Key Updates to Existing Individual Tax Provisions

On July 4th, 2025, President Donald Trump signed and enacted the Reconciliation Bill H.R. 1. This new bill introduced many changes to existing individual tax provisions, including tax rates, deductions, credits, and alternative minimum tax rules.

Permanent Individual Tax Rate and Bracket Changes

The tax rates enacted in the 2017 Tax Cuts and Jobs Act (TCJA)—10%, 12%, 22%, 24%, 32%, 35%, and 37%—were made permanent by the bill. These rates will continue to apply beyond 2025 without reverting to the higher, pre-TCJA rates and brackets. For most taxpayers, the tax brackets for married couples filing jointly are now exactly double those for single filers, so there’s no ‘marriage penalty’—except for the highest earners, where the top tax brackets are not doubled.

The new tax law makes it even more important to think strategically about managing income and deductions to take full advantage of the tax brackets. By carefully managing when you receive income and when you claim deductions, you can help ensure more of your income is taxed at lower rates. Some effective ways to do this include maximizing your itemized deductions, contributing to a Health Savings Account (HSA), and making the most of retirement plan contributions. These strategies can help you keep more of your income in lower tax brackets and reduce your overall tax bill.

Another strategy to think about is a Roth IRA conversion. This means moving money from a traditional IRA—where your contributions may have been tax-deductible—to a Roth IRA, where future withdrawals can be tax-free. The taxes you’ll owe on the amount you convert depend on your current tax bracket and how many deductions or credits you can claim that year. By timing a Roth conversion in a year when your taxable income is lower, or when you have extra deductions, you may be able to reduce the tax cost of the conversion and set yourself up for tax-free growth in the future.

Capital gain or loss harvesting is another useful strategy. This involves selling investments at the right time to take advantage of lower tax rates or to offset gains with losses. By carefully planning when you sell certain assets, you can help reduce the amount of tax you owe on your investment income.

The New Standard Deduction and Its Impact on Itemized Deductions

Standard deduction amounts for 2025 are:

• Single: $15,750
• Head of Household: $23,625
• Married Filing Jointly: $31,500

These will be indexed for inflation. Higher standard deductions mean taxpayers must incur more deductible expenses to benefit from itemizing. Ways to increase expenses to itemize deductions and lower tax liability are:

• Making larger, consolidated donations to charity, which could be made in place of smaller yearly donations.
• Making larger, “bunched” contributions to a donor-advised fund (DAF) can be a smart way to maximize your tax benefits. By grouping several years’ worth of charitable giving into a single year, you may be able to itemize deductions and get a bigger tax break, while still supporting your favorite charities over time.
• Donating appreciated assets, like stocks or mutual funds that have gone up in value, instead of selling them first, can help you avoid paying capital gains tax on the increase in value. This way, you can give more to charity and potentially receive a larger tax deduction.
• Making an extra mortgage payment to increase the amount of interest deduction taken.
• Prepaying a portion of the property or state tax for the upcoming year.

The overall limitation on itemized deductions (Pease) is permanently repealed. Beginning in 2026, for taxpayers in the top (37%) bracket, itemized deductions are reduced by 2/37 of the lesser of (a) total itemized deductions or (b) the amount by which taxable income exceeds the 37% bracket threshold. In addition, only the portion of your charitable donations that exceed 0.5% of your adjusted gross income (AGI) will count as a tax deduction if you itemize.

Other Deductions and Exemptions

• The personal exemption is permanently eliminated, but there is a temporary $6,000 deduction for seniors available from 2025 to 2028, which phases out at higher income levels.
• Most miscellaneous itemized deductions remain permanently suspended, except for educator expenses for K-12 teachers and similar professionals.
• The mortgage interest deduction is now permanently capped at $750,000 of acquisition debt, and certain mortgage insurance premiums can be treated as qualified interest.
• The moving expense deduction is still suspended, except for active-duty military and intelligence community members.
• The deduction limit for state and local taxes (SALT) is temporarily increased to $40,000 for 2025 with minor annual increases through 2029, after which it reverts back to $10,000. There is also a 30% phaseout for incomes over a threshold amount ( $500,000 for 2025).
• Casualty loss deductions are now limited to losses from federally or state-declared disasters and are made permanent. Non-itemizers can claim disaster losses, subject to a $500 per-casualty floor, for losses in qualified disaster areas after the bill’s enactment.
• Wagering losses are now deductible only up to 90% of losses, and only up to the amount of wagering income for the year.
• The 60% of AGI ceiling for cash gifts to public charities is made permanent.
• The 20% qualified business income (QBI) deduction is also made permanent for eligible non-corporate taxpayers, with adjusted thresholds.

Child Tax Credit and Other Dependent Credits Expanded

The available non-refundable child tax credit has been increased to $2,200 per qualifying child. The new law also makes permanent the refundable portion of the credit. The credit begins to phase out by $50 for every $1,000 of income above $200,000 for single filers (or $400,000 for married couples filing jointly). In addition, there is a $500 non-refundable credit for each dependent who is not a qualifying child.

To qualify, children must be under age 17, have a valid Social Security Number (SSN), not provide more than half of their own support, and must have lived with a parent for more than half of the tax year.

Child and Dependent Care Credit Enhanced Benefit

Starting in 2026, the credit rate for qualifying child and dependent care expenses will permanently increase. The percentage starts at 50% and is reduced by 1% (but not below 35%) for every $2,000 of adjusted gross income (AGI) above $15,000. Once AGI exceeds $75,000 ($150,000 for joint filers), the percentage is further reduced by 1% (but not below 20%) for each additional $2,000 ($4,000 for joint filers) of AGI. The maximum amount of expenses you can claim is $3,000 for one dependent and $6,000 for two or more dependents.

This credit is available for expenses related to the care of qualifying children and dependents under age 13, including daycare, after-school programs, summer camps, necessary transportation, and household services for care.

To maximize your tax benefit:

• Enrolling your child in a specialty day camp can qualify, as long as the main purpose is care while you work.
• Paying a housekeeper for childcare duties is eligible if part of their job includes caring for a qualifying individual and you properly report the provider’s information.
• Paying family members is allowed, but the provider cannot be your dependent, your child under age 19, your spouse, or the parent of the qualifying child under age 13.

These changes make it easier for many families to qualify for a larger credit and to plan their care expenses for maximum tax savings

AMT Relief

The Alternative Minimum Tax (AMT) exemption phaseout for 2026 has been changed to $500,000 for Single taxpayers and $1,000,000 for Married Filing Jointly taxpayers. In addition, the rate at which the AMT exemption is reduced has increased from 25% to 50%. This means that once alternative minimum taxable income (AMTI) exceeds the threshold, the exemption will be reduced by 50 cents for every dollar over the threshold, instead of the previous 25 cents per dollar.