual may have a traditional IRA and a Roth IRA at the same time, and the owner can make contributions to both in the same year. However, the aggregate amount of contributions to those IRAs (traditional and Roth) in a year is limited. For 2025, the IRA contribution limit is $7,000 ($8,000 if you are 50 or older). For example, if you are 55 and contribute $3,000 to a traditional IRA in 2025, you can only contribute up to $5,000 to a Roth IRA in 2025.

Note that you must also have compensation, such as wages or self-employment earnings. And there is an income ceiling on making contributions to a Roth IRA. For 2025, the ability to make contributions to a Roth IRA phases out at adjusted gross incomes of $236,000 to $246,000 for joint filers and $150,000 to $165,000 for single filers. This income ceiling doesn't apply to contributions to a traditional IRA.

3. Prior-Year Hurricane Losses

Question: I live in Florida, and in 2022, my home suffered serious damage from Hurricane Ian. I’ve heard the government has recently changed the deduction for disaster losses. But I already filed my 2022 tax return in early 2023. How can I take advantage of this change?

Joy Taylor: Personal casualty losses can be deducted to the extent the losses are attributable to federally declared disasters, such as hurricanes, earthquakes, wildfires, blizzards or flooding, that affect a wide area. Individuals can deduct personal losses on their Form 1040 to the extent not reimbursed by insurance. Your loss is equal to the smaller of the damaged property’s adjusted basis or decline in value, less any insurance proceeds you received or expect to receive.

Legislation passed by Congress last year has tax easings similar to those given to victims of federally declared disasters in 2018-2020. The relief generally applies to disasters that took place in 2021-2024. This would include damage to your home from Hurricane Ian. The law lets individuals deduct personal disaster losses even if they don’t itemize on Schedule A. You can write off uninsured personal losses in excess of a $500 threshold without regard to the "10% of adjusted gross income" offset that generally applies to disaster loss deductions. This net loss is treated as an additional standard deduction for nonitemizers.

Since you have already filed your 2022 Form 1040, you can amend it to take the more generous disaster loss deduction by filing Form 1040-X. Note that you generally have three years from the date you filed your original return to file Form 1040-X to amend your return. If you filed your original return before the April 15 due date, then you have three years from the original April 15 due date to file an amended return. For example, if you filed your 2022 return on March 24, 2023, you have until April 15, 2026, to amend it. When amending your return, you would use Form 4684 to calculate the loss. Follow the instructions on Form 4684 for reporting a “qualified disaster loss.”

4. Selling a Timeshare

Question: I own a timeshare, and I am thinking of selling it. Will I have to pay federal income tax on the sale?

Joy Taylor: Most people who sell a timeshare sell it at a loss. Losses from sales of timeshares held for personal use are nondeductible. If you’re one of the lucky few that sells a timeshare at a profit, you will have capital gain equal to the sales price less your tax basis in the timeshare. Different tax rules apply to sales of timeshares held for rental or mixed personal/rental use.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter and The Kiplinger Letter can ask Joy questions about tax topics. You'll find full details of how to submit questions in The Kiplinger Tax Letter and The Kiplinger Letter. (Subscribe to The Kiplinger Tax Letter or The Kiplinger Letter.)

We have already received many questions from readers on topics related to inherited IRAs, energy upgrades made to a home and more. We’ll answer some of these in a future Ask the Editor round-up. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• Ask the Editor: Questions on Tax Deductions and IRAs
• Ask the Editor: Questions on Home Sales and Taxes
• Ask the Editor: Questions on Hobby Losses, Medicare
• Ask the Editor: Questions on Trump's Big Beautiful Bill
• Ask the Editor: Questions on capital gains

But the financial costs of homeownership can be a nightmare.

The average annual cost of owning and maintaining a single-family home in the U.S. is over $21,000 a year, according to a 2025 Bankrate study.* Property taxes, maintenance fees, and other so-called “hidden home costs” have some homeowners paying over $34,000 annually in their state.

Not to mention, recent political movements could make things challenging for American homeowners. The highly debated state and local tax (SALT) deduction could exacerbate home costs and lead to more expensive federal tax bills in 2026. Here’s what to know.

*Bankrate’s ‘hidden home cost of homeownership study’ included 49 out of the 50 U.S. states. New York was excluded due to data limitations.

Property tax among top home costs

As home prices have skyrocketed 197% in the last twenty-five years, hidden home costs are also on the rise. Here’s the pricetag for several items you might not expect when buying a home, according to Bankrate’s survey:

• Home maintenance. The average cost of maintaining a home is over $8,800 per year.
• Utilities and energy. The average annual bill for these services is nearly $4,500.
• Property taxes. Homeowners can expect to pay an average $4,316, if not higher, annually.
• Home insurance. Insuring a single-family home can cost almost $2,300 per year.
• Internet and cable. Homeowners pay an average of $1,515 annually for cable and internet services.

*These numbers come from one survey, costs and averages can vary widely by state and coverage amounts in the case of home insurance.

Another Bankrate survey revealed that nearly half of homeowners with buying regrets cited maintenance and other hidden costs as being “more expensive than expected.” Unanticipated costs, which can include property taxes, were the most common source of buyer regret.

SALT deduction cap could make property taxes more expensive

The SALT deduction has allowed taxpayers who itemize to claim state and local taxes on their federal return for over one hundred years.

But the $10,000 “cap” on SALT — limiting how much of a deduction for state and local taxes taxpayers may claim — has only been in place for about 7-8 years as of 2025. And has just been raised (temporarily) under Trump's new mega tax bill, often called the "One Big Beautiful Bill" (OBBB).

Created to offset the Tax Cuts and Jobs Act (TCJA) tax cuts, the “SALT cap” in the OBBB:

• Temporarily raises the SALT cap from $10,000 to $40,000 starting in 2025.
• Phases out for incomes above $500,000 (married filing jointly). (Incomes above $500,000 would still be subject to the $10,000 cap.)
• Will increase by 1% each year through the end of 2029.
• Reverts to the $10,000 cap for 2030 and beyond.

So what does this have to do with property taxes?

Well, a big part of your state and local tax (SALT) deduction may come from your property tax bill.

When the SALT cap hinders how much you can claim, that could be problematic for your property tax bill, particularly in states with high property taxes.

Worst states for SALT Cap

While taxpayers in all states can be affected by a sustained SALT cap, seven could be hit the hardest when looking at the state and local tax collections per capita from the Tax Foundation:

• District of Columbia (D.C.), where taxpayers pay an average of $14,974 in annual state and local taxes.
• New York with an average of $12,685 per capita.
• California, at $10,319 per capita.
• Connecticut with $9,718 per capita.
• Hawaii, with $9,503 per capita.
• New Jersey at $9,366 per capita.
• Massachusetts, with $9,341 per capita.

Although the above figures may have some state and local taxes that aren’t SALT deductions, per capita figures include property taxes, income taxes, and sales taxes — all of which may be included in SALT.

And keep in mind, the per capita numbers are just averages. SALT caps can significantly impact taxpayers who pay more in state and local taxes, especially as property tax rates soar.

Bottom line: Property tax rates are on the rise

Property taxes on single-family homes have risen nearly 7% in recent years, per ATTOM, a real estate data company.

• That’s almost double what the rate was the year before, and the largest in the last five years.
• If property taxes continue to rise, and the SALT cap remains, taxpayers could be sandwiched between having to pay higher property tax bills and being unable to claim a full deduction on those increased costs.

You may want to consult with a tax professional to prepare for legislative outcomes. Many families choose mid-year to get some tax planning done, and staying ahead of the curve can help you best respond to changes made on Capitol Hill.

Read More

• SALT Deduction: Three Things to Know
• States With the Lowest Property Tax
• Ten Tax Breaks for Homeowners and Homebuyers

1. Brokerage Management Fees

Question: I pay over $6,000 in management fees on my brokerage account. Can I deduct these fees?

Joy Taylor: Unfortunately, an individual cannot deduct management fees paid on a brokerage account (unless it's part of the taxpayer's trade or business). According to IRS Publication 529, Miscellaneous Deductions, “[i]nvestment fees, custodial fees, trust administration fees, and other expenses you paid for managing your investments that produce taxable income are miscellaneous itemized deductions and are no longer deductible.”

These types of investment expenses used to be deductible as a miscellaneous itemized deduction on Schedule A of the Form 1040, subject to the 2%-of-adjusted-gross-income limit. But the 2017 Tax Cuts and Jobs Act (TCJA) temporarily eliminated that entire group of deductions through the end of 2025. Republican lawmakers are currently negotiating a big tax package, and both the House and Senate's versions of the “One Big Beautiful Bill” would permanently eliminate the deduction.

2. Bonus Senior Deduction

Question: I heard that Congress is going to give senior citizens an extra income tax deduction. Is this true, and how much is the tax break?

Joy Taylor: The House’s version of the “One Big Beautiful Bill” would give a new $4,000 bonus deduction to individuals 65 and up. Married couples with both spouses 65 or older would be able to deduct $8,000 on a joint return. The proposal would first take effect on 2025 federal tax returns filed next year and end after 2028. The deduction would begin to phase out for taxpayers with modified adjusted gross incomes over $150,000 on joint returns and $75,000 on single and head-of-household returns. The Senate’s version of the “One Big Beautiful Bill” also proposes a bonus senior deduction, but the amount would be $6,000 per filer age 65 and up.

Both versions would require filers taking the deduction to have Social Security numbers.

3. IRA Contributions and Taxable Compensation

Question: I am a semi-retired minister for a small church, and I receive a nontaxable housing allowance and a small amount set aside for my pension. I do not receive any salary. I am also receiving Social Security benefits. Can I contribute to an IRA?

Joy Taylor: You must have taxable compensation to contribute to a traditional IRA or a Roth IRA. IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs) (pages 6 and 7), sets forth how to meet this requirement. Your housing allowance would not be considered compensation for purposes of IRA contributions because you do not pay federal income tax on the allowance. Also, your Social Security benefits aren’t considered compensation for this purpose, even if you pay income tax on a portion of your benefits.

Since you don’t have taxable compensation, you would not be able to contribute to a traditional IRA or a Roth IRA.

