New tax laws 2025: Tax brackets and deductions

2025 is likely to be a dynamic year for tax planning, with both known and unknown changes ahead.

The “known” changes are somewhat routine. Each year, the IRS makes inflation-related adjustments to more than 60 tax provisions to keep income tax brackets, deductions and other inputs in line with changes occurring related to the cost of living. On average, adjustments for the tax year 2025 (filing returns in 2026) will increase by about 2.8%.

The “unknown” changes are where things could get interesting. Several provisions put in place as part of the 2017 Tax Cuts and Jobs Act (TCJA) are set to expire at the end of 2025. Current rules set to expire include:

• Standard deduction amounts
• Individual income tax rates
• Caps on state and local tax (SALT) deductions
• Deductions for small business owners
• Limits on estate tax exemptions

The new administration in Washington, D.C. will likely present legislation that would impact the outcome of the TCJA sunset and other tax policies. These changes could affect your tax planning strategies during the coming year and therefore bear careful watching. For now, here are details of key existing changes for 2025 as outlined by the IRS.

2025 adjustments to 2024 tax brackets

The seven federal tax rates remain the same for 2025: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The qualifying income for each 2025 tax bracket moves slightly higher compared to 2024.

A key income threshold to watch for high-income filers is $197,300 for single filers and $394,600 for married couples filing jointly. Those are the respective thresholds for moving up from the 24% tax rate bracket to the higher 32% rate bracket. The top marginal income rate of 37% will apply to single filers with taxable income of $626,350 and, for married couples filing jointly, taxable income above $751,600.

Source: Internal Revenue Service.

Standard deduction 2025

The standard deduction represents the amount of income you can exclude from taxes before the above tax rates begin to apply.

The 2025 standard deduction increases by $400 for single filers and by $800 for joint filers. People over age 65 or the blind may claim an additional standard deduction of $2,000 for single filers and $1,600 for joint filers. In addition, the standard deduction amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of $1,350 or the sum of $450 and the individual’s earned income.

2025 capital gains tax brackets

Long-term capital gains face different brackets and rates than ordinary income, and those brackets also adjusted slightly higher for 2025.

It is possible for people with lower income to pay no long-term capital gains tax when selling appreciated assets that they have held for more than a year (long-term capital gain). For example, the 0% long-term capital gains tax applies to married couples filing a joint return with incomes of $96,700 or below.

Alternative minimum tax 2025

The alternative minimum tax (AMT) was created in 1969 to close tax loopholes for those in higher tax brackets. The TCJA significantly narrowed the scope of the alternative minimum tax in a few ways, including introducing higher AMT exemptions and higher income levels for exemption phaseout.

Adjustments to those provisions for 2025 include:

• For the 2025 tax year, the AMT exemption increased to $88,100 for individuals and $137,300 for married couples filing jointly.
• For 2025, AMT exemptions phase out at 25 cents per dollar earned once AMT income (AMTI) reaches $626,350 for single filers and $1,252,700 for married taxpayers filing jointly.

Retirement plan contribution adjustments for 2025

• The limit on annual contributions to a traditional or Roth IRA for 2025 remains $7,000. The traditional and Roth IRA catch up contribution limit for individuals aged 50 and over remains at $1,000 for 2025.
• The annual contribution limit for employees who participate in 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan increases to $23,500.
• Contribution limits for a simplified employee pension (SEP) IRA in 2025 are $70,000 or 25% of the employee's compensation, whichever is lower. This is an increase from the 2024 limit of $69,000. The maximum compensation that can be considered for SEP IRA contributions also increased to $350,000 in 2025.
• Individuals with a SIMPLE IRA can contribute up to $16,500 in 2025, up from $16,000. Individuals aged 50 and older can contribute an additional $3,500 in catch-up contributions. (See exception for employees ages 60-63 below.)
• The catch-up contribution limit that generally applies for employees aged 50 and over who participate in most 401(k), 403(b), governmental 457 plans and the federal government’s Thrift Savings Plan remains $7,500 for 2025. (Therefore, participants 50 and older generally can contribute up to $31,000 each year, starting in 2025.)
• Due to a provision of the Secure 2.0 Act, a higher catch-up contribution limit applies for employees ages 60, 61, 62 and 63 who participate in these plans. For 2025, this higher catch-up contribution limit is $11,250. A higher catch-up contribution limit of $5,250 also applies for individuals ages 60-63 who contribute to a SIMPLE IRA.
• The Modified Adjusted Gross Income (MAGI) ranges for determining eligibility for Roth IRAs also have increased for 2025.

Child tax credit 2025

The maximum child tax credit is $2,000 per qualifying child and is not adjusted for inflation. The refundable portion of the 2025 child tax credit is adjusted for inflation and will remain at $1,700.

2025 gift tax exclusion and lifetime estate tax exemption amounts

The 2025 gift tax exclusion allows the first $19,000 of monetary gifts to any person to be excluded from tax, an increase from $18,000 in 2024. The exclusion increased to $190,000 for gifts to spouses who are not citizens of the United States.

In addition, the lifetime exclusion amount on estates of decedents who die during 2025 increased to $13.99 million per individual, up from $13.6 million in 2024.

Which tax provisions aren’t changing for 2025?

Certain items that were indexed for inflation in the past are currently not adjusted.

Among those tax issues that remain unchanged:

• Personal exemptions for tax year 2025 remain at 0, as in tax year 2024. The elimination of the personal exemption was a provision in the TCJA.
• Itemized deductions. There is no limitation on itemized deductions for tax year 2025, as in tax year 2024 and preceding, to tax year 2018. The limitation on itemized deductions was eliminated by the TCJA.
• Lifetime learning credits. The modified adjusted gross income amount used by taxpayers to determine the reduction in the lifetime learning credit is not adjusted for inflation for taxable years beginning after Dec. 31, 2020. The lifetime learning credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).

Be prepared for new and potential tax law changes

To preserve and transfer significant wealth, it’s important to consider current tax laws and related sunset provisions and plan accordingly. Given the potential changes ahead, it’s essential to review how tax bracket adjustments and other changes affect your tax planning strategies.

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