Big Tax Changes to Watch for Tax Year 2025 (Filing in 2026)

By Published On: November 25, 2025Categories: Tax Tips, Services - Tax

As we head into 2026, several important tax law changes will affect how people should approach their 2025 tax planning. Many of these stem from the “One Big Beautiful Bill Act” (OBBBA), passed in 2025, as well as routine inflation indexing by the IRS. Below are the top items to keep on your radar.

1. Expanded SALT Deduction Cap

One of the most headline-grabbing changes: the State and Local Tax (SALT) deduction cap is dramatically increasing. Under OBBBA, the cap jumps from the long-standing $10,000 limit to $40,000 for 2025.

  • That higher cap does phase out for higher earners: for taxpayers with modified adjusted gross income (MAGI) over $500,000, the deduction begins to phase down, and fully reverts to $10,000 at MAGI around $600,000.
  • The cap also increases 1% per year through 2029.
  • Because of this, more taxpayers in high‐tax states may find itemizing more attractive in 2025 than they have in recent years.

2. Limit on Itemized Deductions for High Earners

Starting in 2026 (i.e., for tax returns filed in 2027), there will be a new cap on the tax benefit of itemized deductions for taxpayers in the highest bracket. Specifically:

  • For those in the top (37%) bracket, the benefit from all itemized deductions (including SALT) will be limited to $0.35 of tax benefit per $1 of deduction.

3. Charitable Contribution Change

Another shift beginning in 2026: a new “floor” for charitable deductions:

  • Only contributions that exceed 0.5% of income will be deductible for those who itemize.
    This effectively limits the tax-advantaged giving window for donors whose giving is modest relative to their income.

4. Alternative Minimum Tax (AMT) Changes

The AMT is also being reworked:

  • The exemption amounts are permanently extended.
  • However, the phase-out of that exemption becomes steeper: after 2025, the phaseout rate increases, raising potential AMT exposure for very high-income filers.

5. Retirement & Fringe Benefits: Childcare and Paid Leave Credits

Several benefits for employers and employees are changing starting in 2026. Here is one to highlight:

  • On the employee side, the exclusion amount for dependent care assistance programs (employer benefits) increases: starting in 2026, that limit rises from $5,000 to $7,500 (or $3,750 for married filing separate).

6. Estate & Gift Tax Exemption Boost

For estates of decedents in 2026 (so planning now matters), the basic exclusion amount increases:

  • For 2026, it’s $15 million per person
  • That’s a meaningful increase, which could reshape estate-planning decisions for high-net-worth individuals.

Bottom Line

The changes introduced by the One Big Beautiful Bill Act, combined with routine inflation adjustments, mark 2025 as a pivotal year for tax-planning. Many of the most favorable provisions (higher SALT cap, full value of itemized deductions, no charitable floor) apply before some limitations kick in in 2026. For both individuals and business owners, now is the time to be proactive, run the numbers, and make tactical decisions that align with your long-term goals. For any questions please reach out to your SDK advisor at 612-332-5500 or through email at info@sdkcpa.com.