4. IRA and Basis

Question: A husband and wife both had traditional IRAs, and both have been taking their required minimum distributions. They each have basis in their IRAs derived from making nondeductible contributions prior to retirement. They have been reporting their basis on two Forms 8606 every year. The husband died in 2025, and the wife rolled his IRA into hers. Both have taken their RMDs in 2025. The widow will file a joint return for 2025. But what should the widow do when she files her single return for 2026? How can she get credit for the remaining basis from the deceased spouse?

Joy Taylor: IRS Publication 590-B, Distributions From Individual Retirement Arrangements (IRAs), discusses inheriting an IRA with basis. Here is the relevant language:

"IRA with basis: If you inherit a traditional IRA from a person who had a basis in the IRA because of nondeductible contributions, that basis remains with the IRA. Unless you are the decedent's spouse and choose to treat the IRA as your own, you can't combine this basis with any basis you have in your own traditional IRA(s) or any basis in traditional IRA(s) you inherited from other decedents. If you take distributions from both an inherited IRA and your IRA, and each has basis, you must complete separate Forms 8606 to determine the taxable and nontaxable portions of those distributions."

In the situation you are asking about, the wife treated her deceased husband's IRA as her own when she rolled it into her own IRA. As a result, based on the language above, it seems that she can combine his basis with the basis that she had in her traditional IRA.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter and The Kiplinger Letter can ask Joy questions about tax topics. You'll find full details of how to submit questions in The Kiplinger Tax Letter and The Kiplinger Letter. (Subscribe to The Kiplinger Tax Letter or The Kiplinger Letter.)

We have already received many questions from readers on topics related to Roth IRA conversions, inherited IRAs and more. We’ll answer some of these in a future Ask the Editor round-up. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• Ask the Editor: Questions on Home Sales and Taxes
• Ask the Editor: Questions on Hobby Losses, Medicare
• Ask the Editor: Questions on Trump's Big Beautiful Bill
• Ask the Editor: Questions on capital gains
• Ask the Editor: Questions on tax deductions and losses
• Ask the Editor: Questions on 529 plans

Living overseas won’t let you off the hook from certain tax obligations, as you’re still required to file a tax return with the IRS. For some taxpayers, that means facing the burden of double taxation or having to file taxes both in the U.S. and their country of residence.

One of President Donald Trump’s campaign pledges included ending what some consider unfair double taxation for American expatriates. But the Trump administration has yet to keep that promise, so Americans living overseas needed to file their 2024 tax returns by the extended June 16 deadline.

Each year, many Americans choose to retire abroad to save on taxes. Luckily, there are ways you can reduce your U.S. tax burden further through credits and deductions.

There’s more: One of the tax credits on this list may be enhanced under the GOP’s version of Trump’s ‘One Big Beautiful Bill.’

Here are some key tax breaks that you don’t want to miss out on in 2025.

1. Foreign Earned Income Exclusion

One of the most popular tax breaks for U.S. expats is the foreign earned income exclusion (FEIE), which allows you to exclude some or all of your foreign earned income from your federal income taxes.

For the 2025 tax year (taxes due in 2026), eligible taxpayers can exclude up to $130,000 of their foreign earned income (that’s up from $126,500 for the 2024 tax year).

The exclusion is calculated using IRS Form 2555 and helps prevent double taxation on income earned abroad.

The FEIE is available to U.S. expats who:

• Have earned income from work in a foreign country
• Are self-employed and work outside of the U.S. or Puerto Rico
• Pass either the Bona Fide Residence Test or the Physical Presence Test

Taxpayers must also be physically present in a foreign country for at least 330 days during the tax year to claim the FEIE.

2. Foreign Housing Exclusion

If you live abroad as an American, you can also get a potential federal tax break for your housing expenses with the foreign housing exclusion or a deduction. This benefit can be used alongside the foreign earned income exclusion (FEIE).

The foreign housing exclusion or deduction must be for your tax home, meaning that the property is located in your main country of employment, post of duty, or business.

What’s the foreign housing exclusion? This tax break allows you to exclude qualified housing expenses from your foreign income. Generally, this is up to 30% of the maximum foreign income exclusion.

• For tax year 2025 (taxes filed in 2026), that amount is $39,000.
• The limit for 2024 (taxes typically filed earlier this year) was $37,950.
• This limit can vary depending on the location of your foreign tax home and the number of qualifying days in the tax year.

The foreign housing deduction works differently. The main difference is that only self-employed expats can claim this tax break.

3. Foreign Tax Credit

Taxpayers who paid or accrued certain foreign taxes can reduce their double tax burden by considering the foreign tax credit (FTC). To claim this credit, a tax must be imposed on you by a foreign country or a U.S. possession. For example, this can be a tax on an estate or investment.

Unlike the FEIE, the FTC provides a dollar-for-dollar credit for foreign taxes paid and applies to both earned and passive income. This tax break also allows taxpayers to carry over unused credits in future years.

You can claim this credit by filing the IRS Form 1116. Corporations must file IRS Form 1118 to claim the foreign tax credit.

On the flip side, if you want to itemize your deductions on foreign taxes, file a Schedule A (Form 1040). A few examples of itemized deductions include medical expenses, gifts to charities, and job expenses.

4. Child Tax Credit 2025

The federal child tax credit (CTC) is a tax break designed for families with qualifying children, and it's available to U.S. citizens who reside in foreign countries.

Here’s the catch: You won’t be able to claim the CTC if you use the foreign earned income exclusion, but you can if you claim an FTC.

As it stands, eligible households can claim up to $2,000 per child under the age of 17. If the credit surpasses your tax liability, you can receive some or all of the difference as a refundable credit.

• The refundable portion of the CTC, known as the Additional Child Tax Credit, is worth 15% of a family's earnings above $2,500 — up to a maximum of $1,700 per child for tax year 2024 (taxes typically filed in 2025).
• This credit phases down once a household income surpasses $200,000 for single parents or $400,000 for married couples.

Potential changes for the CTC

This version of the federal child tax credit under the Tax Cuts and Jobs Act of 2017 (TCJA) is slated to expire this year. If the Republican-controlled Congress doesn’t pass a legislative tax package, this means that the CTC will revert to $1,000 per child under age 17 after the end of the year.

As reported by Kiplinger, Republican lawmakers have proposed an expanded CTC in their version of Trump’s One Big Beautiful Bill.

The measure, which is currently undergoing revisions at the U.S. Senate, proposes the following changes to the CTC:

• Increasing the full child tax credit amount to $2,500 per child through 2028.
• Setting the full credit amount to $2,000 for subsequent tax years.
• Applicants must have a Social Security number to qualify for the credit.

For more information on how the would-be expansion of the child tax credit would work, see: Here’s How the Child Tax Credit Could Increase Under Trump.

Need more time to file your taxes?

While most taxpayers file their taxes on April 15, the IRS automatically grants U.S. expats a two-month extension. This year, that deadline is June 16.

If you need more time to get your tax documents in order, you can request an additional extension through Oct. 15, 2025. However, you’ll have to act fast to avoid penalties.

• To request an extension, you must file a Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return) before June 16.
• Keep in mind, an extension to file does not exempt you from interest on unpaid taxes.
• Interest continues to accrue as of April 15, per IRS regulations.

Living abroad as an American can have its set of advantages and tax perks, as some countries can allow you to stretch your retirement savings. For instance, many Americans flock to Panama for its retirement benefits and no tax on inheritance.

Still, you’ll have to meet U.S. tax obligations for the time being. If you’re unsure of how to handle your taxes while living overseas, or want more tips on which tax breaks you may be eligible for, consult an international legal or tax professional.

For more tax tips for U.S. expats:

• Retirement Abroad? Three Countries Without Inheritance Tax
• Three Reasons to Retire in Panama in 2025
• IRS Tax Deadlines for June 16, 2025

According to a recent survey by data collection firm Talker Research, more than 40% of American homeowners plan to create a “backyard sanctuary” in 2025.*

However, the estimated average cost of completing their “dream exteriors” was $13,321. While substantial, this amount typically can’t buy you something lavish, such as an in-ground pool, which might cost around $30,000 to $60,000.

How can you make your dream backyard a reality and stretch your dollar? One solution might come from a seemingly unlikely source: Federal taxes.

Using an estimated budget of $13,321, Kiplinger compiled a list of projects that could fit your summer backyard while allowing certain tax benefits that could make these ideas more affordable.

*The survey was commissioned by Trex and administered online to 2,000 American homeowners.

Related: Can't wait for fall? Check out Kiplinger's coverage on The Fall Garden 'Tax': What to Plant and How to Prepare.

Backyard ideas for summer

Kiplinger used sample home projects from key federal tax laws to create the list of summer backyard ideas. Estimated costs were sourced through HomeGuide’s estimator tool in June 2025.

Yet, it’s important to note that current material prices, tariff impacts, scope of work and other factors can impact the cost of a home project. Consequently, price estimates are ever-changing. Consult your contractor before deciding whether a project is right for you and your budget.

*Note: The tax policy mentioned in this article pertains to federal taxes only. Check your state’s Department of Revenue website to see if you might be eligible for a state-level tax break.

Backyard renovation ideas: 2025

Estimated cost: $500 to $12,600

Thanks to the Inflation Reduction Act (IRA), the IRS offers a slew of federal tax incentives for energy efficiency in your outdoor area. These energy-efficient projects are one way to renovate your backyard this summer on a budget. For example:

• Your backyard door might qualify for a tax credit of up to $250. (The average exterior door costs from $500 to $1,900.)
• Central air conditioners, typically installed in back or side yards, might qualify for up to $600 off the installation costs. (A new central HVAC system generally costs a minimum of $7,000.)
• Solar panels can qualify for up to 30% off the installation costs. (Solar panels are generally priced at least $12,600 after the tax credit.)

These project ideas might not only save you on taxes, but also liven up your home’s summer landscape and cut your monthly energy bill.

However, if you're planning to take advantage of tax credits for energy-efficient home improvements, you might want to call your contractor soon.

