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CONTRIBUTORS

Bill Cass, CFP®, CPWA®

Director of Wealth Planning,
Franklin Templeton

On July 3, 2025, Congress passed a comprehensive tax bill to avoid expiration of the 2017 Tax Cuts and Jobs Act (TCJA) at the end of the year. The measure also introduces a slew of new tax breaks including temporary deductions for workers receiving tips and overtime pay. This tax bill is part of broader legislation that includes spending reductions and raises the federal debt ceiling. The legislation was advanced through the budget reconciliation process, which only requires a simple majority vote in the Senate. The bill was signed into law on July 4, 2025. 

For more details on key provisions refer to this update with an expanded chart.

Here are some of the highlights of the new law:

  • The current income tax rates and brackets are extended permanently (there are no changes to long-term capital gains or qualified dividend tax rates).
  • The current standard deduction, which was doubled under the TCJA, is extended permanently and includes a slight increase beginning in 2025.
  • The cap on deducting state and local taxes (SALT) is increased for the next five years from $10,000 to $40,000 with a phase-out of the increased amount once income exceeds $500,000. All taxpayers, regardless of income, will still be able to deduct the current $10,000 limit. For 2025 the cap on the SALT deduction will be $40,000. Beginning in 2026 the cap will increase to $40,400.
  • The Trump campaign promises of no taxes on tips and overtime are included in the bill, but are limited once income exceeds $150,000 ($300,000 for couples) Both provisions are temporary and will sunset at the end of 2028.
  • The lifetime exclusion for gifts and estates is increased to $15 million per person beginning in 2026 and made permanent, which includes annual adjustments for inflation for future years.
  • No reduction in taxes on Social Security. However, the proposal includes an extra $6,000  deduction for seniors (For individuals below $75,000 in income, $150,000 for couples.) The deduction will sunset at the end of 2028.
  • Rollback of clean energy tax preferences introduced during the Biden administration, such as tax credits for buying electric vehicles.
  • Renewal and expansion of Qualified Opportunity Zones, which are made permanent  beginning in 2027. This program provides tax benefits for eligible investors if they invest capital gains in an economically distressed area or opportunity zone as defined by the IRS.
  • No changes to tax treatment of municipal bonds, including private activity bonds.
  • Creation of a new, tax-favored account for those under age 18 called “Trump accounts.”
     

Tax law changes require careful review

Individual taxpayers and business owners should consult with a qualified tax professional to understand how these new changes affect their specific circumstances. There may be opportunities to take advantage of certain provisions or considerations for timing or realizing income. For example, certain taxpayers in higher-taxed states will benefit from the significant increase in the SALT deduction cap from $10,000 to $40,000. However, there are income phase-outs which apply once modified gross income (MAGI) exceeds $500,000. There may be options to avoid the phase-out limit and ensuing reduction in the SALT cap. Working with a qualified financial professional may help uncover these types of opportunities.

 

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