NEW FOR 2025 through 2028: Enhanced Deduction for Seniors
For taxpayers who have attained the age of 65, a personal exemption is available in the amount of $6,000 and is reduced by 6% of the amount that Modified Adjusted Gross Income (MAGI) exceeds $150,000 for married filing jointly and $75,000 for all others. This exemption is fully phased out at $250,000 for married filing jointly filers and $175,000 for all others. To determine the amount of your Enhanced Deduction for Seniors, use Part V of Schedule A.
MAGI is used to determine if you qualify for certain tax benefits; it does not appear on your tax return (Form 1040), it must be calculated.
How to calculate MAGA:
Start with your AGI shown on Form 1040 (line 11a). Then, add back certain tax deductions to arrive at MAGI (e.g. student loan interest, IRA contributions, tax exempt interest, foreign earned income exclusions, non-taxable social security benefits, employer-provided adoption benefits). Keep in mind, different tax benefits may require different MAGI calculations (e.g. one for IRA eligibility, another for educations credits).
| Taxable Income Threshold | 0% | 15% | 20% |
|---|---|---|---|
| Married Filing Jointly / Surviving Spouse | $1 - $96,700 | $96,701 - $600,050 | $600,051 and over |
| Head of Household | $1 - $64,750 | $64,751 - $566,700 | $566,701 and over |
| Single | $1 - $48,350 | $48,351 - $533,400 | $533,401 and over |
| Married Filing Separately | $1 - $48,350 | $48,351 - $300,000 | $300,001 and over |
| Collectibles gain | Maximum rate | 28% | |
| Unrecaptured Section 1250 gain on depreciated real estate | Maximum rate | 25% |
For 2025, if you itemize charitable contributions on Schedule A, you may deduct donations to religious, charitable, educational, and other philanthropic organizations that have been approved to receive deductible contributions. The deduction for cash donations is generally 60% of adjusted gross income (AGI). Lower ceilings apply to most property donations and contributions to foundations. Tax benefit depends on your marginal tax bracket. For example, if you donate $1,000 and you're in the 24% tax bracket, it reduces your taxes by $240. Keep receipts! A cash donation will be disallowed if it's not supported by a canceled check, account statement or written receipt from the charity.
For donations of $250 or more, you must have a written acknowledgment from the organization that indicates whether you received goods or services in return for your donation. In addition to the acknowledgment, you need a canceled check for a cash donation of $250 or more.
If you deduct a donation for property valued at more than $500, you must substantiate the contribution on Form 8283 and attach it to Form 1040 or Form 1040-SR. If the value you claimed for property exceeds $5,000, you generally must get a written appraisal.
If you donate a vehicle valued at over $500, you must attach Copy B of Form 1098-C to your return. Your deduction is generally limited to the gross sales proceeds received by the charity on a sale of the vehicle, even if you could susbstantiate a higher fair market value.
Contribution Deadline:
April 15, 2026. This deadline applies even if you file for a tax return extension.
Contributions to a Traditional IRA:
There is no age limit for contributions. You may make contributions to a traditional IRA for 2025 of up to $7,000, or $8,000 if you are age 50 or older at the end of 2025, provided that you have at least $7,000/$8,000 of earned income (e.g. salary, wages, net self-employment earnings. If you earned less than $7,000 ($8,000 if age 50 or older), the contribution limit is 100% of your pay or net earned income if self-employed.
If you have more than one traditional IRA the limit applies to total contributions to all o the IRAs for the year.
Contributions to a Roth IRA:
There has never been an age limit for Roth IRA contributions. The maximum contribution to a Roth IRA, prior to any phaseout is the same as the traditional IRA limit ($7,000 if you're under 50, or $8,000 if you're age 50 or older at the end of the year. If you decide to contribute to a traditional IRA to get a deduction, you can transfer the funds to a Roth IRA in a later year by making a taxable conversion. If you initially contribute to a traditional IRA, you have until the filing deadline to "recharacterize" the contribution as a Roth IRA contribution. Similarly, if you initially contributed to a traditional IRA, you can "recharacterize" it as a Roth IRA.
You can contribute to both a traditional IRA and Roth IRA for the same year, but the annual contribution limit (($7,000/$8,000 for 2025) applies to the combined contributions.
