2025 Tax Code Changes: What Individuals and Families Need to Know

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Recent updates to the tax code may significantly affect how individuals and families approach deductions, credits, and savings strategies. Here’s a summary of the most notable changes and what they could mean for you.

1. Personal Exemptions

Prior to the Tax Cuts and Jobs Act (TCJA), individuals and their dependents were permitted a personal exemption deduction. TCJA temporarily repealed those exemptions and replaced them with an increased standard deduction. While this deduction has now been permanently terminated for the general population, a modified senior deduction of $6,000 has been retained. Seniors may continue to benefit from an adjusted deduction amount, recognizing the increased financial needs often associated with retirement.

Tip: Seniors, age 65 or older, should ensure they claim this deduction to offset taxable income.

2. Expanded Child Tax Credit (CTC)

Families with children will see enhanced support through the Child Tax Credit (CTC). For 2025, the credit amount has increased from $2,000 to $2,200 per child, and eligibility has been broadened to include more households. These changes provide meaningful financial relief to working families by offering a higher refundable credit per qualifying child. Income phaseouts have also been adjusted, allowing more middle-income families to benefit.

Why it matters: More families will qualify for this credit, with enhanced financial relief for working parents.

3. Higher SALT Deduction Cap

The SALT deduction, which allows taxpayers to deduct state and local income, property, and sales taxes, remains in place, but the limitations have been increased. Previously, the limitation on state and local taxes as an itemized deduction was $10,000. Under the new law, this limit has now been significantly raised to $40,000. This will affect high-income earners as well as those living in high-tax states.

Tax Planning Tip: If you itemize deductions, this higher cap can lead to significant tax savings.

4. New Deduction for Car Loan Interest

For tax years 2025 through 2028, interest paid on a loan to purchase a qualifying passenger vehicle for personal use may be deducted under a temporary provision in §163(h)(4). To qualify, the loan must be incurred after Dec. 31, 2024, and secured by a first lien on the vehicle. The interest is only deductible if the taxpayer includes the vehicle’s identification number (VIN) on their return. Refinancing of such loans is also eligible for the deduction, but only to the extent the refinanced amount does not exceed the original loan principal.

5. Charitable Contribution Rule Changes

Charitable giving incentives have been altered in two key ways:

• 0.5% Floor for Itemizers: Taxpayers who itemize must now meet a 0.5% of adjusted gross income (AGI) threshold before charitable contributions are deductible.

• Above-the-Line Deduction for Non-Itemizers: Good news for those taking the standard deduction, you may now deduct a limited amount of charitable contributions without itemizing, offering a new incentive for modest givers.

These changes encourage broader participation in charitable giving while adjusting how those donations are treated for tax purposes.

6. Introduction of “Trump Accounts”

Newly created “Trump Accounts” refer to new tax-advantaged savings accounts designed to promote household financial resilience. While final regulations are still developing, these accounts may resemble HSAs or IRAs in their structure, offering potential tax deductions for contributions, tax-deferred growth, and penalty-free withdrawals for qualified expenses.

Stay Tuned: Final regulations are pending, but these accounts could be a powerful financial tool.

7. Expanded Uses for 529 Plans

529 education savings plans have been expanded to cover more than just college tuition. Now, funds from these accounts can also be used for:

• K-12 private or religious school tuition

• Certain apprenticeship program tuition 

• Up to $10,000 of student loan repayment

These changes make 529 plans more versatile for families looking to fund education at various stages of life.

8. Individual Energy Credits Phasing Out

Several individual energy efficiency credits, like those for solar panels, energy-efficient windows, and electric vehicle charging stations, are scheduled to sunset in the coming years unless renewed by Congress.

Act Now: If you’re planning energy-efficient home improvements, now may be the time to act in order to capture these benefits.

9. Adjusted Premium Tax Credit (PTC)

The Premium Tax Credit, which helps individuals and families afford health insurance through the federal marketplace, has been modified to extend eligibility and temporarily enhance affordability. The income cap for qualification has been relaxed, and the amount of the credit may be increased depending on household income and market premiums.

Impact: This change improves access to affordable health coverage through the federal marketplace.

Final Thoughts

These 2025 tax code changes offer both new opportunities and critical adjustments for individuals and families. Whether you’re planning a vehicle purchase, revisiting your charitable strategy, or funding your child’s education, staying informed helps you make smarter financial decisions.

Need guidance? Reach out to our team at Cornerstone CPA to make sure you're maximizing deductions and minimizing surprises.