What's new in the tax code, in plain English.

For 2025 through 2028, individuals age 65 or older can claim an additional $6,000 deduction, or $12,000 for married couples if both spouses qualify. This deduction is available to all filers, whether itemizing or using the standard deduction. It begins to phase out at $75,000 MAGI (single) and $150,000 (MFJ).

If you itemize, the limit on deducting state and local taxes (including Illinois income and property taxes) rose from $10,000 to $40,000 for 2025 and $40,400 for 2026, then rises 1% a year through 2029. The higher limit shrinks for incomes above roughly $500,000 (MAGI), but never below $10,000, and it is scheduled to return to $10,000 in 2030.

Starting in 2026, people who take the standard deduction can deduct up to $1,000 ($2,000 for married couples) of cash gifts to qualifying charities; gifts to donor-advised funds don't count. If you itemize, only the portion of your gifts above 0.5% of your income is deductible, and top-bracket taxpayers get a slightly smaller benefit from itemizing. For IRA owners 70½ or older, giving directly from the IRA (a qualified charitable distribution) is not affected by these limits.

Starting in 2026, the federal estate and gift tax exemption is $15 million per person ($30 million for married couples), adjusted for inflation going forward. The law made this higher amount permanent, replacing the drop that was scheduled for 2026. Illinois still has its own estate tax with a $4 million exemption, so state-level planning still matters for many families.

The qualified business income (QBI) deduction under §199A lets many owners of pass-through businesses (S corporations, partnerships, and sole proprietorships) deduct up to 20% of qualified business income. It was set to expire after 2025 and is now permanent. The income range where limits phase in was widened, and a new $400 minimum deduction applies to owners with at least $1,000 of QBI from a business they actively run.

Businesses can again deduct 100% of the cost of qualifying equipment and other property in the first year (bonus depreciation) for property acquired after January 19, 2025, and this is now permanent. The Section 179 expensing limit rose to $2.5 million, adjusted for inflation. Domestic research and development costs can once again be deducted in the year they're paid instead of being spread over five years.

Employees and eligible self-employed workers may deduct up to $25,000 in qualified tip income received from customers. This applies to tips reported on W-2s, 1099s, or Form 4137 and is available from 2025–2028. The deduction phases out at $150,000 MAGI for single filers and $300,000 for joint filers, and does not apply to certain service business owners (SSTBs under §199A).

Workers can deduct up to $12,500 in qualified overtime pay ($25,000 for joint filers) received above regular hourly wages. This applies to overtime reported on W-2 or 1099 forms and covers the years 2025–2028. The deduction phases out at $150,000 MAGI (single) or $300,000 (MFJ).

For 2025 through 2028, interest paid on loans for new, personal-use vehicles (not used or business vehicles) may be deducted up to $10,000 per year if the loan originated after December 31, 2024. Vehicles must be assembled in the U.S. and secured by a lien. The deduction phases out at $100,000 MAGI (single) and $200,000 (MFJ), and the VIN must be reported on the tax return.

The $7,500 New Clean Vehicle Credit, $4,000 Used Clean Vehicle Credit, and Commercial Clean Vehicle Credit ended for vehicles acquired after September 30, 2025. A vehicle acquired by that date, with a written binding contract and a payment made, can still qualify even if placed in service later.