KEY TAKEAWAYS
- The ‘Big, Beautiful Bill’ increases some major tax deductions for the 2025 tax year, but also ends other credits.
- The bill raises the standard deduction by $750 to $1,125 for taxpayers who don’t itemize their 2025 taxes.
- Taxpayers who do itemize can deduct four times more of what they paid in state and local taxes than in previous years.
- The bill eliminates energy credits for clean vehicles and clean home installations.
Your tax bill will look different this year thanks to the ‘Big, Beautiful Bill’ President Trump signed the into law this month.
The law extends and expands the Tax Cuts and Jobs Act (TCJA) that Trump enacted in 2018 during his first term. Some tax credits and deductions from this act will increase during the 2025 tax year, but other clean energy credits will be eliminated.
Tax credits are the amount of money taxpayers can subtract directly from the taxes they owe. Tax deductions are how much taxpayers can subtract from their taxable income, to lower the overall amount of taxes they owe.
These are the most significant tax credit and deduction changes in the ‘Big, Beautiful Bill’ that will apply to next year’s 2025 tax returns.
The Standard Deduction Will Increase
The ‘Big, Beautiful Bill’ permanently increases the standard deduction, a fixed amount that taxpayers who do not itemize their deductions can subtract from their taxable income.
Under the bill, the standard deduction for single taxpayers and married individuals filing separately increases by $750 for the 2025 tax year. It will also increase by $1,125 for heads of households and by $1,500 for married couples filing jointly.
Standard deductions will continue to rise annually to keep in line with inflation increases.
| The Increased 2025 Standard Deduction Under The ‘Big, Beautiful Bill’ | ||
|---|---|---|
| Single Taxpayers and Married Filing Separately | Heads of Households | Married Filing Jointly |
| $15,750 | $23,625 | $31,500 |
SALT Deduction Expands
The final bill temporarily increases the state and local tax (SALT) deduction. This deduction allows taxpayers who itemize their taxes to subtract all or some of what they paid in taxes to their state and local governments from their federal taxable income.
The ‘Big, Beautiful Bill’ quadruples the original $10,000 cap that the TCJA put on SALT deductions to $40,000 for the 2025 tax year. That means taxpayers, specifically those with higher incomes or in high-tax states, can deduct more when they file their 2025 taxes next year.
The bill also increases the cap every year to keep pace with inflation and wage growth. From 2026 to 2029, the cap will increase 1% annually until 2030, when the provision expires.
| The Cap On SALT Deductions Increases By 1% Every Year | ||||
|---|---|---|---|---|
| 2025 | 2025 | 2027 | 2028 | 2029 |
| $40,000 | $40,400 | $40,804 | $41,212 | $41,624 |
The bill also establishes an income threshold for SALT deductions that increases by 1% every year. Beginning with the 2025 tax year, taxpayers who have an annual Modified Adjusted Gross Income of $500,000 or more will be phased out of the SALT deduction until their MAGI reaches $633,333 or more, at which point they cannot claim the deduction at all.
Clean Energy Credits End
The bill terminates several tax credits and rebates that Americans can use to purchase clean energy vehicles and clean home energy solutions. However, taxpayers still have some time to take advantage of these credits.
Both the $4,000 used clean vehicle and $7,500 new clean vehicle credit expire on Sept. 30, 2025. That gives taxpayers less than two months to purchase a clean vehicle and claim a credit credit when they file their 2025 taxes next year.
The Residential Clean Energy Credit, which equals 30% of the cost to install new clean energy home improvements, ends on Dec. 31, 2025. Taxpayers who want to claim this credit must have these systems installed and connected before the year ends.
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