MAGI Limits for 2025 Roth IRA Contributions:
Members of the Armed Services:
If you served in a combat zone, you can contribute to either a traditional IRA or Roth IRA based on your tax-free combat pay
IRA Distributions:
The SECURE Act raised the age to 72 for IRA owners who reached age 70 1/2 after 2019, which includes those born on or after July 1, 1949.If you were a teacher, instructor, counselor, principal, or aide in a private or public elementary or secondary school (kindergarten through grade 12) for at least 900 hours during the school year in 2025, you may deduct up to $300 of qualifying costs on Line 11 of schedule 1 (Form 1040 or 1040-SR). Qualified costs include books, classroom supplies, computer equipment and related software and services other materials used in the classroom. Home schooling expenses do not qualify. If you're married and file jointly and each spouse is an educator, each spouse may claim up to $300.
The qualified business income (QBI) deduction - also called the Section 199A deduction allows eligible taxpayers such as sole proprietors, those who have an interest in a partnership, limited liability company, S corporation, and some Trusts and estates to deduct up to 20 percent of their QBI. However, income earned through a
C corporation or by providing services as an employee is not eligible for the deduction.
The QBI deduction
is available even if you don't itemize deductions on Schedule A.
Note: The QBI deduction is a personal deduction and not a business deduction (e.g. it is not claimed on a Schedule C). It is available even if you don't itemize deductions on Schedule A. the taxable income amounts used to figure the deduction for 2025 have been increased for inflation.
For 2025, the adoption credit, as well as the exclusion for employer-paid adoption assistance, is limited to $17,280 (up from $16,810). The benefit phaseout range is modified adjusted gross income (MAGI) between $259,190 to $299,190. Beginning in 2025, with the passage of the One Big Beautiful Bill Act, up to $5,000 of this credit may now be refundable.
For 2025, the maximum child tax credit for a child under age 17 is $2,200. The credit begins to phase out when modified adjusted gross income (MAGI) exceeds $400,000 on a joint return or $200,000 for all other filers. There is an additional child tax credit that can be claimed if the child tax credit otherwise allowed is limited by tax liability; the refundable amount may not exceed $1,700 per qualifying child. The credit for other dependents is unchanged (i.e., not refundable and limited to $500 per dependent). The maximum child tax credit is now indexes for inflation.
Refundable Tax Credit vs Nonrefundable Tax Credits:
Tax credits reduce your tax liability dollar-for-dollar.
Refundable tax credit: This type of credit is called refundable because not only does it reduce your tax liability dollar-for-dollar, if the amount of the credit exceeds your tax liability you get a refund of the excess amount. In fact, if your tax liability is zero, you get a refund of the entire credit amount. For example, if you owe $500 in federal income taxes and you have an $800 refundable tax credit, you would get a refund of $300.
Nonrefundable tax credit: On the other hand, if owe $500 in federal income taxes and have an $800 nonrefundable tax credit, your $500 tax liability would be reduced to zero, but you would NOT get a refund of $300, the excess amount of the tax credit.
For 2025, the child and dependent care credit is nonrefundable. Qualifying expenses taken into account in figuring the credit are $3,000 for one qualifying individual and $6,000 for two or more qualifying individuals. The credit ranges From 35% down to 20%, depending on adjusted gross income. The exclusion for dependent care under an employer's dependent care assistance plan is $5,000 ($2,500 if married filing separately).
For qualifying property placed in service in 2025, first-year expensing is allowed up to a limit of $2,500,000. The limit begins to phase out if the total cost of qualifying property exceeds $4,000,000.
Section 179 Deduction Phase-out:
If the cost of qualifying property placed in service in 2025 is more than $4,000,000, you reduce the $2,500,000 expensing limit dollar-for-dollar for each dollar the cost of qualifying property exceeds $4,000,000 (but not below zero).
Example:
If the cost of the property was $6,500,000 or more, no first-year expensing deduction would be allowed for 2025 because it would be completely phased out ($6,500,000 - $4,000,000) = $2,500,000 expensing limit.
2025 Bonus Depreciation (also called a "Section 168(k) allowance" and a "special depreciation allowance"):
Bonus depreciation is an additional first-year depreciation allowance equal to a set percentage of the adjusted basis of eligible property. The percentage for bonus depreciation for 2025 is 40% for property placed in service on or prior to January 19, 2025. Property placed in service after January 19,2025 is eligible for 100% bonus depreciation, but taxpayers may elect to apply 40% bonus depreciation in 2025.
Bonus depreciation is fully deductible for alternative minimum tax purposes; no adjustment is required.
