Clear Answers to FAQs About the Budget Reconciliation Bill

The 2025 budget reconciliation bill includes a mix of new deductions, extensions to provisions from the 2017 Tax Cuts and Jobs Act and a phase-out of clean energy credits. To help you make sense of it all, we have clear, straightforward answers to frequently asked questions about how the 2025 budget reconciliation bill (aka Trump’s big bill) may affect you.

What Individual Tax Payers Need to Know About the 2025 Budget Reconciliation Bill

Some provisions of the 2017 Tax Cuts and Jobs Act (TCJA) are now permanent. 

• Current tax brackets and marginal tax rates remain in place.
• The higher standard deduction ($15,000 for single filers, $30,000 for joint filers) is permanently extended.
• The standard deduction will adjust annually based on inflation.

There’s also a new bonus standard deduction for seniors $6,000 ($11,200 for married couples) for those over age 65. Seniors with incomes of more than $75,000 (single) and $150,000 (joint) receive lower bonus deduction amounts.

Changes to the Child Tax Credit, Gift and Estate Tax Exemptions

• The child tax credit increases from $2,000 to $2,200 per child under 18.
• Gift and estate tax exemptions increase to $15 million starting in 2026 and will be adjusted annually for inflation thereafter.

What’s happening with the SALT deduction cap?

The TCJA capped State and Local Tax (SALT) deductions at $10,000 per year. The new bill raises this cap to $40,000 for most taxpayers.  

• The $40,000 cap decreases as your AGI increases above $500,000.
• All taxpayers will receive at least the original $10,000 cap.

Is there a tax break for buying a car?

Yes. For new vehicles purchased after December 31, 2024:

• You can deduct up to $10,000 per year in auto loan interest.
• The vehicle must be assembled in the U.S.
• The deduction is temporary, available only from 2025 to 2028.
• Lease financing is not eligible for the deduction.

This deduction is available for taxpayers who itemize deductions and for taxpayers who use the standard deduction. But the $10,000 deduction begins to phase out at an income threshold of $100,000 for single filers and $200,000 for joint filers.

Are tips and overtime pay still taxable?

Partially. Only when tips surpass $25,000 or if taxpayer income exceeds $150,000 (single) or $300,000 (joint).

Up to $25,000 in tips are deductible if:

• You work in a traditionally tipped role (pre-2025),
• The tips are voluntary, not mandated. 

Workers can also deduct up to $25,000 for joint filers or up to $12,500 for single filers in federal income taxes paid on overtime wages. Only the overtime premium (e.g., time-and-a-half portion) is deductible. The deduction starts to phase out at the income levels mentioned above.

Good to know:

• Taxpayers do not have to itemize deductions to receive the tip or overtime deduction.
• Payroll taxes still apply to both types of income. 
• For now, both provisions are only valid from tax years 2025–2028.

How much can I deduct for charitable contributions if I don’t itemize?

The reconciliation bill increases the amount taxpayers can deduct for charitable donations. Taxpayers who take the standard deduction may now deduct up to:

• $2000, for joint filers
• $1000, for single filers

…for charitable contributions made during the tax year.

Note: These deductions will not go into effect until the 2026 tax year.

What’s changing with 529 Plans?

There are two key expansions: for K-12 expenses and credentialing programs.

#1 K-12 Expenses
Qualified expenses now include textbooks, tutoring, and standardized test fees.

#2 Credentialing Programs
Funds from 529 plans can be used to pay for:

• Tuition for credentialing programs  
• Exam fees
• Ongoing required continuing education

Are Health Savings Accounts (HSAs) affected by the reconciliation bill?

Gym memberships are now HSA-eligible, with a $500 cap for single single filers and $1,000 for joint filers. 

Also, HSA contribution limits increase by $4,300 (individual) and $8,550 (family). The reconciliation bill essentially doubles the current HSA contribution limits starting January 1, 2026. That said, the increased contribution limits phase out for taxpayers with an AGI above $75,000 (single) and $150,000 (joint).

What’s happening to clean energy tax credits?

Four clean energy credits are being eliminated early:

• Residential Clean Energy Credit: ends December 31, 2025
• Energy Efficient Home Improvement Credit: ends December 31, 2025
• Alternative Fuel Vehicle Refueling Property Credit: ends June 30, 2026
• Clean Vehicle Credit: ends September 30, 2025

What should I do now?

Mark your calendar. Make a note of when applicable provisions start and end. For example, you have until the end of 2025 to invest in energy-efficient home improvements.

Check income thresholds. Many benefits phase out at different AGI levels.

Talk to a Wealth Manager: Financial planning is personal. A professional can help you adjust your tax strategy and investment plan to help you meet your goals.

A Team of Experts, At Your Service

We’re here to help. Contact Assembly Wealth for personalized guidance on how the Reconciliation Bill impacts your taxes and financial plan. You can connect with us online or by phone (415) 541-7774.

Related Reading:

• Tax-Smart Strategies for Gifting Money to Family and Donating Stock to Charity
• Financial Planning for the Sandwich Generation
• Tax Loss Harvesting and 5 Other Ways to Minimize Taxes
  

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