How Trump’s Megabill Will and Won’t Change Your Taxes

Republicans have their “big, beautiful” tax-and-spending package. Now, individual taxpayers want to know what difference this makes to their own returns and how changes could affect tax planning for this year and next.

The short answer is that—unlike with the tax overhauls of 1986 and 2017—most of the changes for individuals aren’t radical. (Except, that is, for an expansion of the cap on state and local tax deductions to $40,000 from $10,000. More on that below.)

Instead, the legislation makes permanent many key changes from 2017 that were set to expire at the end of 2025. These expirations would have raised taxes and disrupted planning for many filers.

“The biggest effect of this new law is certainty on major tax provisions, and we haven’t had that in a long time,” says Tim Steffen, director of advanced planning at Baird. 

Notably, the tax brackets individuals have gotten used to won’t change. The rates set in 2017 will stand at 10%, 12%, 22%, 24%, 32%, 35% and 37%. Many filers especially value the 22% and 24% brackets, which stretch from about $100,000 to $400,000 for married joint filers and half that for single filers. This swath of income at nearby rates can ease planning, such as for Roth IRA conversions or stock-option exercises. 

Also retained: the 2017 overhaul’s near-doubling of the standard deduction, which is the amount taxpayers get to subtract from income if they don’t itemize deductions on Schedule A. This fundamental change has simplified taxes for many and reduced the number of itemizers from about 30% of individual filers to less than 10%.

Because of a sweetener, the standard deduction for 2025 will be $15,750 for single filers and $31,500 for married joint filers and rise with inflation after that, according to the Tax Foundation. 

The legislation also makes permanent the $2,000 child tax credit enacted in 2017—and raises it a bit. Starting in 2025, the base amount will be $2,200 per child, according to the Tax Foundation. It will be indexed for inflation going forward. 

The estate-and-gift tax has new clarity as well. For 2025, the exemption is $13.99 million per individual, but that was set to drop to about $7 million in 2026. The new law sets a permanent base of $15 million per person starting in 2026, with inflation adjustments after that.

Other changes more or less maintain the status quo. The alternative minimum tax has been adjusted so it doesn’t catch millions of filers in 2026 and beyond, and the 20% qualified business income deduction for pass-through entities still applies. 

In addition, the personal exemption, miscellaneous itemized deductions and moving expenses for many filers that were dropped by the 2017 overhaul are now gone permanently. The mortgage interest deduction will still be allowed only for up to $750,000 of eligible debt, with no adjustment for inflation. 

The new law doesn’t alter key provisions for investment taxes or retirement saving. So the top rate on long-term capital gains and certain dividends remains 20%, plus a 3.8% surtax, and the contribution levels and rules for traditional and Roth IRAs and 401(k)s continue to apply. 

Still, there are a host of changes and some new provisions in the legislation that could affect planning for this year and next. Here are notable ones. 

SALT deduction expansion. The new law expands the Schedule A deduction for state and local property, income or sales taxes from $10,000 per return to $40,000 for taxpayers with income up to $500,000 and phases down to $10,000 after that. The provision takes effect for tax year 2025 and expires at the end of 2029.

Filers who will benefit from this change should evaluate the timing of other Schedule A items such as charitable contributions to maximize benefits. Those facing the $500,000 threshold might want to lower modified adjusted gross income, say by making donations through IRA charitable distributions if possible.

Charitable donations. The new law has two key changes, and both take effect for tax year 2026. Starting next year, donors will be allowed to deduct $1,000 (single filers) and $2,000 (joint filers) if they don’t itemize on Schedule A. 

A new limit on charitable donations for itemizers will also take effect next year. It disallows a portion of the deduction equal to 0.5% of a filer’s modified adjusted gross income. So a filer with $300,000 of MAGI would get no deduction for the first $1,500 of charitable donations on Schedule A. Givers who want to avoid it should consider accelerating donations into 2025.

Trump tax breaks. During his campaign, Trump called for several targeted tax breaks. All have been limited compared with what was promised, and each takes effect for 2025 and lapses at the end of 2028.

• The “no tax on Social Security” provision has become an extra deduction of $6,000 per person age 65 or older for single filers with income up to $75,000 and joint filers up to $150,000 before phasing out. This is in addition to the regular standard deduction and the additional standard deduction for seniors already in the law.
• The “no tax on tips” provision allows for a deduction up to $25,000 for single filers with income up to $150,000 and joint filers up to $300,000 before phasing out. The Treasury Department will compile a list of who qualifies.
• The “no tax on overtime” provision allows a deduction up to $12,500 for single filers with income up to $150,000 and $25,000 for joint filers with income up to $300,000 for qualified overtime pay.
• The “no tax on car loan interest” provision allows a deduction of up to $10,000 of interest on loans to purchase passenger cars.

Green energy provisions for individuals. The new law ends several of these early. Taxpayers who want tax credits on new or previously owned “clean” vehicles must now place them in service by Sept. 30, 2025—not the end of 2032.

The deadline for qualifying for the energy-efficient home improvement credit is now Dec. 31, 2025, not the end of 2032, and the deadline for qualifying for the residential clean energy credit is now Dec. 31, 2025, not the end of 2034. 

529 education-savings plans. The legislation expands tax-free withdrawals from these popular accounts to include more K-12 expenses, plus expenses for certifications and licenses such as HVAC work. This expansion takes effect in 2026.

Write to Laura Saunders at Laura.Saunders@wsj.com