Key Changes to Tax Laws 2025

This episode provides an overview of significant changes to tax laws announced on July 4th, 2025. Key points include the permanency of temporary tax laws from 2018, slight increases in standard deductions, and significant increases in the state and local tax (SALT) cap from $10,000 to $40,000. Additional updates include adjustments to charitable contribution deductions, new senior tax deductions, auto loan interest tax deductions, and child tax credits. Other notable changes include the expiration dates for electric vehicle and home energy efficiency tax credits, as well as the introduction of new investment accounts for newborns. 

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SPEAKER_00 0:00

I just looked at one of my example clients and that $30,000 difference, they actually are going to be able to take advantage of that. That's going to be about a $10,000 savings for them.

SPEAKER_01 0:10

This is Techy Personal Finance Bootcamp where I help tech professionals in their 20s and 30s balance a great life today without sacrificing their future possibilities. I'm your host, Lucas Caceres, certified financial planner and founder of Level Up Financial Planning, where I help educate, coach, and build strategies with my clients to help them take their financial confidence to the next level.

SPEAKER_00 0:31

To kick things off, I always have to have my disclosure. So nothing I'm going to be talking about today is going to be specific financial advice to you. This is going to be more information for you to be able to tackle and make sure that you have a better understanding of what's going on. Always do additional due diligence and research on your own. If you are a client of mine, then obviously I'm going to have a lot of insights and I can give you more specific advice to you. Hello, thanks for joining Techie Personal Finance Bootcamp. And this is a special edition episode. I'm going to be talking about all the new key changes in the tax law that were just recently announced on July 4th, 2025. And today I'm going to be covering those at a high overview level, at least the ones I think that will impact you the most. There's still going to be a bunch of other things like taxes on tips, quite a few other things for businesses as well that I'm not going to tackle today. Just because that's not who typically I serve. That's not typically where my audience is. But if there are some of those things that you're looking for information, feel free to reach out to me. I'll be able to point you in the right direction. So we're going to talk about what's changed. And at a higher overview, there's temporary tax laws that were made permanent. There's changes to existing deductions that are out there. There's both existing deductions and new deductions that have occurred as well. And there's also changes to tax credits. And then finally, there's a new account type created for newborns. The biggest tax savings actually won't be noticeable to you. And that's because the temporary tax laws that we've been living with since 2018 are just being made permanent. So these are the things that we've already been having our paychecks withheld for. Whenever we've filed our returns the last handful of years, it's always been at the current tax law that we've been operating off of. And why that's significant? Because everything we'd been living with the last few years were actually going to be set to expire at the end of 2025. And so there was a big unknown. Were taxes going to revert back to the old tax rules and were people's taxes going to increase? With this new law passing and making it permanent, it means that we don't have to worry about taxes jumping up and increasing back to the old rates. And nearly everything that was put in place back in 2017-2018 has now been made permanent with some minor changes. So some of those changes are to existing deductions. The standard deductions, what you're going to see is this is the additional amount that I have here on the screen. So $750 of additional deductions will get added to the standard deduction that was supposed to be in 2025. And for joint filers, that's $1,500. So again, this is the additional amount above and beyond what the original standard deductions were. So before it was $15,000 for single filers and $30,000 for joint filers. Now it's $15,750 for single filers and $31,500 for joint filers, is the full sandwich deduction with that increase factored in. Another huge change, and this one I think is the biggest one, at least for most of my clients where it's going to be the most impactful, and actually have a true tax savings because the sandwich deduction, it's going to save a couple hundred dollars. It's not going to make a huge difference at the end of the day. But this one here, if you itemize and had been running into what's called the state and local tax cap of $10,000, you no longer are going to run into the issue at $10,000. That cap is going to be temporarily increased to $40,000, which is a significant amount. If you're able to kind of utilize maybe you're in a high state income tax place or a high state property tax and your income's high, like all these things are going to factor in. And I just looked at one of my example clients and that $30,000 difference, they actually are going to be able to take advantage of that. That's going to be about a $10,000 savings for them. And so how you could figure out whether this is relevant to you is well, if you've already been itemized, and there's a good chance that you'll be able to utilize and take advantage of this. And the tax savings will be whatever your state and local tax is above the $10,000 limit. Because before you were getting capped at it, you captured ammunition to it. And so all the extra stuff just wasn't counting. It wasn't helping you on your federal taxes. Now you're going to have at least that cap up to 40,000. And so if you're 10,000 more than that, maybe it's 20,000 state and local tax that you're able to itemize when previously you weren't, and you're, and that's going to be beneficial for you. Then that additional 10,000 that you're able to deduct extra, multiply that by your tax bracket. So if you're in that 24% tax bracket, well, $10,000 over that, that's $2,400 of additional tax savings that you're going to have in this example. So very, very meaningful. And that was just $10,000 over. Just again, imagine if you are able to utilize the full extra $30,000 and get to that $40,000 cap. It's going to be pretty significant tax savings that you're going to realize on your taxes when you file it. And maybe if you haven't been itemizing your deductions and have just been missing out because the standard deduction was just slightly better, well, this change here could actually mean the difference of, well, no, it's going to be pretty obvious now that now that we can throw all of our state income taxes, all of our property taxes, or at least at a higher degree to your itemized deductions, that might shoot you well above that standard deduction, even with these recent increases. And again, we'll just be more beneficial by however much more you are able to itemize than what you would have been able to with that previous $10,000 cap. Finally, on the existing changes to deductions, charitable donations. In the past, you've been required to itemize your deductions in order to recognize those charitable donations you've been making. And the thing that syncs about is, well, if you itemizing isn't the best for you, you haven't really been receiving a federal tax benefit by doing those contributions. This new law that was signed in actually allows a deduction up to $1,000 for a single individual or up to $2,000 for joint filers for charitable donations without being required to itemize your deductions. You're able to take the new standard deductions, which we went over is higher now, plus you could do the charitable donations up to that cap that I mentioned. So pretty nice benefits. And again, if you're contributing way more than that, unfortunately, if you're not itemizing, you won't be able to go above that cap. But at least this gives you a little bit breathing room, just kind of using that same 24% tax bracket. If you're able to utilize the full amount, you're a single individual and deduct $1,000 at that 24% tax bracket. That's $240 of savings that just wouldn't have occurred without these laws going into place. So some small benefits there if that applies to you. And now a quick message from our nonprofit sponsor, tech by choice.

