Are You Overlooking These 4 Federal Tax Breaks for 2025?

Tax season can be daunting, but understanding the latest federal tax changes could help you keep more money in your pocket. For 2025, several new or expanded tax breaks are available under the One Big Beautiful Bill Act (OBBBA). Knowing the eligibility and limits for these deductions might dramatically lower your tax bill—whether you file as an individual or run a small business.

Here are four federal tax breaks you should know about for 2025—and how to make the most of them.

1. Revised SALT Deduction – Up to $40,000, with Phase-Out

The State and Local Tax (SALT) deduction has been expanded for 2025, giving much-needed relief to taxpayers in high-tax states. The cap has increased to $40,000 for both single and joint filers (or $20,000 for married filing separately), significantly more than the previous $10,000 limit. Importantly, the cap will be indexed for inflation through 2029, before reverting to its prior amount.

Key Point:

High-income filers are subject to a phase-out. Your SALT cap will be reduced by 30% of the amount your modified adjusted gross income (MAGI) exceeds $500,000 (or $250,000 for married filing separately), but the cap can never be reduced below $10,000 (or $5,000 for MFS).

Eligibility & Tips:

• Must itemize deductions on Schedule A.

• Eligible taxes: state income, property, and sales taxes.

• If your MAGI is near or above the threshold, consult a tax professional to estimate your actual deduction after the phase-out.

• Consider the timing of your property tax and state tax payments to maximize itemized savings without exceeding the cap.

2. Overtime Pay Deduction – Up to $12,500 ($25,000 Joint Filers), with Income Limits

A valuable new benefit for working Americans, the OBBBA adds a deduction for qualified overtime pay. Rather than a percentage, the law allows you to deduct up to $12,500 of qualified overtime pay per year ($25,000 for joint filers) for tax years 2025 through 2028.

Remember:

This deduction is phased out for higher-income taxpayers. The income thresholds will be set annually, so ensure your earnings fall within the qualifying range.

Who Can Benefit?

• Taxpayers with significant overtime wages.

• Those with adjusted gross income below the phase-out limits.

Tips:

• Keep thorough records of your overtime hours and amounts earned.

• Check annual IRS phase-out ranges to verify eligibility.

• If eligible, the deduction is subtracted directly from gross income, reducing your taxable earnings.

3. Deduction for Interest on Car Loans – Personal Use, New U.S.-Assembled Vehicles

Starting in 2025, taxpayers may deduct up to $10,000 per year in interest paid on loans for new U.S.-assembled passenger vehicles, regardless of whether the vehicle is used for business or personal purposes. This deduction is available for tax years 2025 through 2028 and is phased out at higher incomes.

Important Note:

The vehicle must be new and assembled in the United States. There is no business-use requirement, making this deduction helpful for ordinary consumers as well as the self-employed.

Tips to Qualify:

• Retain loan documents showing the vehicle is new and U.S.-assembled.

• Only the interest portion of the loan payment is deductible (not principal).

• Review the IRS’s phase-out thresholds to confirm eligibility if your income is near the upper limit.

4. Senior Deduction – New $6,000 Deduction (In Addition to Increased Standard Deduction)

For 2025, the standard deduction amounts increase for all filers ($15,750 for singles and $23,625 for heads of household). Additionally, individuals aged 65 and over can benefit from a new, separate $6,000 deduction, available through 2028 and subject to income phase-out rules. This is not simply an "extra" on the standard deduction, but its own line item.

The longstanding deduction for unreimbursed medical expenses exceeding 7.5% of adjusted gross income (AGI) remains in effect and may provide additional savings, especially for seniors with high healthcare costs.

How to Make the Most of Senior Deductions:

• Claim the increased standard deduction and, if eligible, the new $6,000 senior deduction.

• Keep careful documentation of medical and healthcare expenses for the 7.5% AGI threshold.

• Monitor your income in relation to the phase-out for the senior deduction.

Final Tips for Success

Stay organized by tracking your tax-related documents year-round. From overtime pay stubs to auto loan interest statements and medical expenses, detailed records will help you claim every available deduction. If your financial situation is complex or you fall near deduction phase-out limits, seek advice from a licensed tax professional.

For Further Reading

• Kiplinger: SALT Deduction: Three Things to Know Now

• Bankrate.com: Trump’s new car loan interest deduction and how to qualify

• Tax Foundation: The Good, the Bad, and the Ugly in the One Big Beautiful Bill Act

By staying informed about the latest tax breaks, you can take proactive steps to lower your tax bill and keep more of your hard-earned money in 2025.