What's in the New Tax Bill? A Detailed Look at Key Tax Law Changes

Marginal tax brackets are permanently extended. This means the top tax bracket will remain at 37%.

The increased standard deduction under the TCJA is extended permanently, with increases beginning this year to $15,750 for single filers and $31,500 for joint filers. The amount of the standard deduction will increase with inflation.

The SALT (State and Local Taxes) deduction is one of the most significant parts of the tax bill for those who itemize deductions, especially for those who live in high tax states like California. With the TCJA, the SALT deduction was limited to $10,000, making itemized deduction less advantageous for many tax filers.

Under the new tax law, the SALT deduction increased from $10,000 to $40,000 for households earning less than $250,00 for single filers and $500,000 for joint filers, starting this year. The amount of the deduction phases out for incomes between $250,000 and $300,000 for single filers and between $500,000 and $600,000 for joint filers, down to a minimum deduction of $10,000. The amount of the extended deduction will increase each year until the extension expires after 2029, at which point it will revert back to a maximum $10,000.

For taxpayers in the 37% tax bracket, allowable itemized deductions are reduced by 2/37 of the lessor of (1)  the total itemized deductions or (2) the amount by which the taxable income plus total itemized deductions exceeds the 37% bracket threshold. This does not apply to determination of the deduction for qualified business income from pass-through entities.

Restoration of 100% bonus depreciation for qualified business property placed in service after January 19, 2025. This appears to be permanent and also removes the phase-out.

The corporate tax rate is permanently reduced to 21%.

Section 199A QBI (Qualified Business Income) deduction of 20% is made permanent. Deduction limit phase-ins are expanded from $50,000 to $75,000 for single filers and from $100,000 to $150,000 for joint filers, including for specified service trades or businesses and pass-through entities subject to wage and investment limitations. The new tax law also adds a minimum deduction of $400 for taxpayers with $1,000+ of QBI, which will be inflation-indexed.

The child tax credit is permanently increased to $2,200 beginning this year. $1,700 of the credit is now refundable. The Child Tax Credit will adjust with inflation, and it phases out for single filers with income above $200,000 and joint filers with income above $400,000.

Individuals aged 65 or older will receive an additional standard deduction bonus of $6,000 per person for single filers with income under $75,000 and joint filers under $150,000. The deduction phases out for those with higher income, and the deduction expires after 2028.

Beginning in 2026, the dependent care FSA limit is increases to $3,750 for single filers and $7,500 for joint filers. This limit is not indexed for inflation.

Some EV and clean energy tax credits have been eliminated.

• Repeal of the $7,500 Clean Vehicle tax credit. The tax credit for electrified vehicles was originally expected to expire in 2032, but is being eliminated after September 30, 2025 (this year). This also includes the $4,000 tax credit for used vehicles.
• Repeal of Alternative Fuel Vehicle Refueling Property Credit of up to $1,000 for installing electric vehicle charging equipment in a personal residence after June 30, 2026 (next year).
• Repeal of Energy Efficient Home Improvement Credit of up to $1,200 toward the cost of energy-efficiency improvements after December 31, 2025 (this year).
• Repeal of the Residential Clean Energy Credit of up to 30% of the cost of purchasing or installing solar panels, wind power, geothermal heat pump, or fuel cell equipment after December 31, 2025 (this year).

The estate tax exemption is permanently set at $15 million per person starting in 2025, and adjusted for inflation thereafter.

Beginning in 2026, itemizers can deduct charitable contributions only to the extent they exceed 0.5% of their contribution base. Carryforwards are also allowed only if the 0.5% threshold is met. The 60% AGI limit for cash gifts to public charities is retained. Non-itemizers can now deduct higher amounts for charitable contributions: up to $1,000 for single filers and up to $2,000 for joint filers.

Tip-earners can receive a deduction on tips received for certain occupations where tipping is customary. The deduction is limited to up to $25,000 of tip income and phases out for income over $150,000 for single filers and $300,000 for single filers.

Overtime pay up to $12,500 for single filers and up to $25,000 for joint filers can be exempted from taxation. The exemption phases out for income above $150,000 for single filers and $300,000 for joint filers.

Auto loan interest up to $10,000 can be deducted for new auto loans made starting in 2025 and going through 2028. The deduction will phaseout for income between of $149,000 for single filers and between $200,000 and $249,000 for joint filers. The vehicle must be new and assembled in the United States.

The new law allows up to $20,000 (up from $10,000) annual tax-free withdrawals for K-12 curriculum, books, online resources, tutoring, educational therapies for students with disabilities. Dual enrollment fees for college courses and withdrawals for standardized testing fees, tuition and materials for certificate programs, trade schools, and other credentialing programs recognized under federal law will also be tax free.

The individual AMT exemption is permanent and adjusted for inflation. Thresholds for the phaseout of the exemption revert to 2018 levels ($500,000 for single filers and $1 million for joint filers, and are also adjusted for inflation. The phaseout is increased from 25% to 50% of amount by which the taxpayer’s AMT income exceeds the applicable exemption phaseout threshold.