How did the One Big Beautiful Bill change other major deductions and credits for the 2025 tax year?
Executive summary
The One Big Beautiful Bill (OBBBA) rewrote the landscape of individual deductions and credits for 2025 by layering permanent extensions, temporary new deductions, expanded caps, and rollbacks of green-energy incentives; the net effect is lower statutory rates for many filers but mixed sectoral impacts and several temporary windows that matter for 2025 returns [1] [2]. Analysts estimate the package reduced individual income taxes for 2025 by roughly $129 billion and will raise average after‑tax income modestly, but the distribution of benefits depends on which new or expanded provisions a taxpayer can claim [3].
1. Bigger standard deduction and child tax credit — broad, pro‑family changes
OBBBA raises the standard deduction meaningfully for 2025 (example amounts cited: $15,750 single, $23,625 HOH, $31,500 MFJ, indexed thereafter) and makes the larger child tax credit permanent at $2,200 per qualifying child, moves the AMT and bracket expansions into permanence, and thus shifts more taxpayers toward the larger standard deduction and expanded child benefit starting with 2025 returns [4] [2] [1].
2. SALT relief — temporary increase with income limits
The law temporarily raises the state and local tax (SALT) deduction cap from $10,000 to as much as $40,000 for many filers beginning in 2025, with phase‑outs and income thresholds (for example, limits tied to AGI and higher‑earner phase‑downs and a $500,000 cap reference in several summaries); that increase is time‑limited and subject to phase‑downs for higher incomes, so its benefit is concentrated among itemizers in high‑tax states for 2025–2029 [5] [6] [1].
3. New temporary “no‑tax” and targeted deductions — seniors, tips, overtime, and auto interest
OBBBA creates a suite of new, temporary deductions effective for 2025 through 2028: a $6,000 bonus deduction for qualifying seniors, deductions that effectively remove tax on certain tips and the excess portion of overtime pay, and an above‑the‑line deduction for up to $10,000 of interest on auto loans meeting eligibility rules; taxpayers claiming these must use new reporting/forms and the rules are explicitly temporary in most official descriptions [7] [8] [1] [9].
4. Clean‑energy and EV credits rolled back or sunset — big change for green incentives
The bill scales back or sunsets many Inflation Reduction Act individual clean‑energy incentives: residential energy‑efficiency home‑improvement credits and many residential clean energy credits effectively end for work performed after 2025 and the new/used electric vehicle credits expire for vehicles acquired after Sept. 30, 2025, a change that observers warn will raise the out‑of‑pocket cost of EVs and home upgrades [10] [11] [5] [12].
5. Business‑adjacent changes that ripple into individual returns
Several business provisions that affect individual taxpayers were preserved or made permanent — notably the 20% qualified business income (QBI) deduction (Section 199A) and favorable treatments on bonus depreciation, R&D deductions, and interest limitations — and in some cases these retroactive choices (e.g., restoring expensing rules) alter pass‑through owners’ 2025 taxable income and thus individual returns filed in 2026 [13] [2].
6. Net effect and contested tradeoffs — more refund for some, complexity for many
Policy and tax‑policy groups find differing takeaways: the Tax Foundation models an average tax cut of roughly $611 for 2025 taxpayers but highlights that the long‑run effects and distribution depend on who uses the new temporary deductions versus who loses green credits [3]; industry and clean‑energy analysts warn that the rollback of energy incentives will slow adoption and raise costs for would‑be EV and solar buyers [12]. Several provisions are retroactive or temporary, creating planning opportunities but also compliance complexity and reliance on new IRS guidance [9] [7].