Important Tax Changes in 2025

Possible credits and deduction changes to keep in mind.

As we enter 2025, tax laws continue to evolve, bringing new opportunities and considerations for taxpayers. Here are some key updates to tax credits and deductions that individuals should keep in mind:

Disaster relief

Individuals impacted by a federally declared disaster between 2021 and 2024 (such as hurricanes, wildfires, severe flooding, or blizzards) may qualify for tax deductions on personal losses and special treatment for retirement distributions.

Personal Loss Deductions:

Taxpayers who suffered personal losses due to a disaster may be eligible for a deduction based on the reduction in their property’s fair market value, minus any insurance payouts or FEMA assistance received. These losses may qualify as an additional standard deduction, even for those who do not itemize. For disasters occurring in 2024, you may choose to claim the losses on either your 2023 tax return or 2024 Form 1040. If the disaster occurred between 2021 and 2023, and claiming the loss would be beneficial, you may need to amend your tax return for the relevant year.

Retirement Distribution Relief:

Eligible individuals may withdraw up to $22,000 from IRAs or retirement plans to cover disaster-related expenses without incurring early withdrawal penalties. These distributions generally must be made within 180 days of the disaster declaration. The taxable income from the withdrawal can be spread over three years or fully repaid within three years to reduce the tax liability.

To determine eligibility and ensure compliance with IRS regulations, consult a tax professional or visit the IRS website for more details.

Standard deductions

The IRS has increased standard deductions in 2025:

  • For single taxpayers and married filing separately, the standard deduction has increased from $14,600 in 2024 to $15,000 in 2025.
  • For married filing jointly, the standard deduction has increased from $29,200 in 2024 to $30,000 in 2025.
  • For heads of households, the standard deduction has increased from $21, 900 in 2024 to $22,500 in 2025.

Marginal tax rate

Marginal tax rates will remain the same in 2025; however, increased income thresholds will affect how your income is taxed. The top tax rate remains 37% for individual single taxpayers with incomes greater than $626,350 ($751,600 for married couples filing jointly). The other rates are as follows:

  • 35% for incomes over $250,525 ($501,050 for married couples filing jointly).
  • 32% for incomes over $197,300 ($394,600 for married couples filing jointly).
  • 24% for incomes over $103,350 ($206,700 for married couples filing jointly).
  • 22% for incomes over $48,475 ($96,950 for married couples filing jointly).
  • 12% for incomes over $11,925 ($23,850 for married couples filing jointly).
  • 10% for incomes $11,925 or less ($23,850 or less for married couples filing jointly)

Alternative minimum tax

The 2025 alternative minimum tax (AMT) exemption amounts are as follows:

  • For unmarried or head-of-household individuals, the AMT exemption is $88,100 (an increase of $2,400 from 2024) and begins to phase out at $626,350.
  • For married couples filing separately, the exemption is $68, 650 (an increase of $2,000 from 2024) and begins to phase out at $ $626,350.
  • For married couples filing jointly, the exemption is $137,000 (an increase of $3,700 from 2024) and begins to phase out at $1,252,700.

Capital gains

Short-term capital gains are taxed as ordinary income according to federal income tax brackets. Long-term capital gains tax for assets sold in 2025 (reported in 2026) will see an increase in the threshold amounts per tax rate.

For assets sold in 2024 (reporting in 2025)

Tax rate Single Married filing jointly Married filing separately Head of household
0% $0 to $47,025 $0 to $94,050 $0 to $47,025 $0 to $63,000
15% $47,026 to $518,900 $94,051 to $583,750 $47,026 to $291,850 $63,001 to $551,350
20% $518,901 or more $583,751 or more $291,851 or more $551,351 or more

 

For assets sold in 2025 (reporting in 2026)

Tax rate Single Married filing jointly Married filing separately Head of household
0% $0 to $48,350 $0 to $96,700 $0 to $48,350 $0 to $64,750
15% $48,351 to $533,400 $96,701 to $600,050 $48,350 to $300,000 $64,751 to $566,700
20% $533,401 or more $600,051 or more $300,001 or more $566,701 or more

 

Social Security

In 2025, this wage base will increase to $176,100, up from $168,600 in 2024.

Estate and gift tax

  • Lifetime Estate and Gift Tax Exemption: In 2025, the exemption is $13,990,000 per individual, an increase from $13,610,000 in 2024.
  • Annual Gift Tax Exclusion: For 2025, the exclusion is $19,000 per recipient, up from $18,000 in 2024.
  • Gifting as a Married Couple: If married, you and your spouse can each gift up to $19,000 to the same individual in 2025, totaling $38,000 per recipient without affecting your lifetime exemption.
  • Lifetime Gift Exemption: The lifetime gift exemption is unified with the estate tax exemption, meaning the total amount you can transfer without incurring federal estate or gift taxes is $13,990,000 per individual in 2025.

It’s important to note that the current higher exemption amounts are scheduled to revert to pre-2018 levels (adjusted for inflation) after December 31, 2025, unless Congress enacts new legislation.

Adoption credits

For tax year 2025, the maximum credit allowed for an adoption of a child with special needs is the amount of qualified adoption expenses up to $17,280, increased from $16,810 for tax year 2024.

Tax law changes can present both opportunities and challenges. While we’ve highlighted some of the most significant updates for 2025, it’s crucial to consult with a tax professional to ensure you’re maximizing benefits and avoiding potential pitfalls. As your advisors, we’re here to help support you every step of the way. Feel free to reach out anytime to discuss these changes, refine your tax strategy, or address any other financial matters as we start the new year.

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