4 New Tax Deductions in the 'Big, Beautiful Bill' You Can Take This Year

KEY TAKEAWAYS

• The 'One Big, Beautiful Bill' introduced several new tax deductions, some of which will apply to the money you're making this year.
• Under the new law, taxpayers can deduct most of what they earn in tips and overtime, lowering the amount they owe come next tax season.
• Many taxpayers who purchase a U.S.-made vehicle this year can deduct the interest they will pay on their car loan.
• Many taxpayers 65 or older will also get an extra deduction of $6,000.

You may be able to take new tax deductions when you file your taxes next.

President Donald Trump signed the 'One Big, Beautiful Bill' into law earlier this month. It expands Trump's Tax Cuts and Jobs Act and adds new tax deductions, some of which will take effect during the 2025 tax year.

Deductions allow taxpayers to remove part of their taxable income from their bill, lowering the overall amount they owe. Here are the most significant tax deductions added by the 'Big, Beautiful Bill' that can be claimed on 2025 tax returns when filed early next year.1

Tips

This deduction applies from tax years 2025 to 2028 and allows workers who typically receive tips, such as waiters, bartenders, and hairstylists, to deduct qualified tips from their taxes.

Here are the details:

• Employees and most self-employed individuals qualify if they are in occupations that have "customarily and regularly" received tips, on or before Dec 31, 2024. The IRS will publish a list of qualifying occupations by Oct. 2, 2025.
• The IRS defines “qualified tips” as voluntary cash or tips charged to customers or money earned through a tip-sharing program.
• Employees can deduct up to $25,000 of their tips annually, while self-employed individuals can deduct up to their yearly net income.
• The deduction phases out for single taxpayers who make more than $150,000 a year and married taxpayers who make $300,000 jointly.
• The deduction is available for itemizing and non-itemizing taxpayers. If a taxpayer is married, they must file jointly to claim the deduction.

Overtime

This deduction applies from tax years 2025 to 2028 and allows workers who receive qualified overtime pay to deduct anything they make over their regular pay rate.

Here are the details:

• For example, workers who receive “time-and-a-half" overtime pay can deduct the "half" that is beyond what they would typically make.
• Single workers can deduct up to $12,500 of overtime annually, and married workers can deduct up to $25,000.
• The deduction phases out for single taxpayers who make more than $150,000 a year and married taxpayers who make $300,000 jointly.
• The deduction is available for itemizing and non-itemizing taxpayers. If a taxpayer is married, they must file jointly to claim the deduction.

Car Loan Interest

This deduction applies from tax years 2025 to 2028 and allows taxpayers to deduct interest from a recently purchased, qualified vehicle made in the U.S.

Here are the details:

• Taxpayers can deduct the interest on a vehicle loan that originated after December 31, 2024, if they bought the vehicle for personal use.
• A qualified vehicle includes a new car, minivan, van, SUV, truck, or motorcycle that underwent final assembly in the U.S.
• Taxpayers can deduct up to $10,000 of the car loan interest each year.
• The deduction phases out for single taxpayers who make more than $100,000 a year and married taxpayers who make $200,000 jointly.
• The deduction is available for both itemizing and non-itemizing taxpayers. The taxpayer must include the Vehicle Identification Number (VIN) on their tax return.

Older Americans

This deduction applies from tax years 2025 to 2028 and provides taxpayers 65 and older with an extra $6,000 deduction.

Here are the details:

• Qualified taxpayers can claim this extra deduction in addition to the additional standard deduction they already receive under existing law.2
• If they want to claim this deduction for this tax year, qualifying taxpayers must have turned at least 65 sometime in 2025.
• Single senior taxpayers can deduct up to $6,000 annually, and married seniors can deduct up to $12,000 jointly, as long as both spouses qualify.
• The deduction phases out for single taxpayers who make more than $75,000 yearly and married taxpayers who make $150,000 jointly.
  
• The deduction is available for itemizing and non-itemizing taxpayers. If a taxpayer is married, they must file jointly to claim the deduction.

Article Sources

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1. IRS. "One Big Beautiful Bill Act: Tax deductions for working Americans and seniors."
2. IRS. "Standard deduction."