What Are the Key New Deductions?
The One, Big, Beautiful Bill (Public Law 119-21), effective July 4, 2025, rolled out several brand-new deductions that apply from tax years 2025 through 2028. Key deductions include:
- No tax on tips: Up to $25,000 per individual per year (phases out for MAGI above $150,000 singled / $300,000 joint). (irs.gov)
- No tax on overtime: Deduct the "half portion" of overtime pay over regular rate; up to $12,500 (single) / $25,000 (married joint). Same MAGI thresholds. (irs.gov)
- Car loan interest deduction: Up to $10,000 deduction per year for interest on a qualified loan to buy a new U.S.-assembled personal vehicle (no leases or used vehicles). Phases out above $100,000 MAGI single / $200,000 joint. (irs.gov)
- Senior deduction: An extra $6,000 deduction (or $12,000 for married couples where both are 65+) for age 65+ taxpayers. Phases out at MAGI $75,000 single / $150,000 joint. (irs.gov)
How to Maximize These Deductions
1. Know the income thresholds
If your MAGI is near the phase-out levels (e.g. ~$150,000 joint for tips/deduction items), small changes can make or break eligibility. Use tax-planning techniques, like timing income or deductions, to stay below phase-outs.
### 2. Employers and payors—update reporting These deductions require new reporting:
- Employers must provide statements showing occupation for tip recipients. (irs.gov)
- Lenders for vehicle loans must issue statements showing interest received and relevant vehicle details (VIN, assembly location). (irs.gov)
### 3. Document everything Keep proof of the vehicle’s final assembly (VIN label or NHTSA information), copies of tip statements (W-2, 1099), overtime pay details, and age documentation for seniors. Even non-itemizers can claim these deductions.
### 4. File correctly These are above-the-line deductions—you don’t need to itemize to benefit. But you do have to include the relevant details in your return (occupation, VIN, etc.).
Example Scenarios
| Situation | Deduction Benefit |
|---|---|
| A server earning $60,000 in MAGI, gets $20,000 in tips | Will be able to deduct full $20,000 tips under the new tip deduction. |
| Married couple jointly earning $180,000 MAGI, one spouse age 65 | They qualify for the full $6,000 senior deduction per spouse if both 65+, or $6,000 for one. |
| Single taxpayer at MAGI $110,000 buys a new SUV assembled in the U.S., pays $9,000 interest on the loan | Eligible for car loan interest deduction, since under phase-out. |
Caveats & Strategies
- These deductions sunset at the end of 2028—plan multi-year vs. one-time benefits accordingly.
- Deductions are not available to employees in many “Specified Service Trades or Businesses” (SSTBs) for the tips deduction. Check qualification. (irs.gov)
Action Steps
- Review your 2025 income projections; aim to stay within phase-out thresholds.
- If buying a new vehicle, verify that it’s U.S. assembled and that you get the necessary VIN and label proof.
- Coordinate with your employer(s) to ensure proper tip/overtime/occupation reporting.
- Keep track of all documentation—even small tips or overtime can matter.
- Consider consulting a tax professional to structure income and deductions over multiple years, especially if you’re close to phase-outs.
By understanding and planning for these new deductions, many taxpayers can significantly reduce taxes in the coming years under the One, Big, Beautiful Bill.