Which above-the-line deductions are phased out by income limits or eliminated for 2025, and how do phaseouts work?
Executive summary
Several new temporary above‑the‑line deductions were created for 2025 (taxes filed in 2026) but are subject to income phaseouts that reduce or eliminate the benefit for higher earners: the tip deduction (up to $25,000; full for AGI under $150,000 single / $300,000 joint and phases out thereafter), the overtime deduction (up to $12,500 single / $25,000 joint with similar AGI thresholds), a car‑loan interest deduction (up to $10,000 with income limits), and a $6,000 “senior” deduction for age 65+ with AGI ceilings — plus an expanded SALT cap that itself phases down above $500,000 of MAGI (various sources) [1] [2] [3] [4] [5] [6].
1. What new above‑the‑line deductions exist for 2025 — and who they target
The One Big Beautiful Bill created several temporary above‑the‑line adjustments for 2025–2028 (varying by provision): a tip‑income deduction (up to $25,000), an overtime compensation deduction (up to $12,500 for individuals / $25,000 for joint filers), a car‑loan interest deduction (capped at $10,000 for qualifying new U.S.‑assembled vehicles), and a $6,000 senior deduction for filers 65+ who meet income tests [1] [2] [3] [4] [5]. The bill also raises the SALT cap to $40,000 for 2025 with its own income‑sensitive reduction [6] [5].
2. Which deductions are phased out or eliminated by income limits
Available sources indicate these above‑the‑line benefits are explicitly income‑limited: tips and overtime deductions are available in full below AGI thresholds ($150,000 single / $300,000 joint) and phase out above those lines, with formulas that sharply reduce the allowed amount; the car‑loan interest and senior deductions are likewise subject to phaseout thresholds (examples: car‑loan phaseout cited at $100,000 single / $200,000 joint in one summary) [1] [2] [3] [5]. The SALT cap increase to $40,000 phases down by 30% of MAGI over $500,000 and cannot reduce the SALT benefit below $10,000 [6] [5].
3. How phaseouts work in practice — the mechanics reporters cite
Phaseouts operate by reducing the available deduction once adjusted gross income (AGI or modified AGI/MAGI) exceeds a statutory threshold. For the overtime and tip deductions, the law specifies full availability under the threshold and then a set reduction rate—one trade summary reports the tip deduction phases out “by $100 for every $1,000” over the threshold, a concrete stepwise taper that quickly removes benefits as income rises [1]. The SALT increase uses a percentage reduction (30% of MAGI over $500,000), bounded so the cap never falls below $10,000 [6] [5].
4. Examples and the sharpness of those phaseouts
Analysts warn these phaseouts are steep. For example, a $100 per $1,000 taper equates to a 10% reduction of the eligible deduction for each $1,000 over the mark — a rapid erosion of the break [1]. Other provisions use percentage formulas that can similarly eliminate much of the nominal cap once income exceeds the threshold by modest amounts [6] [3]. Morningstar and legal advisories urge taxpayers near thresholds to avoid triggering extra MAGI (e.g., big Roth conversions or capital gains) because relatively small income increases can “torpedo” the benefit [3].
5. Competing perspectives and policy context
Supporters frame these as targeted reliefs for middle‑income and working taxpayers — tips, overtime, car‑loan interest, and a senior add‑on aim at narrower groups [1] [2] [4]. Critics and budget analysts focus on distributional effects and revenue tradeoffs: the Tax Foundation estimated the above‑the‑line charitable and other changes nearly wash out in budget terms, and other commentators note many limits won’t take effect until 2026, encouraging “bunching” of deductions in 2025 [7] [6]. The Congressional Research snapshot and tax think‑tank reporting emphasize that many changes concentrate benefits among higher incomes for certain itemized deductions, underscoring the political tradeoffs behind phaseouts [8] [7].
6. Limitations in current reporting and what’s not stated
Available sources describe statutory caps and example thresholds but do not provide every precise phaseout formula for each deduction in a unified table; some reports cite different numeric phaseout cutoffs for specific provisions (e.g., car‑loan income limits differ across summaries), indicating that official Treasury/IRS guidance and final regs will matter for exact calculations — “Treasury Secretary to publish a list” for tipped occupations is one example of details still to come [1] [2]. Official IRS guidance and the final Treasury regs are not included among the provided sources; those will be necessary to compute an individual taxpayer’s exact phaseout [1].
If you want, I can assemble a concise checklist of the specific phaseout thresholds and formulas cited across these sources, mapped to each deduction, so you can see where the reporting agrees and where it diverges.