The GOP’s latest proposal, called the “One Big Beautiful Bill,” includes a slew of tax provisions that could cut many "clean energy" tax incentives, including those for energy-efficient home improvements. This is why some homeowners are rushing to install solar panels before Trump cuts tax credits.

For now, these tax breaks are still available. If you start planning your project in the summer, you could finish before any potential changes to federal tax policy are made.

Backyard ideas to increase home value

Estimated cost: $2,000 to $12,000

If you’re looking to sell your home in the future, you might be wondering what backyard summer projects could add the most “value” to your property.

Here are a few value-added backyard ideas to get you started:

• Installing a snazzy new patio or deck, which might cost from $2,000 to $10,000, assuming 10-foot by 20-foot dimensions.
• Adding a fence for Fido or to make backyard barbecues more private. The average cost of fencing your yard can be $4,000 to $12,000, assuming a 200-foot straight fence.

Although these so-called “capital improvements” can be a bit pricier than other projects on this list, they can add value to your home, increasing your home’s tax basis. This could, in turn, affect your capital gains tax on the sale of your home.

For example:

• If you purchased a home for $200,000 and later sold the house for $500,000, part of your $300,000 difference could be subject to capital gains tax.
• But if you can prove $50,000 of home upgrades, your home’s tax basis would be $250,000. The difference between the selling price of $500,000 and the new tax basis of $250,000 is less than before and might not be taxed.
• This capital gains exclusion could prevent you from paying capital gains taxes on your home sale, while simultaneously leading to a higher selling price for your house (giving you more money).

However, you might want to look out for property taxes, which could increase as your home’s value rises. While this wouldn’t affect short-term move-out dates, it might affect you if you live in your home for longer than a year.

In particular, studies have shown that 75% of adults age 50 and older want to age in place. But if you live with someone who needs a medically necessary home improvement, you might qualify for the medical expense tax deduction on your federal return.

For more information, check out Kiplinger’s report, Tax-Deductible Home Improvements for Retirement in 2025.

Backyard projects on a budget

Estimated cost: $1,000 to $6,900

If you’re a business owner, these backyard ideas could be perfect. The IRS allows a home office tax deduction for qualified business expenses incurred to set up or maintain a business. This includes independent contracting, freelancing and other self-employed work.

If you use your backyard for a business purpose, the following projects might qualify for a federal tax deduction:

• Permanent storage sheds that are used to store business equipment and materials. A shed costs, on average, at least $1,000 (assuming 10 feet by 10 feet dimensions).
• Pathway or driveway improvements could be partially tax-deductible (if they're used for business purposes, as when your clients visit your office). The cost of a new concrete two-car driveway can be around $1,700 to $6,900.

But before you claim a business expense or home office tax deduction, be sure you meet the strict guidelines.

For instance, home office deductions typically require that you use the area regularly and exclusively for business, while for most business expense deductions, you must prove the expense is for the “ordinary and necessary” operations of your business.

There are other requirements you must meet, including careful documentation of the improvements, so make sure you can claim the deduction before filing your federal return. You might want to consult with a qualified tax professional before breaking ground on your new project.

Read More

• Summer Activities That Can Impact Your Taxes
• Ten Tax Breaks for Homeowners and Homebuyers
• How Long Should You Keep Tax Records?
• Home Office Tax Deduction: Work-from-Home Write-Offs

So far in 2025, average car prices are about $48,000, according to Kelley Blue Book, with interest rates for car loans hovering around an average of 8.64%.

For a 5-year loan, that roughly translates to $187 a month just in interest. For those who need a new car, those costs can strain budgets.

Now, a new tax break could ease that burden by allowing borrowers to deduct auto loan interest from their taxes. In Trump’s new so-called "big, beautiful bill," the GOP offers a tax deduction for car loan interest.

But while the provision sounds like it would provide savings, it’s important to note that not every car or buyer will qualify for the tax benefit.

So, if you’re thinking about buying a new car, here’s what you need to know.

‘Big, beautiful bill’ car loan interest deduction

Trump and the GOP's new tax megabill, known by some as the One Big Beautiful Bill (OBBB), became law on July 4.

That $3.4 trillion legislation primarily extends or makes permanent tax breaks from Trump’s 2017 Tax Cuts and Jobs Act (TCJA). But it also offers some new tax breaks, one of which involves vehicles.

Here’s how the auto loan interest tax deduction will work:

• The measure temporarily lets car buyers write off up to $10,000 a year in interest paid on qualifying auto loans
• The tax break starts with purchases made in 2025 and runs through 2028.
• You won't have to itemize to claim the deduction.

But not every buyer or vehicle will qualify.

• To qualify, the car must be new, for personal use, and meet a "final assembly" in the United States requirement — a rule some industry manufacturers say could exclude many popular imports. (Think popular models from Honda, Hyundai, Nissan, and Toyota.) More on that below.
• Cars, minivans, vans, SUVs, pickup trucks, or motorcycles, weighing less than 14,000 pounds qualify, according to the IRS. ATVs, trailers, campers, used cars, and vehicles assembled abroad are not eligible.
• The deduction is limited to $10,000 per year and phases out for individuals earning more than $100,000 or couples making over $200,000. So, higher-income households will see less benefit.
• The deduction applies to new cars with loans originating after December 31, 2024, and only if the vehicle has final assembly in the U.S.

Remember: These changes apply to loans taken out in 2025 and after, but just for three years, through 2028.

The IRS also notes: "If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction."

What is U.S. 'final assembly'?

The IRS recently issued a fact sheet stating that the place of final assembly for purposes of the car loan interest deduction is the location listed on the vehicle's information label.

How can you find that information?

• The IRS says that every new vehicle at the dealership should have an information label that lists the final assembly location.
• You can also look up the Vehicle Identification Number (VIN).
• The National Highway Traffic Safety Administration VIN decoder tool could also be useful in indicating where your car was assembled.

Who benefits from the auto loan interest deduction?

Supporters of the deduction argue it will provide direct financial relief to car buyers at a time when both vehicle prices and interest rates remain high.

Rep. Bill Huizenga (R-Mich.), who introduced the Made in America Motors Act, which proposed a similar but lower tax break, called the deduction “a win for American taxpayers, auto workers, and Michigan.”

Huizenga noted in a statement that making car loan interest tax-deductible fulfills a Trump presidential campaign promise and “provides financial motivation for individuals and families to purchase American-made vehicles.”

Sen. Bernie Moreno (R-Ohio) sponsored a bill with a similar proposal, the USA CAR Act.

“Thanks to President Trump, we are finally ensuring every car sold in America is made in America and that working Americans can actually afford to buy a car in the first place. I’m proud to lead the way in the Senate,” Moreno said when introducing his bill.

• Proponents also stress that, as mentioned, the deduction is structured as an above-the-line benefit, so taxpayers can claim it even if they claim the standard deduction on their federal returns.
• Some advocates also see the measure as a way to incentivize buying vehicles with final U.S. assembly.

Meanwhile, others question how much relief the deduction will actually provide and whether it is the most effective way to help car buyers.

Jonathan Smoke, chief economist at automotive services and technology provider Cox Automotive, and his team reportedly analyzed the proposed auto loan interest deduction. They found that if the average car owner pays $2,000 in interest over a year, they could save about $400 on their taxes under the initial House GOP version of the proposal.

However, given the overall costs of buying a car, Smoke told Bankrate the company doesn’t “think [the car loan tax deduction is] as exciting a proposition for driving more vehicle sales.”

There are also concerns about the deduction’s fairness and fiscal impact.

The benefit phases out for higher-income households, but some analysts argue that those with the means to buy new cars, especially more expensive models, are more likely to benefit.

On the other hand, many lower-income buyers and those purchasing used or imported vehicles could be left out.

And then there’s the cost: the Joint Committee on Taxation estimates the provision would cost over $57 billion in lost federal revenue, raising questions about its broader economic trade-offs.

Tax Filing: Your interest statement and Schedule 1-A

To claim the new auto loan interest deduction, taxpayers must be prepared to file a specific tax form and provide key documentation, especially for the 2025 tax year.

• For tax years 2025 through 2028, the IRS says you will claim the deduction by filing a new form with the IRS: Schedule 1-A (a new attachment to your Form 1040). Here's a draft of the form.
• To properly claim the benefit, you must include the Vehicle Identification Number (VIN) of the qualified vehicle on your tax return.

IRS transition relief for 2025 reporting

Update: Recognizing that lenders need time to update their systems, the IRS has issued transitional relief for the 2025 tax year reporting.

No New Tax Form for 2025: Lenders are not required to file a new IRS information return with the IRS for interest paid in the 2025 calendar year.

Your Required Statement: Lenders must still provide borrowers with a statement showing the total amount of interest paid on the qualified vehicle loan during 2025. This statement must be made available to you by January 31, 2026.

Statement Delivery: Lenders can satisfy this requirement through various means, including an online account portal, a regular monthly statement, or an annual summary.

Action for Buyers: You should confirm your interest total by requesting this statement from your lender and keep it, along with the VIN, to accurately complete Schedule 1-A when you file your 2025 federal income tax return.

What about electric vehicles?

If you purchased an eligible EV before September 30, 2025, it looks like electric vehicles qualify for the car loan interest deduction, provided they meet the same requirements as other vehicles under the Trump/GOP 2025 tax bill.

That's because the deduction doesn’t seem limited by vehicle type, so qualifying EVs and plug-in hybrids would be eligible for the car loan interest tax break if they are U.S.-assembled and the loan meet the bill’s other requirements.

But it’s worth noting that while the Trump tax bill contains this new car loan interest tax break, the legislation ended the up to $7,500 federal EV tax credit for new electric vehicles and $4,000 for used EVs as of October 1 of this year.

So, the takeaway is that if you purchased a qualifying new EV by September 30, 2025, you could be eligible to benefit from both the federal EV tax credit (up to $7,500) and the new auto loan interest deduction for 2025. But check with a tax professional who can consider the specifics of your situation.

What about Trump auto tariffs?

Data show that Trump’s auto tariffs introduced in 2025 are already driving up car prices across the U.S.

