OBBBA Tax Deductions 2025: $10,000 Car Loans, $25,000 Tips, $40,000 SALT, and More
By Clinton Donnelly, CEO, Founder | CryptoTaxAudit
As you prepare to file your 2025 tax return, understanding the new OBBBA deductions can help you maximize your tax savings.
The One Big, Beautiful Bill Act (OBBBA) created six new deductions for individual taxpayers and significantly expanded another.
OBBBA Tax Deductions at a Glance:
The first four deductions work with either the standard deduction or itemized deductions and phase out at specified income thresholds. The sections below explain each deduction in detail.
The sections below explain each deduction in detail. If you hold crypto and have questions about how these rules apply to you, we're here to help.
1. Can I deduct car loan interest in 2025 under OBBBA, and who qualifies for the $10,000 limit?
Car Loan Interest Deduction
Car loan interest is deductible up to $10,000 annually. The loan must have been taken out after December 31, 2024 to purchase qualifying motor vehicles for personal use.
You can claim this deduction with either itemized deductions or the standard deduction.
The deduction phases out when your modified adjusted gross income (MAGI) exceeds $100,000 for single filers or $200,000 for joint filers.
The loan must finance a qualifying motor vehicle, officially called an "applicable passenger vehicle.
Qualifying Vehicle Requirements:
You can search online for "[car make/model] U.S. assembly location" to find initial information. Always verify this with the dealer before purchase.
Qualifying Loan Requirements:
2. Who qualifies for the OBBBA tip income deduction, and what counts as "qualified tips"?
Tip Income Deduction
OBBBA allows up to $25,000 in deductions for qualified tip income in occupations where tipping is customary and common
Who qualifies for this deduction:
What qualifies as a tip:
Qualified tips are cash tips received in occupations that customarily and regularly receive tips. The IRS maintains a list of qualifying occupations.
Qualified tip characteristics:
These professional fields do NOT qualify:
- Health
- Law
- Accounting
- Consulting
- Financial services
- Brokerage services
- Performing arts
- Athletics
- Similar professions
Income phaseout:
3. How does the OBBBA overtime deduction work, and what overtime actually counts?
Overtime Pay Deduction
OBBBA provides an overtime pay deduction with different limits based on filing status. The $25,000 joint limit applies to the couple combined, regardless of which spouse earned the overtime.
Maximum deduction amounts:
Eligibility requirements:
What qualifies as overtime:
Qualifying overtime includes FLSA-required compensation that exceeds your base pay rate. This covers the additional "half" portion of time-and-a-half pay.
Qualified overtime:
These types of compensation do NOT qualify:
- Vacation pay
- Bonuses
- Tips
- Sick pay
- Business expense reimbursements
Income phaseout:
4. What is the $6,000 OBBBA senior deduction, and does it really mean "no tax on Social Security"?
Senior Deduction
OBBBA provides a $6,000 deduction for individuals age 65 or older at the end of the tax year. On joint returns, each spouse who is 65 or older qualifies for the $6,000 deduction.
Senior deduction amounts:
Eligibility requirements:
Common misconception:
This deduction was commonly referred to as "no tax on social security" during the legislative process. However, it does not directly affect Social Security benefit taxation.
The deduction is available to all taxpayers age 65 or older, regardless of whether they receive Social Security benefits.
If you qualify, the deduction reduces your overall tax liability.
No Tax on Social Security" clarification:
Income phaseout:
5. Is the SALT cap really $40,000 for 2025, and do I need to itemize to claim it?
State and Local Tax (SALT) Deduction
The SALT deduction existed before OBBBA, but the law raised the annual limit to $40,000 for 2025 (up from $10,000 in 2024). The enhanced limit phases back down to $10,000 when MAGI exceeds $500,000 for most filers or $250,000 for married filing separately.
SALT deduction limit:
Deductible state and local taxes:
Income tax vs. sales tax - you must choose:
You must choose between deducting income taxes or sales taxes - you cannot claim both. If you deduct sales taxes, you can either track actual amounts paid or use IRS tables to determine the deductible amount.
Motor vehicle tax deductibility:
To qualify for deduction, motor vehicle taxes and fees must depend on the vehicle's value. Taxes based solely on weight, model year, or horsepower do not qualify. Taxes partially based on value and partially on other factors may partially qualify.
Itemizing requirement:
The SALT deduction requires itemizing, unlike the other deductions discussed in this guide. The increased limit may make itemizing worthwhile if you have not itemized previously. For taxpayers who already itemize, you may claim a significantly larger SALT deduction.
SALT vs. Other OBBBA Deductions:
Enhanced limit phaseout:
The enhanced SALT limit phases out when MAGI exceeds $500,000 for most filers or $250,000 for married filing separately. The cap decreases by 30 cents for every dollar of MAGI above the threshold, with a floor of $10,000.
6. Can I deduct charitable donations if I don’t itemize, and what changes in 2026?
Charitable Contribution Deduction for Non-Itemizers
Starting in 2026, OBBBA creates a charitable contribution deduction for non-itemizers. Single filers can deduct up to $1,000, while married joint filers can deduct up to $2,000.
Non-itemizer charitable deduction (starting 2026):
Qualifying contributions:
Contributions must be cash donations to public charities. Donor-advised funds and private foundations are not eligible for this deduction.
Accepted payment methods:
- Cash
- Check
- Electronic funds transfer
- Online payment services
- Debit cards
- Credit cards
- Payroll deduction
- Gift cards redeemable for cash
You must maintain a record of the contribution to claim the deduction.
2025 timing consideration:
For taxpayers planning to itemize in 2025, consider making charitable gifts before December 31. Starting in 2026, itemizers must reduce their charitable deduction by half a percent (0.5%) of their adjusted gross income.
2025 vs. 2026 comparison:
7. What educator expenses become deductible in 2026, and how is this different from the $300 deduction?
Itemized Deduction for Educator Expenses (Starting 2026)
Starting in 2026, OBBBA creates an itemized deduction for K-12 educators that complements the existing above-the-line deduction for classroom expenses. The above-the-line deduction is $300 in 2025 and increases to $350 in 2026.
Two educator expense deductions compared:
Key differences:
The above-the-line deduction and the new itemized deduction differ in two key ways. First, the itemized deduction has no dollar limit. Second, the itemized deduction covers expenses for sports administrators, coaches, and athletic staff, plus nonathletic supplies for health or physical education courses.
Who qualifies:
Eligible educators include kindergarten through grade 12 teachers, instructors, counselors, interscholastic sports administrators, coaches, principals, and aides. To qualify, educators must work at least 900 hours during the school year.
Eligible educator types:
Qualifying expenses must be ordinary and necessary costs for:
8. Need help applying these deductions to your return?
Have questions about claiming these deductions on your 2025 return? We can walk through your specific situation.
Related Articles: The One Big, Beautiful Bill Act (OBBBA): What Changed for Your 2025 Taxes
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