Overview
- State and local tax deductions expand for the 2025 tax year, with the cap rising to $40,400 for 2026 filings and scheduled 1% annual increases until a 2029 reversion, alongside a new 35% limit on the value of itemized deductions for top-bracket filers starting in 2026.
- 529 plans allow up to $20,000 in annual K–12 and related withdrawals beginning Jan. 1, 2026, and the list of qualified expenses broadened in July 2025 to include tutoring, testing fees, certain online materials and dual-enrollment costs.
- The new 530A ‘Trump Account’ provides a $1,000 federal deposit for children born 2025–2028, permits up to $5,000 in after-tax contributions per year until age 18 and is expected to be available starting in July.
- Taxpayers 65 and older can claim an extra $6,000 deduction (up to $12,000 for qualifying joint filers) subject to income phaseouts, and experts note large retirement withdrawals can push income high enough to reduce or eliminate eligibility; the provision ends after tax year 2028.
- Tip and overtime deductions debut with employer overtime reporting required from tax year 2026, an auto-loan interest deduction allows up to $10,000 a year for U.S.-assembled new cars through 2028, and lowered 1099 thresholds mean many workers will need to keep detailed records starting next year.