• The 25% tariff on imported vehicles and parts has reportedly pushed the price of an average new vehicle up by 2.5% in April.
• That’s more than double the typical monthly increase for this time of year, according to Cox Automotive and Kelley Blue Book analyses.

True Car reports that some foreign models have seen increases of $5,000 to $10,000. Global supply chains also affect domestically produced automobiles, some facing added costs of about $2,000 to $3,000.

Note: When it comes to the new car loan interest deduction, most imported vehicles, subject to the new 25% tariff, won't meet this U.S. assembly requirement and will not be eligible for it.

However, some U.S.-assembled vehicles may still include imported parts affected by tariffs. As a result, higher parts costs from tariffs could still push up prices for some qualifying models.

Buying a car: Bottom line

Even with the car loan tax deduction, car buyers shouldn’t lose sight of the bigger financial picture.

The price of the car, interest rates, insurance, upkeep, and any new fees all add up quickly. It’s also important to keep tabs on your credit score, since that can make a big difference in what you pay over the life of your loan.

Recent tariffs could also play a role: a 25% tariff on most auto parts could push prices even higher, even for models assembled in the U.S.

No matter what tax breaks are on the table, it’s worth taking the time to run the numbers, shop around for the best financing, and make sure your car purchase truly fits your needs and budget.

This article has been updated to include information about transition relief from the IRS.

Related

• How the EV Tax Credit Works for 2025
• Here’s What’s Happening With Trump's Tariffs
• What's in Trump's 2025 Tax Bill?

1: Theft loss

Q. I was a victim of internet fraud and lost a lot of money. Can I claim this loss on my Form 1040?

A. Depending on the circumstances, this might be a deductible theft loss that you can claim on Schedule A of your 1040 if you itemize. A deductible theft loss must be incurred in a transaction entered into for profit or in a trade or business. Personal theft losses not connected with these two factors aren’t deductible through 2025. The analysis is based on facts and circumstances.

The IRS released a legal memorandum in mid-March that can help with this analysis. In the memo, IRS lawyers addressed five scenarios involving common internet scams and ruled whether a victim could deduct a theft loss. In each fact pattern, the victim owned IRAs or taxable accounts and transferred funds from the accounts to the scammer or to new accounts that the scammer controlled. Essentially, individuals who were victims of kidnapping or romance scams can’t deduct their theft losses because they are personal. The result is more favorable for victims of scams in which the scammer convinced them that their existing account was compromised or that they could put funds into an investment with better returns.

You can read the IRS memo [opens PDF]. You can also read more on the subject in IRS Publication 547, Casualties, Disasters and Thefts. Additionally, I would suggest that you consult with a tax professional, such as a CPA, before making any decision as to the deductibility of your loss.
— Joy Taylor, Editor The Kiplinger Tax Letter

2: Leasing a car for business

Q. I am self-employed. I lease a car that I use 80% for business and 20% for personal use. Can I deduct my car lease payments on Schedule C of my Form 1040?

A. Yes. If you lease a vehicle for use in your business, you can opt to use actual expenses to figure your deductible expense. You can deduct the part of each lease payment that is for business. There’s also this oft-forgotten rule: If you lease a car worth more than a certain value ($62,000 in 2025), you must pay income tax for each year of the lease term on an amount shown in IRS tables. The extra income partially offsets the lessee’s tax deduction of the lease payments and is intended to approximate the squeeze on buyers from the cap on depreciation. Note that you don’t add the amounts to your income when filling out your tax return. Instead, you reduce the size of your deduction for the lease payments on the vehicle.

Here’s a simple example.
You’re self-employed and in 2025, you lease a car for use in your business that is valued at $71,000. You must reduce the deduction for the lease payments on Schedule C of your Form 1040 each year by the amount shown in Table 3 of IRS Revenue Procedure 2025-16 [opens PDF]. If you use a leased car in business 80% of the time, you can only deduct 80% of the lease payments, and you would include 80% of the numbers in Table 3 of Revenue Procedure 2025-16 as a reduction to your deductible lease payments.

IRS Publication 463, Travel, Gift and Car Expenses, delves into these rules in more detail.
— Joy Taylor, Editor The Kiplinger Tax Letter

3: Qualified Business Income (QBI) deduction

Q. The 20% qualified business income deduction is set to expire after 2025. Do you think Congress will extend this tax write-off?

A. Yes, it’s quite likely that the qualified business income (QBI) deduction will be extended if Congress is able to pass its large tax, border security and energy bill this year.

Self-employed people, independent contractors and owners of LLCs, S corporations and other pass-through entities can deduct 20% of their QBI, subject to limitations for individuals with taxable income in 2025 of more than $394,600 for joint filers and $197,300 for single filers and head-of-household filers. (The 2024 amounts are $383,900 and $191,950.)

This deduction ends after 2025, unless Congress acts. It was first enacted in the 2017 Tax Cuts and Jobs Act to provide some federal income tax parity between C corporations, which are taxed at a 21% rate, and pass-throughs, in which the individual owners pay income tax on earnings up to a 37% tax rate. Republican lawmakers want to extend the QBI deduction. And they have lots of support from lobbying groups representing Main Street businesses.
— Joy Taylor, Editor The Kiplinger Tax Letter

4: Deduction for rental profit

Q. I own rental homes and generate a profit from them that I report on Schedule E of my 1040. I heard that I can get a tax deduction for 20% of the profit. Is that true?

A. It depends. Rental income reported on Schedule E of the Form 1040 may, in some cases, be eligible for the 20% qualified business income deduction (discussed above). The IRS’s regulations say the rental activity must generally rise to the level of a trade or business, a standard which is based on each taxpayer’s particular facts and circumstances. Alternatively, there is a safe harbor if at least 250 hours a year of qualifying time are devoted to the activity by the taxpayer, employees or independent contractors. Time spent on repairs, collecting rent, negotiating leases and tenant services counts. Taxpayers who use the safe harbor must meet strict recordkeeping requirements and attach an annual statement to their tax returns. Meeting the safe harbor will let you treat the rental activity as a trade or business for QBI purposes. Note that you would take the QBI deduction on line 13 of your Form 1040 after completing Form 8995 or 8995-A.
— Joy Taylor, Editor The Kiplinger Tax Letter

5: Home office deduction

Q. My employer closed its office, and I now work fully remote from home for that employer. Can I claim the home office deduction if I itemize on Schedule A of the Form 1040?

A. No. Prior to 2018, certain employees could deduct the cost of home office expenses as unreimbursed employee costs included in Schedule A miscellaneous itemized deductions, subject to the 2%-of-adjusted-gross-income threshold. But the 2017 Tax Cuts and Jobs Act repealed this group of tax breaks through the end of 2025. We don’t know yet whether this prohibition on deducting employee business expenses will get extended past 2025.

The home office deduction is still available to self-employed people or independent contractors who file Schedule C with their 1040 and use a room or space in their home or apartment exclusively and regularly as their principal place of business. If you are self-employed and qualify for the write-off, there are two ways to figure the deduction. You can allocate your actual costs on Form 8829. Or you can use a simplified option by deducting $5 per square foot of space used exclusively for business, up to 300 square feet, resulting in a $1,500 maximum write-off.
— Joy Taylor, Editor The Kiplinger Tax Letter

We have already received many questions from readers on topics related to inherited IRAs, gifts, qualified charitable contributions and more. We’ll answer some of these in a future Ask the Editor round-up. So keep those questions coming!

Subscribers of The Kiplinger Tax Letter and The Kiplinger Letter can ask Joy questions about a tax topic. You'll find full details of how to submit questions in The Kiplinger Tax Letter and The Kiplinger Letter. (Subscribe to The Kiplinger Tax Letter or The Kiplinger Letter.)

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Read more from our Ask the Editor Series

• Ask the Editor, April 25, 2025: 529 plans.
• Ask the Editor, April 18, 2025: Amended returns.
• Ask the Editor, April 11, 2025: IRAs, RMDs and PTPs.
• Ask the Editor, April 4, 2025: The new tax bill, estate tax, and muni bonds.

Q1: Unused Funds

We funded a 529 college savings plan for my son. We used money in the account for his college. He is now done with school, and there are still unused funds in the 529 account. What can we do with this money without paying tax on it?

If you funded a 529 plan, and the beneficiary decides not to go to college, or he or she did go to college, and there are funds remaining at the end, there are several tax-free options for using the leftover money:

• Keep the funds in the account for the beneficiary’s grad school, etc.
• Use the 529 money to pay for certain apprentice programs for the beneficiary.
• Roll over leftover funds to a 529 plan for another family member’s education needs.
• Use up to $10,000 to help pay off the beneficiary’s college debt. It’s important to note that this $10,000 is a lifetime limit, not an annual limit. 529 distributions for student loan repayments that exceed $10,000 are taxable in part to the extent of the excess and are also subject to a 10% penalty.
• Roll over funds from a beneficiary’s 529 plan to an ABLE account for a disabled beneficiary or the beneficiary’s disabled siblings.
• Some excess 529 funds can be transferred tax-free to a Roth IRA for the 529 beneficiary in a direct trustee-to-trustee transfer. There are key rules to meet: The 529 account must have been open for at least 15 years, with the same beneficiary. There is a $35,000 lifetime cap. 529 contributions made in the prior five years are ineligible for the transfer. And annual 529 distributions for this purpose can’t exceed the annual contribution limit for Roth IRAs, which is $7,000 in 2025.

Note that any actual contributions for the year made to any IRA owned by the beneficiary count against this limit. For example, let’s say a 529 plan beneficiary contributes $2,000 to his traditional IRA in 2025. Only $5,000 of leftover 529 funds can be transferred to his Roth IRA in 2025.
— Joy Taylor, Editor The Kiplinger Tax Letter

Q2: Off-Campus Housing

My daughter is currently a sophomore in college. Next year, she and some friends are planning to live in an apartment off-campus. Can I use 529 funds to pay for her share of the rent, utilities and food?

Distributions from 529 plans used for college are tax-free. Eligible expenses include the cost of room and board for students enrolled at a college or university at least half-time, tuition, books, supplies, fees, computers and internet access. 529 funds can be withdrawn tax-free to cover off-campus housing, food and utilities, but the distribution amount cannot exceed the room and board allowance that the college includes in the cost of attendance. You should be able to get this figure from the college’s website.
— Joy Taylor, Editor The Kiplinger Tax Letter

Q3: Study Abroad

Can I use 529 funds to pay for a college student’s studies abroad?

