Four Key Strategies to Reduce Your 2025 Tax Bill Under New OBBBA Rules

How to maximise your savings and avoid phaseouts under temporary changes in Trump's budget bill. Sheryl Rowling Friday 13 February 2026 11:00 GMT Financial Markets Wall Street (Copyright 2025 The Associated Press. All rights reserved).

The One Big Beautiful Bill Act has enacted some long-awaited permanent alterations to the tax code. It has also introduced short-term tax breaks that come with stringent limits and phaseouts, with many available only through 2028 or 2029. Here are four ways to optimise the OBBBA's temporary provisions as you file your 2025 taxes and plan for the future.

1. Do Not Overlook Itemising Your Deductions

The OBBBA temporarily increases the state and local tax deduction cap, known as SALT, from $10,000 to $40,000 for married couples filing jointly and single filers. This elevated cap is applicable from 2025 through 2029.

Run the numbers: For 2025, the standard deduction stands at $31,500 for married couples and $15,750 for singles. If your total itemised deductions—including mortgage interest, charitable contributions, and state and local taxes (up to the new $40,000 cap)—exceed your standard deduction, itemising is advisable.

Watch your income: The new $40,000 SALT cap is not universal. It begins to phase out if your modified adjusted gross income exceeds $500,000 for all filers. Should your MAGI reach $600,000, your SALT deduction reverts to the original $10,000 limit.

2. Maximise the New Targeted Deductions—If You Qualify

The OBBBA has introduced several temporary above-the-line deductions, available regardless of whether you itemise, aimed at assisting middle-income workers. However, these come with very strict income and benefit restrictions.

The qualified overtime pay deduction: Capped at $25,000 for married couples filing jointly and $12,500 for singles. Only the extra "half-time" portion of your time-and-a-half pay qualifies. For married couples, this benefit starts to diminish if your MAGI hits $300,000 and is entirely eliminated once it reaches $550,000.
The qualified tips income deduction: Allows you to write off qualified tip income up to $25,000 per tax return, irrespective of filing status. The deduction applies only to tips formally reported on a Form W-2 or Form 1099. It phases out sharply for higher earners, commencing at a MAGI of $300,000 for married couples and $150,000 for singles, with full elimination at $550,000 and $400,000, respectively.
The auto loan interest deduction: This temporary deduction permits writing off up to $10,000 of interest paid on a loan for a new, personal-use vehicle assembled in the US (leases are excluded). It begins to phase out at $200,000 for married couples and $100,000 for singles, vanishing completely by $250,000 and $150,000.

3. Seniors, Time Your 2026 Roth Conversions Carefully

If you are 65 or older, the OBBBA offers a new, temporary deduction for seniors of up to $12,000 for married couples ($6,000 per eligible spouse) and $6,000 for single filers. This is a welcome tax break, but it is fragile.

Beware the MAGI trap: This deduction starts to disappear for married couples with a MAGI over $150,000 and for singles over $75,000.

Model Roth conversions for 2026: If you are a senior nearing the $150,000 MAGI limit, a Roth conversion in 2026 could push your income over the threshold, resulting in the loss of this entire $12,000 deduction. Collaborate with your adviser to simulate any planned 2026 conversions.

4. Optimise Income to Qualify for the Best Breaks

Many of the OBBBA's most valuable temporary provisions are income-sensitive, particularly the new targeted deductions and the elevated SALT cap. Keep these rules in mind for 2025 filing and 2026 tax planning.

For your 2025 return: You can still influence your 2025 MAGI by:

Making 2025 HSA contributions before the April 2026 tax deadline.
Making 2025 deductible IRA contributions, if eligible.

Plan for 2026 income: If your 2026 income is likely to approach any phaseout thresholds—such as the $300,000 limit for tips or overtime, or the $500,000 limit for the elevated SALT cap—consider strategies to keep it within the qualifying range.

Postponing the sale of highly appreciated stock to avoid realising large capital gains in 2026.
Delaying the exercise of nonqualified stock options if it would push you over a phaseout threshold.
Maximising 401(k) and health savings account contributions to reduce your 2026 MAGI.
Holding off on large Roth conversions if they would increase your income above key limits.

Do not let the technical limitations and phaseouts catch you off guard. With some astute planning, you can secure significant tax savings.

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This article was provided to The Associated Press by Morningstar. For more personal finance content, go to https://www.morningstar.com/personal-finance.

Sheryl Rowling, CPA, is an editorial director and financial adviser for Morningstar.

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