Qualified improvement property has a 15-year recovery period. As such, it qualifies for bonus depreciation. Qualified improvement property purchased on or before January 19, 2025 is limited to bonus depreciation of 40%; if acquired after January 19, 2025, bonus depreciation is 100%. Qualified improvement property is any improvement to an interior part of a building that is nonresidential realty and is made after the date the building was placed in service. Note that, any improvements for the enlargement of the building, an elevator or escalator, or changes to the internal framework of the building, are not qualified improvement property.
Electing Out of Bonus Depreciation:
Bonus depreciation is automatic for qualified property; the IRS applies it by default. This means, you don't have to take any special action to claim it. However, you may elect out of claiming bonus depreciation. If you fail to make an election not to claim bonus depreciation, you are deemed to have claimed it even if you did not, and must reduce the basis of the property by the amount of bonus depreciation that could have been claimed.
You may elect out of the bonus depreciation by attaching a statement to your return specifying the asset class which you do not want to claim bonus depreciation. For example, you can elect out of bonus depreciation for all five-year property while claiming it for seven-year property.
Report bonus depreciation for most property on Form 4562, Part II labeled "Special Depreciation Allowance and Other Depreciation". For "Listed Property" use Part V of Form 4562 (automobiles, certain other vehicles, certain aircraft, and property used for entertainment, recreation, or amusement.)
For a vehicle placed in service in 2025 and used over 50% for business, the first-year depreciation limit including bonus depreciation, is $20,200. If you elect to opt out of using bonus depreciation, or you're not eligible for bonus depreciation, the first-year depreciation limit is $12,200 (it excludes $8,000 bonus depreciation).
Clean Vehicle Credit:
Credit of up to $7,500 for eligible new clean vehicles and up to $4,000 for eligible previously owned clean vehicles. Specific criteria must be met and purchase must have occurred by September 30, 2025.
A high-deductible health plan is a prerequisite to funding an HSA. A high-deductible health care plan is a policy with a minimum deductible for 2025 of $1,650 for self-only coverage and a maximum out-of-pocket cap on co-payments and other amounts of $8,300. These limits are doubled for family coverage ($3,300/$16,600).
The contribution limit for 2025 is $4,300 for self-only coverage and $8,550 for family coverage. Those age 55 or older and not yet on Medicare can add an additional $1,000.
If you, or your spouse if filing jointly, made contributions to a retirement plan for 2025, you may be able to claim the retirement savings contributions credit (saver's credit). This includes contributions made to a traditional IRA or Roth IRA for 2025 by April 15, 2026.
The credit is generally claimed on Form 8880 based on the first $2,000 of your retirement contributions, but only after contributions are reduced by recent retirement plan withdrawals. The credit percentage declines from 50% too 20% to 10% as income approaches the applicable $79,000, $59,250, or $39,500 limit.
Any allowable credit is in addition to tax breaks you may receive for making the contribution, such as the exclusion for elective salary deferrals to a 401(k) plan, or a deduction for a traditional IRA contribution
No credit is allowed if any of the following are true:
Note: Adjusted gross income is increased by any exclusion for foreign earned income or income from Puerto Rico or American Samoa, or the foreign housing exclusion or deduction:
The 2025 annual gift tax exclusion is $19,000 per donee for gifts of cash or present interests. The basic exemption amount for 2025 gift tax and estate tax purposes increases to $13,990,000 (up from $13,610,000). The top tax rate remains at 40%.
Note: A gift of present interest is one that the recipient is free to use, enjoy, and benefit from immediately without any strings attached. A future interest gift is where the recipient does not have complete use and enjoyment of it until some future time.
The AMT exemptions, exemption phaseout thresholds, and the dividing line between the 26% and 28% AMT brackets are adjusted for inflation. The 2025 AMT exemptions (prior to any phaseout) are $137,000 for married couples filing jointly and qualifying surviving spouse, $88,100 for single taxpayers and heads of households, and $68,500 for married persons filing separately. All nonrefundable personal credits may be claimed against the AMT as well as the regular tax.
The credit for installing solar energy in your residence is 30% for 2025. However, the One Big Beautiful Act eliminates many residential energy efficient property credits over time between 2025 and 2026.
The 2025 maximum EIC amount is $4,328 for one qualifying child, $7,152 for two qualifying children, $8,046 for three or more qualifying children, and $649 for taxpayers who have no qualifying child. The excessive investment income limit is $11,950. The phaseout ranges for the credit have been adjusted for inflation.