What You Need to Know
In July 2025, a new set of federal tax laws was signed into effect, bringing changes that could affect millions of Americans. Whether you are a homeowner looking at deductions, a senior managing retirement income, a parent planning for dependents, or an individual filing your annual return, it is important to familiarize yourself with these new laws so you can avoid surprises and ensure that you are taking advantage of any benefits that might be available to you.
What Homeowners Need to Know
The new tax laws may apply to homeowners in several ways.
- SALT Deductions – The state and local tax (SALT) deduction allows eligible taxpayers to reduce their federal tax liability by deducting certain state and local taxes. For the next few years, the amount you can deduct is going up. The new law temporarily raises the SALT deduction cap from $10,000 to $40,000 for tax years 2025 through 2029. Beginning in 2026, the cap will be adjusted for inflation with an increase of 1% each year. In 2030, the cap will return to the previous limit of $10,000. It is important to note that the higher deduction cap phases out for taxpayers with incomes above $500,000 for those who are married filing jointly and $250,000 for single filers. These amounts will also be adjusted for inflation from 2026 through 2029. Taxpayers whose adjusted gross income exceed $600,000 ($300,000 for single taxpayers) are limited to a total SALT deduction of $10,000 so there is no change from the previous tax law.
- Mortgage Interest Deductions – The new law makes permanent the limit on how much mortgage interest you can deduct. You can deduct interest on up to $750,000 of mortgage debt ($375,000 if married and filing separately). This applies to both your main home and a second home, such as a vacation property. Interest on home equity loans is typically not deductible unless the money is used to buy or improve your main residence or a second home. Even then, it will count toward the $750,000 total debt limit. Certain loans taken out before December 16, 2017, may still follow the old rules (interest on debt up to $1 million is deductible, and $500,000 of debt for married filing separate), so it is important that you consult your tax accountant about how this may impact you.
- Energy-Efficient Home Improvement Credits – If you have been thinking about installing solar panels on your home or installing a home electric vehicle (EV) charger, you may want to take action before these credits expire. Homeowners can still claim the 30% federal solar tax credit if systems are installed and placed in service by December 31, 2025. The credit for installing a home EV charger will still be available until June 30, 2026, although the federal tax credit for new, used, and commercial electric vehicles (EVs) will expire for vehicles acquired after September 30, 2025. Some home improvement credits will remain available for specific upgrades on things like energy-efficient windows and doors, and other improvements that meet updated Energy Star standards. However, these improvements will have annual dollar limits (i.e., $600 for the total cost of all exterior windows and skylights).
Important Updates for Parents
The new tax law has provisions that may apply to families with children.
- Child Tax Credit – The federal child tax credit applies to families with qualifying children under the age of 17. Beginning in 2025, the credit is increasing from $2,000 to $2,200 per child (indexed to inflation). A requirement for eligibility is that parents and children have Social Security numbers. The maximum refundable portion is capped at $1,400 (indexed to inflation). Phase-outs remain at $400,000 for married couples and $200,000 for single parents. Families earning under $2,500 are excluded.
- Savings Accounts for Newborns – Children born between 2025 and 2028 will receive a $1,000 deposit into a new type of savings account that is designed to help save for the child’s future needs. Parents, relatives and others will be able to contribute after-tax dollars, up to $5,000 per year to the account, and employers can contribute an additional $2,500. Funds grow tax-deferred until age 18. At age 18, the account rolls into a traditional IRA. Parents can also open these accounts for children who were born before 2025, however they will not receive the $1,000 starting deposit. These accounts are expected to be available summer 2026.
- Paying for College – Changes to federal student loans and financial aid may impact both current and future college students. Starting July 1, 2026, there will be a lifetime borrowing cap of $257,500 on federal student loans for undergraduate and graduate students, with Grad PLUS loans being eliminated. Parent PLUS loans will now limit parents to borrow $20,000 per year per student, with a lifetime cap of $65,000. Also as of July 1, 2026, students who are eligible for Pell Grants will be able to use them for short-term work training programs such as vocational certifications.
- Federal Adoption Credit – Beginning in 2025, the adoption tax credit will become partially refundable up to $5,000 and indexed to inflation.
- Personal and Dependent Exemption – These have been permanently removed for tax years beginning after 2025; however this change has been in effect since the 2018 tax year as part of the Tax Cuts and Jobs Act (TCJA).
Changes Affecting Seniors
- Temporary Deduction for Eligible Seniors with Social Security Income – From 2025 through 2028, seniors with Social Security income, who are 65 or older by the end of the 2025 tax year, can claim an extra $6,000 deduction. For married couples filing jointly, they can claim $12,000 provided that they meet the requirements. The full deduction can be taken by single filers with an adjusted gross income (AGI) of $75,000 or less, or married couples filing jointly with an AGI of $150,000 or less. This deduction reduces for those with incomes above these limits and is phased out entirely for single filers with AGI above $175,000 and married couples filing jointly with AGI above $250,000. This is on top of the standard and existing senior deductions.
- Medicaid – Medicaid recipients will face stricter eligibility and asset-verification rules as changes are implemented. Seniors who may have planned to utilize Medicaid for their long-term care needs not covered by Medicare should speak with their financial advisor to determine if this will still be a suitable resource.
- Estate Tax Exemption – Beginning in 2026, the gift/estate tax exemption increases to $15 million per individual ($30 million per couple filing jointly) and is indexed for inflation.
Key Points for All Individuals
Many of the changes in the new tax laws are permanent extensions of provisions that were part of the Tax Cuts and Jobs Act (TCJA) and were set to expire at the end of this year. This includes lower individual income tax rates across all federal income tax brackets and a higher standard deduction. Included in the new tax law are also a few breaks that may apply to individuals.
- Tip Income – For eligible workers, starting with the 2025 tax year, there will be no federal tax on reported cash tip income up to $25,000 per year through 2028. This benefit phases out for individuals earning more than $150,000, or $300,000 for joint filers.
- Overtime Pay – For eligible workers, starting with the 2025 tax year, overtime pay up to $12,500 per year for single filers, and $25,000 per year for married filing joint can be deducted from income, through 2028. This benefit phases out for individuals earning more than $150,000, or $300,000 for joint filers. Payroll taxes like Social Security and Medicare will still apply.
- Car Loan Interest Deduction – From 2025-2028, buyers of new personal-use vehicles assembled in the U.S. can deduct up to $10,000 annually in auto loan interest. The deduction phases out for individuals earning more than $100,000 or couples making over $200,000. Used cars, imports, and vehicles over 14,000 pounds are excluded. The Vehicle Identification Number (VIN) which indicates the country of origin will be included in your tax return.
- Charitable Deductions for Non-Itemizers – Starting in 2026, even if the standard deduction is taken, up to $1,000 for single filers, or $2,000 for married filing jointly can be deducted. This only applies for cash, check, and credit card donations. Clothes or stocks are not deductible under this section of the law.
It can feel overwhelming to keep up with all the recent tax law changes and figure out how they may specifically apply to you, but staying informed is so important. We can help you review the updates and make decisions that can keep your financial plan on track toward your goals. If you have any questions, please contact us.