In many cases, yes. A 529 plan can be used for any college that participates in the U.S. federal student aid program. If a student is enrolled in a U.S. college and chooses to study abroad through the school’s program for a semester or two, the study-abroad program will be 529-eligible, provided the U.S. college is eligible and the college accepts the study-abroad credits. If the child decides to enroll in a non-U.S. college for his or her full college education, then that foreign university must participate in the U.S. federal student aid program. Believe it or not, many foreign colleges do participate and would therefore qualify as eligible schools for 529 purposes.
— Joy Taylor, Editor The Kiplinger Tax Letter

Q4: Funding a 529 Plan

I am currently taking required minimum distributions (RMDs) from my traditional IRA. Can I roll over part of that RMD tax-free to fund a 529 plan for my granddaughter?

Unfortunately, there is no tax-efficient way to use money in your IRA to fund a 529 plan. So, for example, if you want to use your RMD money to put into a 529 account for your granddaughter, you will be treated as first receiving the RMD, which would be all or partially taxable to you, and then making a post-tax contribution to the 529 plan.
— Joy Taylor, Editor The Kiplinger Tax Letter

Q5: Refund from the University

I used 529 funds to pay for my son’s college tuition and board. My son received a check from the college refunding some of the amount that was paid. Is that amount taxable to me?

The tax laws give relief in this situation, provided you act in a timely manner. Tax legislation enacted in 2015 waives tax and penalties if, after a distribution is made from a 529 account, the student gets a refund from the college or university. To qualify for relief, you generally must redeposit the funds into the 529 account for the same beneficiary within 60 days. The recontribution is treated as principal.
— Joy Taylor, Editor The Kiplinger Tax Letter

We have already received many questions from readers on topics related to annuities, health savings accounts and much more. We’ll answer some of these in a future Ask the Editor round-up. So keep those questions coming!

Subscribers of The Kiplinger Tax Letter and The Kiplinger Letter can ask Joy questions about a tax topic. You'll find full details of how to submit questions in The Kiplinger Tax Letter and The Kiplinger Letter. (Subscribe to The Kiplinger Tax Letter or The Kiplinger Letter.)

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Read more

• Ask the Editor, April 18, 2025: Questions about amended returns
• Ask the Editor, April 11, 2025: Questions about IRAs, RMDs and PTPs.
• Ask the Editor, April 4, 2025: Questions about the new tax bill, estate tax, and muni bonds.
• Ask the Editor, March 28, 2025: Questions about filing tax returns, QBI deductions, and estimated tax payments.
• Ask the Editor, March 21, 2025: Questions on reporting income and deductions.

Q1: Amended returns

I mailed amended tax returns on Form 1040-X to the IRS in early January. They show up in the IRS system as received by the agency, but I have not yet received my refunds. Do you know when I might see my money?

The IRS is still lagging on processing amended returns. The delay began with the COVID-19 pandemic, and the IRS has not yet fully caught up. But the wait isn’t as bad as it used to be. The IRS says that it is now processing amended paper-filed returns that were received in January 2025, so you should see your refund shortly. Note that the IRS’s processing time is longer for paper returns with errors or paper returns that require special handling. You might want to check the IRS’s online tool, Where’s My Amended Return.
— Joy Taylor, Editor The Kiplinger Tax Letter

Q2: Reverse Mortgages

I am planning to take out a reverse mortgage on my primary home. Will I have to pay federal income tax on the money that I receive in the transaction?

No. The payments you get from a reverse mortgage are treated as nontaxable loan proceeds, not income. Also, if you itemize, you cannot deduct, on Schedule A of the Form 1040, the interest you eventually pay because you are not using the reverse mortgage proceeds to buy, build or substantially improve the home securing the mortgage.
— Joy Taylor, Editor The Kiplinger Tax Letter

Q3: Converted Rental Property

I bought a home in 2008 for $294,000 that I used as my primary residence. In 2014, when the property was valued at $225,000, I moved and converted the home to a rental property. I then used $225,000 to calculate depreciation on the rental property. I sold the home last year for $362,000. What is the tax basis for determining the gain on the sale of the rental home?

First, you were correct to use the $225,000 amount for figuring annual depreciation deductions when you converted your primary home to a rental property. Second, since you sold the rental property at a gain last year, your tax basis for determining your gain is the original cost of the home ($294,000) plus any amounts you paid for capital improvements, less depreciation that you deducted on the home. If you had sold the rental home for a loss, your basis starting point would have been the lower of your original basis ($294,000) or the value when you converted the home to a rental ($225,000).
— Joy Taylor, Editor The Kiplinger Tax Letter

Q4: Investment Subscription Costs

I am aware that I cannot deduct the fees I pay to my broker to manage my investments. However, can I deduct the costs of subscriptions to stock advice letters, some of which are quite expensive?

No. Unfortunately, you cannot deduct the cost of subscriptions to stock advice letters unless you use that information in your trade or business. This type of investment expense used to be deductible as a miscellaneous itemized deduction on Schedule A of the Form 1040 (subject to the 2%-of-adjusted-gross-income limit), but the 2017 Tax Cuts and Jobs Act temporarily eliminated that entire group of deductions through the end of 2025. It’s too soon to know whether you would be able to deduct the costs for 2026 and later years. Republican lawmakers are currently negotiating a big tax package that would extend many of the expiring provisions in the Tax Cuts and Jobs Act.
— Joy Taylor, Editor The Kiplinger Tax Letter

Q5: Deducting One’s Time

Can a self-employed person deduct the value of his or her time on Schedule C of the Form 1040?

No. A self-employed person cannot deduct the value of his or her time. As the United States Tax Court said in a recent case, “labor performed by a taxpayer does not constitute an amount paid or incurred by him, and the taxpayer is not entitled to deduct the value of such labor.”

Also, if a self-employed person pays wages to himself or herself, he or she cannot deduct the wages on Schedule C because he or she isn’t employed by the business for tax purposes. The person can take withdrawals from his or her Schedule C business, but those withdrawals aren’t taxable and aren’t deductible.
— Joy Taylor, Editor The Kiplinger Tax Letter

We have already received many questions from readers on topics such as leasing a car for business use, what to do with unused funds in a 529 college savings plan, using U.S. savings bonds to pay for college and much more. We’ll answer some of these in a future Ask the Editor round-up. So keep those questions coming!

Subscribers of The Kiplinger Tax Letter can ask Joy questions about a tax topic. You'll find full details of how to submit questions in The Kiplinger Tax Letter. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Read more

• Ask the Editor, April 11, 2025: Questions about IRAs, RMDs and PTPs.
• Ask the Editor, April 4, 2025: Questions about the new tax bill, estate tax, and muni bonds.
• Ask the Editor, March 28, 2025: Questions about filing tax returns, QBI deductions, and estimated tax payments.
• Ask the Editor, March 21, 2025: Questions on reporting income and deductions.

Q1: RMDs for 2025

Due to the recent volatility in stock prices in almost everyone’s IRA portfolio, which might get worse as time goes by, do you think that the IRS may eliminate required minimum distributions for 2025, as it did during the COVID-19 pandemic?

I don’t see that happening. First, it is Congress, not the IRS, that must act to waive the RMD for 2025. For example, Congress waived RMDs for 2020 in the CARES Act soon after the pandemic started. I can’t say for sure, but I do not think that Republicans in Congress will provide an RMD waiver for 2025, given that the stock market volatility is apparently because of the tariff actions taken by President Trump. I guess if the stock market falls precipitously and remains low for a while, then maybe we will see the RMD relief, but it’s way too soon to tell.
— Joy Taylor, Editor The Kiplinger Tax Letter

Q2: IRA Contributions and RMDs

I am 75 and working, and I am contributing to my traditional IRA for 2025. Can I offset my 2025 IRA required minimum distribution by the contribution?

No. According to the IRS, an individual cannot offset his or her RMD for a taxable year by the amount of any retirement contributions for that same taxable year. Contributions and distributions are separate transactions and are reported as such each year to the IRS by the financial institution or other IRA custodian.
— Joy Taylor, Editor The Kiplinger Tax Letter

Q3: Roth IRAs and the Five-Year Rules

I understand that to withdraw money from a Roth IRA without paying tax or a penalty on the earnings, the account owner must have had the money in the Roth IRA for at least five years and be age 59½ or older. My question relates to when the five-year clock starts if contributions are made over several years. Also, do the rules differ for Roth IRA conversions?

There are actually two five-year rules that apply to Roth IRAs. The first applies to Roth IRA contributions, including rollovers and conversions, and whether distributed earnings are tax-free to you. Under this rule, distributions of earnings after age 59½ aren’t taxed if at least five tax years have passed since the owner first contributed to a Roth IRA. For this first five-year rule, the five-year clock starts the first time that money is deposited into any Roth IRA that you own, through either a contribution or a conversion from a traditional IRA. The clock doesn’t start for later Roth contributions, conversions or for newly opened Roth IRA accounts.

The second five-year rule applies specifically to Roth IRA conversions, and whether the 10% early distribution penalty hits pre-age-59½ payouts. This rule is an anti-abuse rule to prevent people who are younger than 59½ from circumventing the early IRA withdrawal penalty by first doing a Roth conversion and soon thereafter taking the money out of the Roth IRA. That’s because the 10% early withdrawal penalty doesn’t hit Roth IRA conversions. This second five-year rule doesn’t apply to new contributions to Roth IRAs, but to conversions of pre-tax income from traditional IRAs to Roths. Under this rule, if someone who is younger than 59½ does a Roth conversion, and later takes a distribution within five years of the conversion and before turning 59½, then the amount of conversion principal that is withdrawn is hit with the 10% penalty. Once you turn 59½, you needn’t worry, even if you take a payout before your conversion meets the five-year period. Under this second five-year rule, each conversion has its own separate five-year period, which differs from the first five-year rule discussed above. For instance, if you do multiple Roth IRA conversions, there will be multiple five-year time periods, even if each conversion is done into the same Roth IRA account that you have owned for years.

