The 2025 tax year brings a new landscape for taxpayers, thanks to the “One Big Beautiful Bill” (OBBB) which has made significant changes to both the standard deduction and the State and Local Tax (SALT) deduction cap. These adjustments mean many people will need to re-evaluate their tax strategy to determine whether it’s more beneficial to itemize their deductions or take the standard deduction.
Understanding the Standard Deduction Changes
The OBBB has made the higher standard deduction amounts from the 2017 Tax Cuts and Jobs Act (TCJA) permanent. For the 2025 tax year, the standard deduction amounts are:
- Married Filing Jointly: $31,500
- Single Filers and Married Filing Separately: $15,750
- Head of Household: $23,625
The bill also introduced a new, temporary bonus deduction for seniors. If you are 65 or older, you may be eligible for an additional deduction of up to $6,000, which is subject to an income-based phase-out.
A New Look at the SALT Deduction Cap
One of the most significant changes is the temporary increase of the SALT deduction cap. The OBBB raises this cap from $10,000 to $40,000, effective for the 2025 tax year. This is a welcome change for taxpayers in high-tax states who have been limited by the previous cap.
However, this increased cap comes with an important caveat: it is subject to an income-based phase-out. For the 2025 tax year, the $40,000 cap is reduced by 30% of the amount of a taxpayer’s Modified Adjusted Gross Income (MAGI) over $500,000. For married individuals filing separately, the cap is $20,000 with a phase-out starting at a MAGI of $250,000.
Which Deduction is Right for You?
Deciding between the standard deduction and itemizing deductions comes down to a simple calculation:
- Add up your potential itemized deductions. These can include your state and local taxes (up to the new cap), mortgage interest, charitable contributions, and certain medical expenses.
- Compare that total to the standard deduction for your filing status.
- If your total itemized deductions are greater than the standard deduction, you should itemize. The increased SALT cap will make this the more favorable choice for many taxpayers, especially those with high property taxes or state income taxes.
- If your total itemized deductions are less than the standard deduction, you should take the standard deduction. This will provide a greater reduction in your taxable income.
Example: A married couple with a MAGI below $500,000 pays $25,000 in state income and property taxes, and has $10,000 in mortgage interest and $5,000 in charitable contributions. Their total itemized deductions would be $40,000. Since this is higher than the $31,500 standard deduction for married couples, they would choose to itemize.
Final Considerations
The OBBB has made a complex tax code even more intricate. While the increased SALT cap offers a new opportunity for tax savings, many taxpayers will still find that the generous standard deduction provides the most significant benefit. It’s important to remember that the OBBB also introduced other deductions, such as a “no tax on tips” provision, that may impact your final tax liability.
To ensure you are making the best choice for your unique financial situation, it is highly recommended to use tax preparation software or consult with a qualified tax professional.
Contact Sure Financials for any question and clarification. Visit Welcome | Sure Financials & Tax Services, LLC (surefintaxsvs.com) for more information and contact us by calling +1908.955.0696.
