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Which above-the-line deductions (adjustments) are allowed for the 2025 tax year?
Executive summary
For tax year 2025, the new One Big Beautiful Bill (OBBB/H.R.1) and related guidance introduce several temporary above‑the‑line (AGI‑reducing) deductions alongside longstanding adjustments: notable new additions include deductions for qualified tips (up to $25,000) and qualified overtime (up to $12,500 single / $25,000 joint), a temporary car‑loan interest deduction (up to $10,000 for qualifying new U.S.‑assembled personal vehicles), and a senior “bonus” deduction (up to $6,000 for those 65+), while existing adjustments like student‑loan interest, HSA contributions and traditional IRA deductions remain in guidance [1] [2] [3] [4] [5].
1. What changed in 2025: headline new above‑the‑line deductions
Congress enacted temporary, targeted above‑the‑line deductions in the July 2025 package (commonly called the One Big Beautiful Bill or OBBB/H.R.1). The law creates a deduction of up to $25,000 for “qualified tip income” (with phaseouts tied to MAGI), and a separate above‑the‑line deduction for qualified overtime compensation — up to $12,500 for single filers and up to $25,000 for joint filers — both effective for tax years 2025 through 2028 [1] [4] [2].
2. The car‑loan interest and other temporary headline items
The new law also adds a temporary above‑the‑line deduction for interest on certain car loans: limited to interest on new, personal‑use vehicles with final assembly in the U.S., capped at $10,000, and subject to MAGI phaseouts (phases begin around the $100,000/$200,000 single/joint marks and phase out fully at higher levels in some descriptions) [3] [4]. Duane Morris and other summaries list this alongside the tip/overtime provisions as part of the 2025 changes [6].
3. How phaseouts, limits and employer reporting matter
These new deductions are income‑sensitive. For example, qualified tips fully benefit taxpayers with MAGI under $150,000 (single) or $300,000 (joint) and then phase out, while qualified overtime uses similar thresholds; employers have new reporting responsibilities and transitional “reasonable method” relief for 2025 but must move toward exact reporting in 2026 [1] [2]. That means the practical value of these above‑the‑line deductions will vary significantly by household income and by how employers report wages and tips [1] [2].
4. Which older above‑the‑line adjustments still apply (and where sources mention them)
Traditional above‑the‑line items discussed in the materials remain available and are often listed alongside the OBBB changes: student‑loan interest (up to $2,500 subject to income limits), HSA contributions (2025 limits cited), IRA contributions (deductible to limits and subject to phaseouts), and charitable deductions for non‑itemizers were highlighted as continuing or adjusted elements in summaries [7] [5] [4]. Tax‑software and tax‑education outlets reiterate that these adjustments still feed AGI calculations [8] [9].
5. Temporary nature and effective years — plan accordingly
Multiple sources emphasize that many of the new deductions are temporary, typically available for tax years 2025 through 2028 (tips, overtime, car interest, senior bonus), so taxpayers and advisors must treat these as time‑limited planning opportunities rather than permanent law changes [1] [4] [6].
6. Conflicting details and what’s not fully settled in reporting
Coverage varies on exact phaseout thresholds and interplay with other rules: some pieces cite specific MAGI phaseouts (e.g., tips/overtime phaseouts at $150k/$300k or different AGI triggers), while others summarize employer reporting timing or list small differences in caps [2] [1] [4]. Available sources do not mention a single consolidated IRS form/line where all these new adjustments will appear for 2025 returns — practitioners point to Schedule 1 transfers to Form 1040 but precise reporting guidance is evolving [9] [1].
7. Practical takeaway for taxpayers and advisors
If you work in a tipped occupation, earn significant overtime, recently bought a qualifying new U.S.‑assembled vehicle, or are 65+, you should evaluate how these above‑the‑line deductions interact with your MAGI and withholding/tax planning because they reduce AGI and can unlock other tax breaks; employers and payroll teams should update reporting practices for 2025 and 2026 transitions [1] [2] [4]. For routine AGI reductions — student loan interest, HSA, IRA adjustments — established rules and limits remain relevant [5] [7].
If you want, I can assemble a concise checklist tailored to your situation (tipped employee, self‑employed, retired senior, or typical wage earner) that maps which deductions you’re likely to qualify for and the key MAGI thresholds cited in current summaries [2] [1] [4].