Part three of The One Big Beautiful Bill Impact.

SALT

The cap on deducting state and local taxes on Schedule A rises to $40,000 for 2025 through 2029. It goes back down to $10,000 beginning in 2030. There is also an income limit. For 2025, the SALT deduction begins to phase out… but not below $10,000…for filers with modified AGIs over $500,000…$250,000 for separate filers. The cap and income limit increase 1% each year through 2029.

Four New Breaks

The 2025 law temporarily offers four new above-the-line deductions, meaning they are available for taxpayers who claim the standard deduction and for those who itemize on Schedule A of the 1040. These four tax write-offs first take effect on 2025 tax returns filed next year, and they end after 2028.

First, there is a new senior deduction of $6,000 per filer age 65 or older. Married couples with both spouses 65 and older can deduct $12,000. Not every senior will qualify. The deduction begins to phase out for taxpayers with modified AGI over $150,000 on joint returns and $75,000 on single and head-of-household returns.
Second, up to $25,000 of qualified tips is deductible. The write-off begins to phase out at modified AGIs over $300,000 on joint returns…$150,000 on others. There are lots of rules and complexities, and IRS guidance will be needed.
Third, up to $12,500 of overtime pay is deductible…$25,000 for joint filers. This write-off begins to phase out at modified AGIs over $300,000 on joint returns… $150,000 on others. And there are many rules, guardrails and knotty technicalities.
Fourth, individuals with auto loans can deduct up to $10,000 of interest that they pay on loans to buy a new car, minivan, SUV, pickup truck or motorcycle after 2024. Final assembly of the vehicle must take place in the U.S. And the write-off begins to phase out at modified AGI over $200,000 for joint filers…$100,000 for others.

Donations

There’s mixed news for taxpayers who make charitable donations. Nonitemizers can deduct up to $1,000 of charitable cash contributions, starting with 2026 returns filed in 2027. The amount is $2,000 for joint filers. But itemizers who make charitable gifts don’t fare as well, beginning in 2026.

Charitable donations claimed on Schedule A are subject to a haircut. They are deductible only to the extent they exceed 0.5% of adjusted gross income.

Charitable gifts made by C corps also get a haircut. Beginning in 2026, they’re deductible only to the extent that they exceed 1% of taxable income. Excess donations made by itemizers and C corps can be carried forward five years. Note that the 60%-of-AGI limit on cash gifts by itemizers is made permanent.

GOP lawmakers get their wish to expand school choice for K-12 students. There’s a new income tax credit for donating to scholarship organizations. The OBBB gives a nonrefundable federal tax credit of up to $1,700 to individuals who donate cash to qualifying organizations created to provide scholarships to K-12 students. Additionally, scholarship recipients won’t be taxed on the funds. Note that the credit is allowed only for donations to eligible scholarship organizations in states that opt in to the program. This new break is scheduled to begin in 2027.

Itemizers

Upper-incomers will again see their total itemized deductions phased out, beginning in 2026. That’s because the OBBB reinstates a revised version of the sneaky tax hike that applied to pre-2018 returns of wealthy individuals. Essentially, it caps the value of itemized deductions at the 35% income tax rate

Gambling

Bad news for gamblers: Starting in 2026, they can deduct only 90% of losses against their taxable winnings. Now, gamblers report winnings on Schedule 1 of the 1040 and deduct losses on Schedule A to the extent of their reported winnings.

Adoption

There’s a helpful easing to the adoption credit. Beginning with 2025 returns, up to $5,000 of the credit…adjusted annually for inflation…is refundable.