You can read more about this in an article I've written about these two Roth IRA five-year rules, which includes examples and a set of FAQs.
— Joy Taylor, Editor The Kiplinger Tax Letter

Q4: Publicly Traded Partnerships

I am thinking of investing in a publicly traded pipeline partnership. I understand that if I invest through my taxable account, I would get a K-1 form, which can be a headache. What about if I have my IRA buy the units? Any tax traps?

IRAs may invest in a publicly traded partnership (sometimes called a master limited partnership). PTP units are traded on an established securities exchange, similar to publicly traded corporations, and PTPs can make big distributions. As a result, IRA owners might look at them as good investments for their IRAs. But there is a catch. The IRA can owe tax. PTPs issue Schedule K-1s to their owners (including IRAs), reporting the owner’s share of ordinary business income or loss. For IRAs, this income is generally considered unrelated business taxable income (UBTI), and the IRA may owe tax. If UBTI from all of an IRA’s investments exceeds $1,000, then the excess is taxed at a rate of up to 37% (the more condensed income tax brackets for trusts, not individuals, are used for this purpose). The IRA, not the individual owner, uses IRS Form 990-T to report and compute the tax.

It is our understanding that most big IRA custodians will handle the preparation and filing of the 990-T, unless the IRA trust agreement between the IRA owner and the custodian provides otherwise. For self-directed IRAs, the burden of filing the 990-T would fall on the IRA owner. Any taxes owed on an IRA's excess unrelated business taxable income are paid from available assets within that IRA.
— Joy Taylor, Editor The Kiplinger Tax Letter

We have already received many questions from readers on topics such as qualified charitable distributions from traditional IRAs, the 10-year cleanout rule on inherited IRAs, and much more. We’ll answer some of these in a future Ask the Editor round-up. So keep those questions coming!

Subscribers of The Kiplinger Tax Letter can ask Joy questions about a tax topic. You'll find full details of how to submit questions in The Kiplinger Tax Letter. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Read more

• Ask the Editor, April 4, 2025: Questions about the new tax bill
• Ask the Editor, March 28, 2025: Questions about filing tax returns
• Ask the Editor, March 21, 2025: Questions on reporting income and deductions.

Q1: Tax Bill Forecast

Will Congress pass major tax changes this year? And if so, when?
Republican lawmakers in Congress and officials in Trump’s White House are in the midst of negotiations to extend the tax changes in President Trump’s 2017 Tax Cuts and Jobs Act that will automatically expire at the end of this year. They include lower individual income tax rates and wider tax brackets, higher standard deductions and child tax credits, bigger lifetime estate-and-gift-tax exemption, alternative minimum tax easings and much more.

The odds are very good that Congress will pass a tax package this year, despite a series of hurdles that they will have to overcome. These include:

• The cost of the bill
• Types of offsets
• What to do with the existing $10,000 cap on state and local tax write-offs on Schedule A of the Form 1040
• How to handle Trump’s other tax promises to specific groups of individuals, such as no tax on tips or overtime pay
• The razor-thin Republican majority in the House
• The less-than-60 GOP majority in the Senate, requiring Republicans to accomplish their agenda through the complicated budget reconciliation process and
• Non-tax issues related to the border security and defense provisions also included in the bill.

The possible timing of enactment of a tax package is sometime this summer. But it could drag into the fall. Representative Jason Smith (R-MO), the chair of the House Ways & Means Committee, has said the goal of House Republicans is to put a bill on President Trump’s desk by Memorial Day for him to sign. But that timing is aggressive, considering all the hurdles that need to be jumped. Most tax policy experts believe the second half of 2025 is a more realistic timeframe.
— Joy Taylor, Editor The Kiplinger Tax Letter

Q2: Social Security benefits

Will the tax bill make Social Security benefits fully tax-free for federal income tax purposes?
No, unfortunately, that won’t happen, much to the dismay of Social Security recipients, many of whom currently pay federal income tax on up to 85% of their Social Security benefits, depending on their provisional income. Trump has vowed to end all federal income tax on the benefits, which would put a dent in the Social Security Trust Fund, from which these monthly benefits are paid. Although most federal income tax receipts go to the government’s general revenues, income tax paid on Social Security benefits is targeted for the trust funds that pay out Social Security and Medicare benefits. Nearly $50 billion from income taxes to Social Security benefits was allocated to the Social Security Trust Fund in 2023.

Congressional Republicans are using the budget reconciliation process to circumvent the 60-vote filibuster rule in the Senate. Under this process, only a 51-vote majority is needed to pass legislation in the upper chamber. But there are technical rules involved with budget reconciliation. One major rule is that the bill’s provisions can’t increase federal deficits outside of a 10-year window. Another rule is that you can’t use budget reconciliation on anything directly affecting Social Security. So any proposal to change the federal taxation of Social Security benefits cannot properly be included in a budget reconciliation bill.

Instead, congressional GOP taxwriters are looking at other ways to provide tax benefits for seniors. One possible alternative is to increase the additional standard deduction amount for taxpayers who are 65 and older
— Joy Taylor, Editor The Kiplinger Tax Letter

Q3: Muni bond interest

I heard that lawmakers working on the tax package are thinking about eliminating the tax-free interest break for owners of state and local bonds (munis). Is this accurate, and what’s the risk that this break will be axed?
Currently, interest earned on munis is tax-exempt for federal income tax purposes. Repealing this exemption is an option for raising revenue that was included in an extensive list of revenue-saving options released earlier this year by the House Budget Committee. And recently, Stephen Moore, an informal economic adviser to Trump, said that nixing the tax break for muni investors was currently in play in the Republican tax negotiations on Capitol Hill. This in and of itself doesn’t mean that this popular break will be eliminated. States and local governments rely on munis to fund all sorts of infrastructure projects. And powerful lobbying groups will push Congress hard to keep the tax break for muni investors. We’ll just have to see how the tax bill unfolds over time before we fully know the fate of the muni interest exemption.
— Joy Taylor, Editor The Kiplinger Tax Letter

Q4: Estate Tax

What’s going to happen with the estate tax in the tax package that Congress is working on?
The federal lifetime estate-and-gift-tax exemption for 2024 deaths is $13,610,000, and the highest estate tax rate is 40%. The 2025 exemption is $13,990,000. After 2025, this figure is expected to drop to $7 million or so, unless Congress acts.

We do think the most likely option congressional Republicans will take in the upcoming tax bill is to keep things as they are, meaning extend the current $13,990,000 lifetime estate-and-gift-tax exemption (with annual inflation increases) and the top 40% tax rate. Trump wants to extend the tax cuts in his 2017 law, and this promise would almost certainly include the current lifetime estate-and-gift-tax exemption.

Whether there could be additional easings remains to be seen. Repealing the estate tax and the generation-skipping transfer tax is an idea that always draws strong Republican support. Another possibility is to lower the tax rate and/or raise the exemption amount. The authors of Project 2025 proposed a federal estate tax rate of no higher than 20%. And some Republican lawmakers have talked about doubling the amount of the lifetime estate-and-gift-tax exemption.
— Joy Taylor, Editor The Kiplinger Tax Letter

Q5: Income Tax Repeal

I heard that some Republicans want to repeal the federal income tax. How likely is it that they’ll be able to do this in the tax bill they’re currently working on?
The federal income tax isn’t going away anytime soon. It is true that some Republicans in Congress support proposals to end the U.S. federal income tax and replace it with a consumption-based tax. Even President Trump has briefly talked about ending income taxes. Despite this, as White House officials and congressional Republican taxwriters debate about what will or won’t be in a tax bill this year that would generally extend expiring tax provisions, income tax repeal isn’t on the table. It’s been around since 1913, when President Wilson signed it into law eight months after the 16th Amendment was ratified by the states. More than 110 years later, the federal income tax won’t be repealed, at least for a while.

I’ll also address some recent comments by Commerce Secretary Howard Lutnick. He first said that Trump wants to eliminate federal income taxes for individuals who earn less than $150,000. Sounds good, right? But there’s a big condition attached to this. Lutnick later clarified that this tax cut plan is aspirational and would only be pursued in the future when, or if, the federal government could achieve a balanced budget. The last time the budget was balanced was under then-President Bill Clinton’s administration. Also, given that the federal deficit currently exceeds $36 trillion and is expected to go even higher if Republican lawmakers can get their tax package passed, the feasibility of the U.S. having a balanced budget anytime soon is extremely low.
— Joy Taylor, Editor The Kiplinger Tax Letter

More on Ask the Editor

We have already received many questions from readers on topics such as figuring tax basis when you sell a converted rental home, tax considerations when owning master limited partnership units in an IRA, distributions from Roth IRAs, whether internet scam victims can deduct a theft loss, and much more. We’ll answer some of these in a future Ask the Editor round-up. So keep those questions coming!

Subscribers of The Kiplinger Tax Letter can ask Joy questions about tax topics. You'll find full details of how to submit questions in The Kiplinger Tax Letter. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Q1: 20% QBI Deduction

I left my full-time job early last year and now work as an independent freelance consultant. I will report my business income and expenses on Schedule C. I heard about a 20% deduction. Can you explain what this is and whether I can claim it on my 2024 Form 1040 for my self-employment earnings?

Owners of LLCs, S corporations and other pass-through entities, as well as self-employed individuals, can deduct 20% of their qualified business income (QBI). QBI is income less deductions from your business. An important limitation applies to high earners in certain service fields. They include health, law, accounting, consulting, financial and brokerage services, performing arts, athletics, actuarial science, investing or trading in securities, or any business where the principal asset is the reputation or skill of its employees. If you’re in one of the affected fields and your total taxable income on your 2024 Form 1040 (before the QBI deduction) exceeds $383,900 for joint filers or $191,950 for single filers and head-of-household filers, the 20% deduction begins to phase out (the 2025 amounts are $394,600 and $197,300).

When filling out your 2024 Form 1040, you would complete either Form 8995 or 8995-A and attach it to your return. Most people use the simpler, one-page Form 8995. The 8995-A is for taxpayers with incomes over the thresholds set forth above. You then claim the 20% QBI deduction on line 13 of your Form 1040.

