Each year, the Federal tax brackets and the Standard Deduction amount are usually adjusted for the following year.
This typically happens later in the year, effective for the following year, and is announced by the I.R.S..
This year, a new government bill was passed in July that will affect your 2025, current year, tax filing (and beyond)!
There are still a few other updates expected in the Fall (Medicare costs, 401k/IRA contribution limits, etc.),
but here is a brief re-cap of what has already changed:
The I.R.S. Federal Standard Deduction amounts for each Filing Status have increased, effective for 2025:
• $31,500 for Married Filing Jointly - up $1,500
• $15,750 for Single - up $750
• $15,750 for Married Filing Separately - up $750
• $23,625 for Head of Household - up $1,125
An existing deduction for those age 65 or older does not change:
• $1,600 for each spouse age 65 or older, if Married Filing Jointly
• $2,000 if age 65 or older for the other filing statuses
Then there is a completely new, additional deduction for those age 65 or older - but only for 2025 - 2028:
• $6,000 for each person age 65 or older, for all filing statuses
For Married Filing Jointly, with both spouses age 65 or older, that is an additional $12,000 deduction ($6,000 if single).
Their total deduction is then $31,500 + $3,200 + $12,000 = $46,700!
If only one spouse was age 65 or older, the total deduction is $31,500 + $1,600 + $6,000 = $39,100.
Filing as Single, and age 65 or older, your deduction is $15,750 + $2,000 + $6,000 = $23,750.
Filing as Head of Household, and age 65 or older, your deduction is $23,625 + $2,000 + $6,000 = $31,625.
Important - For the new $6,000 deduction for those 65 or older, that amount is phased out for Modified Adjusted Gross Incomes (MAGI) over $150,000 (Married Filing Jointly), or over $75,000 for the other filing statuses.
For MAGI over $250,000, if married, or over $175,000, if Single, the amount is $0.
For MAGI between $150,000 and $250,000 (if Married) the amount is reduced by 6% of the amount over $150,000.
For MAGI between $75,000 and $175,000 (if Single) the amount is reduced by 6% of the amount over $75,000.
This deduction is in effect for 2025 through 2028 only.
But wait, there's more!
The deduction for Real Estate Taxes and State Income Tax (or State Sales Tax) combined was previously limited
to $10,000 ($5,000 if Single). That was a decent amount in States with lower taxes, but in States with higher real estate taxes that amount was less than the actual real estate tax paid (even before State Income/Sales tax).
As of July, the combined limit for Real Estate Taxes and State Income/Sales Tax was raised to a total of $40,000,
if married, and $20,000, if single. Those amounts will also increase 1% annually until 2029.
These new limits will revert to the old limits ($10,000/$5,000) after 2029.
There are also MAGI limitations of $500,000, if Married, and $250,000 if Single.
If married, with a MAGI of between $500,000 and $600,000, the deduction is reduced by 30% of the amount
over $500,000. For MAGI of more than $600,000, the deduction is reduced to $10,000 maximum.
If Single, with a MAGI of between $250,000 and $375,000, the deduction is reduced by 30% of the amount
over $250,000. For MAGI of more than $375,000, the deduction is reduced to $5,000 maximum.
These deductions are substantial, but if you are not aged 65 or older during 2025-2028, or have significant real estate taxes from 2025-2029, their usefulness may be limited. Still good news for those who can take advantage,
while they last. Who knows what may happen after 2028/2029!