Ask the Editor, July 17: Tax Questions on the New Tax Law

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on the new tax law. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Effective Date of Tax Changes

Question: Are the tax provisions in the so-called “One Big Beautiful Bill Act” (OBBB) retroactive to Jan. 1, 2025, or do they start in 2026?

Joy Taylor: The new law permanently extends most of the tax provisions in the 2017 Tax Cuts and Jobs Act that were slated to expire on December 31 and enhances some of them, provides brand new tax breaks, repeals several clean-energy credits in the 2022 Inflation Reduction Act, and more. Many of the changes begin in 2025, and others take effect next year.

Here are several examples of tax changes that take effect beginning in 2025:

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• Higher standard deductions.
• The $6,000 bonus deduction for seniors.
• The bigger child tax credit.
• The $40,000 cap on deducting state and local taxes on Schedule A of the Form 1040.
• The new tax deductions for tip income, overtime pay and auto loan interest.
• 100% first-year bonus depreciation for business assets.
• And the higher “Section 179” expensing limit for business assets.

Here are some examples of tax changes that are scheduled to begin in 2026:

• The new $15 million lifetime estate and gift tax exemption.
• The higher child and dependent care credit.
• A new above-the-line deduction of up to $1,000 ($2,000 on joint returns) for charitable cash contributions.
• And a couple of haircuts for taxpayers who itemize deductions on Schedule A of the 1040.

2. Tax Credit for Solar Panels on Home

Question: I am thinking of installing solar panels on my primary home. Can I still get a federal income tax credit for this?

Joy Taylor: Yes, but the project must be completed by December 31 at the latest. The residential clean-energy credit equals 30% of the cost of materials and installation of alternative energy systems (such as solar panels) that you install in your home. The OBBB ends the tax break for post-2025 years.

Also repealed after this year is the smaller energy-efficient home improvement credit for homeowners who make smaller energy-saving purchases, such as for efficient central air-conditioning systems, water heaters, heat pumps, exterior doors, and windows. So if you’re thinking of making any of these energy-saving upgrades to your home, you’ll have to pay for the upgrades and complete them by December 31, 2025, to ensure a tax credit.

3. Interest on Auto Loans

Question: I bought a new car earlier this year, and I took out a loan to finance the purchase. Will I be able to deduct the interest that I pay this year on my 2025 tax return that I file next year?

Joy Taylor: It depends. The OBBB allows individuals who buy a new vehicle (car, minivan, SUV, van, pickup truck or motorcycle) for personal use after 2024 to deduct in each of 2025 through 2028 up to $10,000 of interest that they pay on their vehicle loans. This new car loan interest deduction is an above-the-line deduction, meaning it is available to taxpayers who take the standard deduction and to those who itemize on Schedule A of the 1040. The deduction begins to phase out at modified adjusted gross incomes over $200,000 for joint filers and $100,000 for other filers, and ends at modified AGIs over $250,000 for joint filers and $150,000 for others. Additionally, the vehicle’s final assembly must occur in the U.S.

4. Name Change

Question: I heard the newly passed tax law that President Trump signed on July 4 is no longer named the “One Big Beautiful Bill Act.” Why did the name change?

Joy Taylor: The short title of the new law was originally the “One Big Beautiful Bill Act.” However, shortly before the Senate voted on its version of the legislation, Senate Minority Leader Chuck Schumer (D-NY) argued that the title of the bill violated the technical budget reconciliation rules that Senate Republicans were using to pass the bill on a simple majority vote in the upper chamber. The short title was then struck from the bill prior to the Senate vote. The full title of the law is “An Act to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14.” Unfortunately, this doesn’t roll off the tongue quite as easily as the “One Big Beautiful Bill Act.” So you will see many people, including myself, continue to refer to the law as the “One Big Beautiful Bill.”

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter and The Kiplinger Letter can ask Joy questions about tax topics. You'll find full details of how to submit questions in The Kiplinger Tax Letter and The Kiplinger Letter. (Subscribe to The Kiplinger Tax Letter or The Kiplinger Letter.)

We have already received many questions from readers on tax changes in the new “One Big Beautiful Bill Act.” We’ve addressed a few here, and we will answer more of these queries in a future Ask the Editor round-up. So keep those questions coming!

More Reader Questions Answered

• Ask the Editor: Questions on tax deductions and IRAs
• Ask the Editor: Questions on home sales and taxes
• Ask the Editor: Questions on Inherited IRAs
• Ask the Editor: Questions on Trump's Big Beautiful Bill (part 1)
• Ask the Editor: Questions on capital gains