Note that this deduction ends after 2025, unless Congress acts before then. It was first enacted in the 2017 Tax Cuts and Jobs Act (TCJA) to provide some federal income tax parity between C corporations, which are taxed at a 21% federal income tax rate, and pass-through businesses, in which the individual owners pay federal income tax on their earnings up to a 37% tax rate.
— Joy Taylor, Editor The Kiplinger Tax Letter

Q2: Estimated Tax Payments

I filed the 2024 federal tax return for my wife and me using TurboTax. TurboTax printed out the quarterly estimated tax payments to make for 2025. If we make these estimated tax payments on time, will that protect us from being penalized for underpayment of taxes?

You won't have to pay the underpayment penalty for 2025 if you prepay, through estimated tax payments or withholding, at least 90% of your 2025 total tax bill or 100% of your 2024 total tax bill (110% if your adjusted gross income for 2024 exceeded $150,000). My thought is that the TurboTax quarterly estimated tax payment schedule is based on 100% (or 110%) of your 2024 tax liability. If that's the case, then you should be fine. Note that if, closer to year-end, you believe that you did not make enough estimated tax payments, you can always request more income tax withholding from your employer (if you're working) or from your Social Security benefits or IRA distribution (if you are retired). Tax withheld at any point in the year is treated as if evenly paid throughout the year.
— Joy Taylor, Editor The Kiplinger Tax Letter

Q3: Tax Return Filing Due Date

I live in Florida and I heard that I can file my 2024 Form 1040 later than April 15. Is that correct, and if so, when do I have to pay my taxes?
The normal deadline date for filing the 2024 Form 1040 is April 15. But the IRS has given taxpayers in federally declared disaster areas more time to file and pay their federal taxes. Taxpayers in all of Alabama, Florida, Georgia, North Carolina and South Carolina, and parts of Alaska, New Mexico, Tennessee, Virginia and West Virginia, have until May 1 to file their Forms 1040 and pay taxes because of hurricanes and other disasters that occurred in those states in 2024. Victims of the early January Southern California wildfires have until October 15. And victims of the 2025 flooding and storms in Kentucky and West Virginia have until November 3. As a Florida resident, you have until May 1 to file your 2024 Form 1040 and pay any taxes that are due.
— Joy Taylor, Editor The Kiplinger Tax Letter

Q4: Return Filing Extension

I live in Florida, and I won’t be ready to file my 2024 Form 1040 by May 1. What is the due date for getting a filing extension?
Since the IRS has extended the deadline for Florida residents, for filing 2024 federal returns and paying federal taxes, to May 1, 2025, then you would have until May 1 to file Form 4868 to extend the May 1 due date for filing your 2024 Form 1040 to Oct. 15. To get the extension, a taxpayer must file Form 4868 by the original due date for the return, whether that is April 15 or another extended deadline date. So, in your case, May 1 is the deadline to file Form 4868.

However, if you want to file the Form 4868 electronically, you must do so by April 15. After that, you can only file the 4868 on paper. According to IRS, "though disaster-area taxpayers also qualify to request a tax filing extension between April 15 and May 1, 2025, these requests cannot be filed electronically. They can be filed only on paper."

It’s important to note that the Form 4868 extension applies only to extend the due date for filing your federal return, not to paying any taxes that you might owe. So, make sure that if you think you will owe taxes for 2024, you estimate the amount and pay the taxes with your extension by May 1.

In general, there are several ways to get an extension. You can use the IRS’s Free File to e-file Form 4868 and pay if you expect to owe tax. You can pay electronically through the IRS’s Direct Pay service or the Electronic Federal Tax Payment System (EFTPS). You can pay by credit card. You can use tax preparation software. Or you can mail a paper Form 4868 to the IRS with your payment.
— Joy Taylor, Editor The Kiplinger Tax Letter

More on Ask the Editor

We have already received many questions from readers on topics such as whether to request an identity protection personal identification number, how to check whether the IRS has processed an amended return filing, what we think will or won’t be included in a tax package from Congress this year, and much more. We’ll answer some of these in a future Ask the Editor round-up. So keep those questions coming!

Subscribers of The Kiplinger Tax Letter can ask Joy questions about a tax topic. You'll find full details of how to submit questions in The Kiplinger Tax Letter. (Get a free issue of The Kiplinger Tax Letter or subscribe).

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

That’s because seizing the tax advantages of qualified charitable contributions requires research and documentation. Here’s what you need to know before giving in 2025.

1. Which organizations qualify for tax-deductible charitable giving?

As a general rule, nonprofit groups, religious groups and hospitals and medical research institutions all fall under the IRS’ “tax-exempt organization” umbrella, meaning they’re eligible to receive tax-deductible charitable donations.

Within these categories, an organization’s mission can vary broadly, from supporting veterans to maintaining parks and recreational facilities, so it should be easy to find one with a cause that aligns with your values.

If you already have a specific organization in mind and want to know if it qualifies, the IRS offers a search tool that provides information on tax-exempt status. See below for more information on nonprofits that fall outside this category.

2. What kinds of charitable contributions can I deduct from my taxes?

Writing a check is just one way to support a cause you care about. Other tax-deductible options include donating property, such as a vehicle or real estate, as well as stocks that have significantly appreciated in value (also known as low-basis stock). In these cases, you would deduct the fair market value at the time of the contribution.

Additionally, if you frequently volunteer with a tax-exempt organization, you can even deduct out-of-pocket expenses related to your charitable work, including what you spend on gas if you use your car while volunteering.

You can also take up to $50 per month in deductions for contributions related to student exchange programs, such as paying expenses like the cost of food or transportation of a student living with you, if they are sponsored by a qualified organization.

3. Is there anything that isn’t deductible?

It’s important to note that not all charitable donations are considered tax deductible by the IRS. For example, some non-profits like the AARP or ACLU are membership groups whose funds support legislative lobbying — though some also have associated foundations for which donations are tax deductible.

Money or property donated to non-tax-exempt organizations run for personal profit or to support political candidates or parties is not deductible. Nor are contributions to individuals, homeowner associations, civic leagues, social and sports clubs, labor unions, chambers of commerce or foreign organizations (with some exceptions for those in Canada, Mexico and Israel).

Even some types of contributions to qualified organizations may not be eligible for a deduction. While you can deduct your out-of-pocket volunteering expenses, for example, you cannot claim a deduction for the value of the time or services you provided.

Similarly — in the unlikely event you were wondering — you also cannot deduct the value of blood you provide to a blood bank.

Dues, fees and bills for many organizations also fall outside of the guidelines for deductible contributions.

For example, you cannot deduct the cost of tuition at a tax-exempt educational institution, a category that includes most public and private colleges and universities. Even some small things — like the price of raffle, bingo or lottery tickets — are not deductible if you receive goods or services from the organization in exchange for the contribution.

It’s also important to note that even qualifying gifts must be made to a qualified organization and cannot be set aside for the use of a specific person.

Giving a car to the CEO of your local animal rescue wouldn’t qualify, for example. Instead, the car would need to be donated to the animal rescue directly to qualify for a deduction.

4. Is there a limit to how much I can deduct?

Under the current rules, a person can deduct up to 60% of his or her gross income via qualified charitable contributions. To take these deductions, however, you need to maintain records of the contributions to provide an itemized list to the IRS.

For any monetary gifts, you should keep a record of the contribution that includes a bank record or a written statement from the qualified organization documenting the amount, date and name of the receiving organization.

For contributions of $250 or more, the IRS requires you to keep a contemporaneous written acknowledgment from the organization indicating the amount of money and a description of any other property that was part of the gift.

The document should also state whether the organization provided any goods or services in exchange and, if so, offer a description and a good faith estimate of the value.

For non-cash contributions of over $5,000, you may need to obtain an appraisal for the value of the items and fill out special forms. There are also other special rules for certain types of donated property, such as cars, so be sure to check with your accountant or financial planner to ensure you’re structuring your charitable contributions properly.

5. Should I use a qualified charitable distribution (QCD)?

For those 70½ or older with an individual retirement account (IRA), a QCD is another way to engage in charitable giving. The IRS permits IRA holders to transfer up to $105,000 (or $210,000 for married couples) from the account directly to a qualified organization, tax-free.

For IRA holders who are 73 or older, QCDs also count toward meeting the annual minimum distribution requirements.

If you make enough in your retirement from other income sources and want to minimize the tax impact of these required minimum distributions (RMDs), a QCD can be an effective strategy for both supporting causes you care about and lowering your tax bill.

If you pursue this route, make sure to get a receipt from the organization at the time of the contribution. Your accountant will use the receipt and the accompanying IRS 1099-R form to properly reflect the QCD on your income tax return.

Give — and save — with qualified charitable contributions in 2025

Charitable giving can be a great way to support your community and advance your financial goals in 2025. But it requires advanced planning, from selecting the right organizations and structuring gifts properly to ensuring you have the right documentation for a tax deduction.

Working closely with your own qualified accountant and financial planner can help you craft a philanthropic strategy that maximizes your impact and your savings in 2025.

This article, which has been written by an outside source and is provided as a courtesy by Stephen B. Dunbar III, JD, CLU (AR Insurance Lic. #15714673 ), Executive Vice President of the Georgia Alabama Gulf Coast Branch of Equitable Advisors LLC, does not offer or constitute, and should not be relied upon, as tax, accounting, legal, financial or investment advice. Equitable Advisors LLC (Equitable Financial Advisors in MI and TN) and its affiliates do not make any representations as to the accuracy, completeness, or appropriateness of any part of any content hyperlinked to from this article. Your unique needs, goals and circumstances require the individualized attention of your own tax, legal and financial professionals whose advice and services will prevail over any information provided in this article. Equitable Advisors LLC and its affiliates do not provide tax, accounting or legal advice or services.

