New U.S. Tax Deductions & Credits: What Individuals Need to Know (2025–2028)
With several new tax rules taking effect between 2025 and 2028, individual taxpayers may benefit from deductions and credits that previously didn’t exist. This article explains each provision in simple terms so you know exactly what is changing — and how it may apply to you.
1. Car Loan Interest Deduction (2025–2028)
A new deduction allows individuals to deduct up to $10,000 per year in interest paid on a qualified new vehicle loan.
Eligibility Requirements
- Loan originated after December 31, 2024
- Vehicle must be brand new (not used)
- Personal use only (not for business)
- Vehicle must have final assembly in the U.S.
- Loan must be secured by the vehicle
- Refinanced loans remain eligible
Income Limits
Phases out above:
- $100,000 MAGI (single)
- $200,000 MAGI (married filing jointly)
Reporting
Lenders must issue annual interest statements to the IRS and to borrowers.
2. Overtime Pay Deduction (2025–2028)
Employees may deduct the extra overtime portion (the “half” part of time-and-a-half).
Key Rules
- Maximum deduction:
- $12,500 (single)
- $25,000 (joint filers)
- Applies to overtime required by FLSA
- Deduction phases out at:
- $150,000 MAGI (single)
- $300,000 MAGI (married filing jointly)
- Standard deduction users can claim it
Married taxpayers must file jointly to qualify.
3. Tips Income Deduction (2025–2028)
Employees and eligible self-employed workers may deduct up to $25,000 of “qualified tips” received in IRS-recognized tipped occupations.
Key Rules
Qualified tips include:
- Voluntary cash tips
- Charged tips
- Tip-sharing
Important Exclusions
You do not qualify if:
- You are self-employed in an SSTB (Specified Service Trade or Business)
- You work for an employer that is an SSTB
Income Limits
Phases out above:
- $150,000 MAGI (single)
- $300,000 MAGI (joint)
4. New Senior Deduction (65+) (2025–2028)
Individuals aged 65 or older may claim an additional $6,000 deduction; couples where both spouses qualify may claim $12,000.
Phase-Out Levels
- $75,000 MAGI (single)
- $150,000 MAGI (joint)
Available to both itemizers and standard deduction filers.
5. Charitable Contribution Changes (Beginning 2026)
Universal Deduction for Non-Itemizers
- $1,000 (single)
- $2,000 (joint)
Cash contributions only; donor-advised funds don’t qualify.
0.5% AGI Floor for Itemizers
You can only deduct charitable contributions above 0.5% of your AGI.
Value Cap for High-Income Taxpayers
If you are in the top tax bracket, the deduction benefit is capped at 35 cents per dollar donated.
60% AGI Limit Becomes Permanent
Cash contributions to public charities can be deducted up to 60% of AGI.
New Scholarship Credit (Effective 2027)
- Up to $1,700 nonrefundable credit
- Contributions must go to eligible Scholarship-Granting Organizations (SGOs)
6. Updated Child Tax Credit (2025 and After)
New Maximum Credit
- $2,200 per qualifying child aged 0–16
Refundable Portion
- Up to $1,700 per child, adjusted annually
Income Phase-Out
- $400,000 (married filing jointly)
- $200,000 (single or head of household)
Both the child and taxpayer must have work-authorized SSNs.
7. Trump Accounts (Starting July 4, 2026)
A new hybrid account for children under 18, combining IRA and 529 features.
Contribution Rules
- Individuals: $5,000/year
- Employers: $2,500/year tax-free
- Government deposits $1,000 for newborns (2025–2028)
Withdrawals
Allowed at age 18, with exceptions for:
- Education expenses
- First-time home purchases
Investments
Restricted to ultra-low-fee funds (≤0.1% expense ratio).
About Ibrahim CPA PLLC
Ibrahim CPA PLLC is a professional tax and accounting firm based in the United States, serving individuals, families, and small to mid-sized businesses. Our mission is to simplify tax planning, ensure compliance, and help clients make informed financial decisions with confidence.
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Important Disclaimer
This article provides general information only and should not be considered tax, legal, or financial advice. Individual tax situations vary. Please consult a qualified tax professional before making any decisions.
