On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) became law, making several changes to the tax code. While the bill includes many provisions, a few key updates stand out for 2025 because they could have a direct and positive impact on your tax return. These updates involve charitable giving, state and local tax deductions, a new benefit for seniors, and for many taxpayers, they may open the door to itemizing deductions for the first time in years.
One of the most talked-about provisions is the increase in the State and Local Tax (SALT) deduction cap. For years, the deduction was limited to $10,000, leaving many homeowners in higher-tax states unable to claim the full amount they paid in property and state income taxes. For 2025, the SALT cap has been quadrupled to $40,000 for most taxpayers ($20,000 for married filing separately). This expanded cap allows many families to deduct far more in state and local taxes, which could be a game-changer for those living in high-tax areas. It’s important to note that the higher cap begins to phase out at very high incomes and will revert to $10,000 in 2030 unless extended by Congress.
Seniors also receive a notable benefit under the new law. If you are 65 or older, you may now claim an additional $6,000 deduction ($12,000 if both spouses qualify) on top of your standard or itemized deductions. This new “senior deduction” is available to most retirees and can help lower taxable income significantly. While the deduction begins to phase out at certain income levels, many seniors will qualify and benefit from this added tax break.
Charitable giving also sees important updates in 2025. For individuals aged 70½ and older, the annual limit for Qualified Charitable Distributions (QCDs) from IRAs has increased to $108,000 per person. A QCD allows you to transfer funds directly from your IRA to a qualified charity without counting the amount as taxable income. A particularly useful strategy for meeting Required Minimum Distributions (RMDs) while supporting causes you care about.
For all taxpayers, the rules for charitable deductions remain favorable in 2025. You can deduct cash contributions to qualified charities up to 60% of your Adjusted Gross Income (AGI). However, starting in 2026, a new 0.5% AGI floor will apply to itemized charitable deductions, meaning some contributions may no longer provide a tax benefit unless they exceed that threshold. Additionally, for 2026 non-itemizers will be able to claim a deduction of up to $1,000 ($2,000 for couples) for charitable giving. This creates a unique planning opportunity in 2025: highly charitable taxpayers may wish to combine both 2025 and 2026 planned donations into 2025 to avoid the upcoming floor and maximize their deduction.
With these changes, the higher SALT cap, and enhanced charitable giving opportunities, more taxpayers may find it worthwhile itemizing deductions in 2025 and beyond. For retirees, Qualified Charitable Distributions (QCDs) are especially powerful this year. By giving directly from your IRA, you can lower your Adjusted Gross Income (AGI), potentially reduce Medicare premiums, and position yourself to avoid the new charitable deduction limitation starting in 2026. This makes careful planning and recordkeeping more important than ever. Be sure to save documentation for property taxes, medical expenses, and all charitable donations, both cash and non-cash throughout the year. Even if you have always taken the standard deduction in the past, these new rules may make itemizing the smarter choice going forward.
The bottom line: OBBBA’s 2025 updates create valuable opportunities to reduce taxable income and keep more money in your pocket, but they require forethought and careful documentation. If you’d like to explore how these changes apply to your personal situation, our team is here to help you put together a strategy that makes the most of this year’s tax rules.