Stephen B. Dunbar III offers securities through Equitable Advisors LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN), an SEC-registered investment adviser, and offers annuity and insurance products through Equitable Network LLC (Equitable Network Insurance Agency of California LLC). Financial professionals may transact business and/or respond to inquiries only in state(s) in which they are properly qualified. AGE-76277674.(02/25)(exp.02/29)

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Q1: Residential Rental Property

I own a residential rental property. In 2024, I fully replaced the roof by putting a brand-new roof on the building. Can I deduct the entire cost of the new roof on my 2024 tax return?
No. For tax purposes, the new roof is treated as an improvement to the rental property and is treated separately for depreciation purposes. According to IRS Publication 527, “[t]he property class and recovery period of the addition or improvement are the ones that would apply to the original property if you had placed it in service at the same time as the addition or improvement.” That means the roof is depreciated over 27.5 years, the same as residential rental property. The beginning depreciation period would be the month/year (2024) that you had the new roof installed.
— Joy Taylor, Editor The Kiplinger Tax Letter

Q2: Form 1099-K

I received Form 1099-K for payments made by my clients through Square. The same clients also sent Forms 1099 to me for those same amounts. How do I handle this when filling out my 2024 Form 1040?

Third-party settlement networks, such as PayPal, Venmo and Square, must send 1099-Ks to payees who were paid more than $5,000 in 2024 (the dollar threshold for 2025 1099-Ks is $2,500.) This is a change from prior years, which required 1099-K reporting only for payees with over 200 transactions, who were paid more than $20,000. The IRS has information on its website about what you should do when you receive an incorrect Form 1099-K. Find out more about this on the IRS website. The IRS link might be helpful, but in your case, the 1099-K from Square might be correct, and there was just double reporting of the income to the IRS resulting from the client also sending you the Form 1099. This seems to be a common problem.

If I were you, I would report all your income correctly on the appropriate schedule of your Form 1040 (likely Schedule C), making sure not to count the same income twice. So if the 1099 and 1099-K reflect duplicate income, only report that income once. And keep good records just in case you hear from the IRS.
— Joy Taylor, Editor The Kiplinger Tax Letter

Q3: Deductions for Disaster Losses

I am a Florida resident, and my property was damaged in a 2024 hurricane. Can I get a tax write-off on my 2024 Form 1040?

Personal casualty losses can be deducted to the extent the losses are attributable to federally declared disasters, such as hurricanes, earthquakes, wildfires, blizzards or flooding, that affect a wide area. Individuals can deduct personal losses on their Form 1040 to the extent not reimbursed by insurance. Your loss is equal to the smaller of the damaged property’s adjusted basis or decline in value, less any insurance proceeds you received or expect to receive.

Legislation passed by Congress last year has tax easings similar to those given to victims of federally declared disasters in 2018-2020. The relief generally applies to disasters that took place in 2021-2024. This would include hurricane damage suffered by Florida residents. The law lets individuals deduct personal disaster losses even if they don’t itemize on Schedule A. They can write off uninsured personal losses in excess of a $500 threshold without regard to the 10%-of-adjusted-gross-income offset that generally applies to disaster loss deductions. This net loss is treated as an additional standard deduction for nonitemizers.

Here’s how you would report the loss on your return. Use Form 4684 to calculate the loss. Follow the instructions to Form 4684 for reporting a “qualified disaster loss.” Then transfer the disaster loss amount from 4684 to Schedule A, line 16, and write “Net Qualified Disaster Loss” on the dotted line. If you are not itemizing, then you would also put your regular standard deduction on line 16 of Schedule A and write next to it "Standard Deduction Claimed With Qualified Disaster Loss." You then combine these two amounts and transfer the total to Form 1040, line 12. If you are itemizing, follow the Form 4684 instructions for lines 11 and 15. Note that if you are using tax software, then the software should do this for you, once you let it know that you have a qualified disaster loss.

I wrote an online story on this subject. Read more about how tax laws can help victims of Florida hurricanes and other disasters and the ability to deduct disaster losses on the immediate prior-year return.
— Joy Taylor, Editor The Kiplinger Tax Letter

Q4: QCDs

I made a qualified charitable distribution (QCD) from my traditional IRA last year, and the Form 1099-R that I received shows only the total distribution and not that it is a QCD. Why is that, and how do I report the QCD on my 2024 Form 1040?

Individuals 70½ and older could transfer up to $105,000 in 2024 from a traditional IRA directly to charity (the maximum amount is $108,000 for 2025). These charitable gifts can count as all or part of your required minimum distribution. But you’re not taxed on them, and they’re not added to your adjusted gross income.

As you noted, the 2024 Form 1099-R that you received this year doesn’t reflect the QCD. It shows only the total distribution because IRA custodians lack firsthand knowledge to discern whether a particular payout from a traditional IRA meets the QCD rules. When filling out your 2024 Form 1040, include on line 4a the total amount of distributions reported on Form 1099-R. Then you subtract the amount that was transferred directly to charity in the QCD and report the remainder (even if it’s $0) on line 4b. Write “QCD” next to line 4b so that the IRS knows why the numbers don’t match. If using tax software, a drop-down box for line 4b should give you a choice to click QCD.

Similar rules apply to tax-free rollovers from IRAs. Again, the 1099-R will show the figure rolled over from the IRA as part of total distributions. On your 1040, include the full distribution amount on the 1099-R on line 4a. Subtract the rollover and report the remainder, if any, on line 4b. Write “Rollover” next to line 4b.
— Joy Taylor, Editor The Kiplinger Tax Letter

More on Ask the Editor

We have already received many questions from readers, on topics such as withholding income tax from Social Security benefits, filling out a gift tax return on Form 709, qualified charitable distributions and state tax credits, and tax return filing dates. We’ll answer some of these in a future Ask the Editor round-up. So keep those questions coming!

Subscribers of The Kiplinger Tax Letter can ask Joy questions about a tax topic. You'll find full details of how to submit questions in The Kiplinger Tax Letter. (Get a free issue of The Kiplinger Tax Letter or subscribe).

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

As President Trump and Republican tax writers on Capitol Hill negotiate a tax package to extend expiring tax provisions and enact other tax breaks, they will have to consider business taxes. Business lobbying groups are pushing hard for an extension of the 20% qualified business income (QBI) deduction for owners of pass-through businesses. In addition, they want to bolster three business tax provisions that have been watered down over the last few years. We delve into each of the four business tax breaks below.

1. 20% QBI Deduction

The most important business tax provision that lawmakers need to address is the 20% QBI deduction. The QBI write-off is for self-employed individuals, independent contractors, farmers, some landlords, and owners of pass-through entities (such as partnerships, LLCs and S corporations). Eligible individuals can deduct 20% of their QBI. They claim it on line 13 of their Form 1040 and attach Form 8995 or 8995-A to their returns.

QBI is one's allocable share of income, less deductions from a business. This seems easy, but the rules can quickly get complicated, especially for upper-income individuals with 2025 incomes over $394,600 for joint filers and $197,300 for others (the income thresholds for 2024 returns are $383,900 for joint filers and $191,950 for others). Two special limitations apply for these upper-income taxpayers when claiming the 20% QBI deduction.

• First, the tax break phases out for upper-income individuals in specified service trades or businesses (SSTB). An SSTB is a business involving the performance of services in certain fields: Health, law, accounting, actuarial science, performing arts, consulting, athletics, finance, brokerage, investment management, and securities trading and dealing. IRS regulations delve into each SSTB and set forth lots of rules and exceptions.
• Second, there is a W-2 wages-paid limitation that applies for upper-incomers not engaged in an SSTB. It caps the deduction at 20% of QBI from the business or, if lower, a figure based on wages paid by the business and the unadjusted basis of tangible, depreciable property used in the business and not fully depreciated.

Unless Congress acts, the 20% QBI deduction ends after this year. It was first enacted in the 2017 Tax Cuts and Jobs Act (TCJA) to provide some federal income tax parity between C corporations, which are taxed at a 21% federal tax rate, and pass-through businesses, in which the individual owners pay income tax on earnings up to a 37% federal tax rate.

Lobbying groups representing Main Street businesses want to make the 20% QBI deduction permanent. And they have support from congressional Republicans in the House and Senate who are in the midst of negotiating a big tax package. President Trump, in his address to Congress, has called for permanent income tax cuts all across the board in referring to the expiring TCJA provisions.

Some tax professional groups and business groups want the 20% QBI write-off expanded. For example, the American Institute of CPAs has proposed removing the SSTB limitations for upper-income individuals, or alternatively, increasing the monetary thresholds before the limit applies.

Others call for simplifying the 20% QBI deduction, citing the complexity of the rules, especially the ones that apply to upper-income individuals.

But extending or making permanent the QBI deduction would cost the government a boatload of money. This popular tax break is in the top 10 largest individual income tax expenditures, rounded up by the staff of the bipartisan congressional Joint Committee on Taxation.

2. First-Year Bonus Depreciation

The 2017 TCJA expanded bonus depreciation by allowing businesses to deduct 100% of the cost of new and used qualifying assets with lives of 20 years that are first put into service during a year. However, that same law also made bonus depreciation temporary. The full break lasted through 2022 and then started to phase out 20% for each succeeding year. It was 80% in 2023 and 60% in 2024. For 2025, the break is 40%. Next year it's 20%, and it disappears in 2027.

Businesses want 100% bonus depreciation revived, and they have the ears of their representatives and senators. President Trump, in his address to Congress, called for 100% bonus depreciation to be revived and also said the expanded tax break would be made retroactive to Jan. 20, 2025.

3. Research & Development (R&D)

Before 2022, businesses could fully expense their R&D costs in the year the expenses were incurred. The TCJA changed this for tax years that started after 2021. Businesses are required to amortize their R&D expenses over five years (15 years for international research). Businesses have since been clamoring for a return to the old rules, and House and Senate Republicans are listening closely to these demands.

4. Interest Deductions of Large Companies

The TCJA limited many big firms' net interest write-offs on business debts to 30% of adjusted taxable income (ATI), with disallowed interest carried forward. Starting with tax years that began in 2022, depletion and amortization write-offs are accounted for in computing a firm's ATI for this purpose. Businesses want the post-2022 change reversed. Eliminating these two deductions from the ATI calculation would increase ATI, thus letting firms deduct more interest than if the two deductions were included.

This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.

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