SPEAKER_02 7:27

Tech by choice is a nonprofit that's focused on helping underrepresented groups understand thrive in tech. Our main goal is to be a community that you don't need a code to switch in in order to learn what you need to thrive in tech. And so we do workshops for skill building, we talk about financial literacy, we also talk about mental health and what to do if you run into discrimination in the workplace. Any donations, if you go to tech by choice.org slash donate, you'll get all the details on how you can give to the organization. The other way that you can get involved and help tech by choice is to volunteer. We are always looking for mentors and we're looking for people to help out with some of our resume review events and just supporting the community by even joining and answering questions in our Slack is always really helpful. And then if you have any connections for us to get those sponsorship deals and then larger companies and get out there in the tech streets, I'm always open to that as well. So there's a lot of different ways to help.

SPEAKER_00 8:36

Some of the new deductions that kind of catches people's eyes, unfortunately, once we dig into the weeds, we'll see that these might not be as impactful as previously thought or as you'd expect. But auto loan interest is going to be a new deduction for some folks, as well as a 6,000 senior tax deduction. And so those are a little bit more complicated just because they're new. And so there's a little bit more rules that you might not be familiar with. So we'll dive into that. The auto loan interest, it's going to be the interest only, right? It's not going to count the full payment amount that you're making on those vehicle payments, because a good portion of that hopefully is going towards the principal, but then a smaller portion is going towards the interest. But some of the rules there is going to be a max $10,000 tax deduction. It's looking like it's going to have to be made in America. It's going to be a new vehicle purchase, a new loan in 2025. So for any folks that got a loan in 2024 or a loan on a used vehicle, those are not likely going to apply unless maybe as they're going through the finalization and clarification of how these rules work, maybe something like that changes. So definitely stay tuned. The biggest issue here though is well, there's going to be a lot of folks that might have vehicle loans and think that they're going to be able to take advantage of the auto loan interest. This deduction starts to phase out after $100,000 for any single filers and starts to phase out at $200,000 for any joint filers. So if your income is substantially more than that, you might start to see that your deduction is not going to be as much as you thought. And really to take advantage of a $10,000 interest deduction on an auto loan, you'd have to have either a really horrible interest rate or a gigantic auto loan, which I suppose is possible. But in reality, most people aren't going to be saving too much with the auto loan interest deduction, maybe a couple hundred dollars, not anywhere near $2,000 or $3,000 unless, unless you are paying $10,000 a year in auto loan interest, which would be a pretty brutal place to be with your auto loan. So another new deduction is that $6,000 senior tax deduction. And you might be like, well, I didn't know that something like that was on the table. Well, that's because what they were calling it when they were promoting it, trying to push it through the and make it law, is they were saying no tax on Social Security. Unfortunately, the whole no tax on Social Security was more of a marketing gimmick. It doesn't even apply to Social Security specifically. It's you have to be at least age 65, and you can be age 65 and not turn on Social Security and still be able to be eligible for this. Another thing that is going to make it not likely to be as impactful is there are income phase outs. And so I have a couple of clients right now who are in retirement and they're going to be above these phase out limits. And so very little of that deduction is actually going to come their way, even though they are receiving Social Security. And so there is this benefit. You kind of have to fit like this nice medium income level retiree in order to kind of actually get that full 6,000 senior tax deduction. And some people's their income for Social Security is about $30,000, $35,000 a year. So $6,000 is only a fraction of that, right? And so saying or promoting that it's a no tax on Social Security, clearly not true. It's going to help a little bit on taxes for people that are 65 or older and kind of fit under this income limit of $75,000 single filers and $150,000 joint filers. So another big change is going to be to the tax credits, the child tax credit. And so the way that works is they increased it $200 per child. And so now the new tax credit is $2,200. Previously it was $2,000. And so that could be a boost for folks that have one or multiple children. You'll be able to see that when you file your taxes and see the credit applied there. Some other less beneficial tax credit changes is actually the removal and expiration of some of the energy efficiency tech credits. And so the electric vehicle or EV tax credits, those will be cut off as of September 31st, 2025. So if you purchase a qualified EV vehicle after September 31st, 2025, you are not going to be eligible to receive the tax credits. And so what those are between now and September 31st are 7,500 for eligible new vehicles. And then 4,000 is for used eligible vehicles. And again, making a purchase the day after that, you'll be out of luck. But if you make those purchases beforehand and they're eligible, those will be tax credits when you file your tax returns for 2025. Another one that's going to be expiring is the home energy efficiency. This one's super relevant to me and my family. We just had to get a whole new HVAC unit ourselves. And so we actually beat this cutoff with plenty of time because you have till December 31st, 2025 to have that installation occur. And one of the big rules that I tackle with my clients is it's actually when the installation occurs. So it's not when you sign the contract, it's not when you pay, it's when the installation occurs. So make sure if that is something that you're looking forward to as far as tax credits, that the installation date occurs well before December 31st, because it could be, for some reason, late notice cancellations and stuff like that. Right now, most eligible appliances are going to be typically $600 each. So if you get an AC unit and a furnace, that's $600 each. And they do cap it at $1,200 max per year. And obviously, we know this is going to expire at the end of 2025. So moving forward, 2026, those will no longer apply. So the last big change that I'm going to share with you guys today, because I think it's still relevant to many of the folks I speak with, are right now they're calling them Trump accounts. I don't know if that's going to be the official name. Those are going to be accounts opened for newborns, and they're going to receive $1,000. It's going to be automatically invested in the U.S. stock index. And parents can actually contribute to that $5,000 annually. Some of the benefits there is tax-deferred growth. And when that the child ends up receiving the funds, as long as that distribution is an eligible distribution in adulthood, then it's going to be taxed at long-term capital gains rates, which is significantly lower than normal income tax brackets, which are going to be preferential to the normal income tax brackets that your earned income is going to fall into. So definitely a unique benefit, kind of a twist. It operates different than a retirement account. It operates different from a 529 account as well. Not to say better or worse, but definitely different and something that you'd want to analyze if you have the option. So if you're a parent considering contributing to this, well, where are the other places you could put those funds and what's the pros and cons of those other spots over this one? So in summary, we covered, well, the current tax laws were made permanent. So that's really the biggest change and the biggest impact of these new tax laws is they made the current tax laws, which were pretty substantial and had significant tax savings back when they were implemented originally in 2018. Making those permanent is a huge deal. They did that slight increase of standard deduction, probably going to save most people listening. That's a couple hundred dollars. They increased the cap on SALT to 40,000, which again, I think by far out of all these things, that's going to be the biggest benefit to many of my clients. And probably to most of you guys listening. Charitable contributions are no longer going to require you to itemize, which has always been a pain in the butt if you've kind of not been able to get those. There's that new senior tax deduction. Unfortunately, it's not a full no tax on Social Security, but we went over how that works and how that's relevant and might have some tax savings for people that fit that perfect window. There's the new vehicle interest tax deduction. There's the increase of the child tax credit from 2,000 to 2,200. There's the expiration of the EV tax credit. Again, at the end of September, you'd want to make sure you have that purchase in if that's a goal of yours and if that's a benefit you're hoping to take advantage of. There's the expiration of the home energy efficiency to tax credits. That happens at the end of this year. So December 31st, make sure those get installed by that 10. Then there's the new Trump accounts for newborns. We'll see if that account holds up. But a unique benefit, definitely $1,000 is free money, and the fact it doesn't get invested will allow folks to get some exposure and to grow some wealth. And the fact that it's locked up until they're at least 18 is pretty unique too. So hopefully they'll see some growth. There's definitely more changes, but most of those are going to be low likelihood that they would impact you. Maybe they impact your spouse or a loved one. And so feel free to explore the changes more in depth. If you have any questions, feel free to reach out. And again, if you're a client, definitely I'll let you know how I think these impact you very specifically. I'm sure just listening through this, you can probably have a general idea of what those things look like. Most are going to be a couple hundred dollars. And really that salt cap is really where that could be thousands of dollars of additional tax savings. So hopefully this is valuable information to you. Hopefully it's no longer a question mark of I don't know how this impacts me or what's going on. Hopefully, this helps a ton. Reach out if you have any questions. Nonprofit sponsors were provided ad space at no charge. I think they're awesome and wanted to provide them a platform to spread awareness about the great work that they do.

SPEAKER_01 18:18

Thank you so much for listening to Techie Personal Finance Bootcamp. You can find show notes by visiting Lowellfinancial Planning.com and finding the podcast page. You'll also be able to find strategy guides, videos, and tunes to help you take your financial confidence to the next level. If you feel this episode has added a ton of value for you, please array and share this with friends and colleagues. Catch you next time on Techie Personal Finance Bootcamp.