The H.R. 1: One Big Beautiful Bill was signed into law by President Trump on July 4, 2025. This bill brings long-awaited clarity and permanence to key provisions of the Tax Cuts and Jobs Act (TCJA), while introducing new measures aimed at middle-class families and working individuals. Below are highlights of how this legislation impacts retirees.

The reigning achievement of the OBBBA for retirees is the Senior deduction that applies beginning this tax year, 2025. This special deduction applies to Senior Taxpayers that are age 65 or older by the end of the tax year.

Seniors can claim an additional deduction of $6,000 per qualifying taxpayer. Both spouses can qualify separately for the deduction if they are at least age 65 at the end of the year. Married Individuals must file jointly to claim the Senior Deduction.

The Senior Deduction can be claimed even if you itemize deductions. The Senior Deduction is a temporary provision and only applies to tax years 2025-2028. This is a Federal tax deduction and not applicable at the state tax level.

Taxpayers with modified adjusted gross income over the following limits do not qualify for the full deduction and are subject to a deduction phase-out:

• Single – $75,000 Modified Adjusted Gross Income
• Married Filing Jointly – $150,000 Modified Adjusted Gross Income

The phase-out is calculated as 6% of MAGI above the applicable threshold.

The increased standard deduction from the Tax Cuts and Jobs Act of 2017 has been made permanent in the One Big Beautiful Bill Act of 2025.

2025 Standard Deduction Amounts:

• • Single/MFS – $15,750
  • MFJ – $31,500
  • Head of Household – $23,625

Additional Amounts for Seniors (Age 65+):

• • Single/MFS – $17,750
  • MFJ – $33,100
  • Head of Household – $25,625

Retirees may also benefit from the following two tax deductions under the OBBBA: 

Deductible Car Loan Interest

Interest paid on a loan to purchase a qualifying passenger vehicle for personal use may qualify for a tax deduction. The deduction is capped at $10,000 per year. The deduction is an “above-the-line” deduction which means the taxpayer can claim either standard or itemized deductions without impacting the deduction.

A qualifying passenger vehicle includes a new car, SUV, truck or motorcycle assembled in the US.

This deduction is subject to phase-outs based on the taxpayer’s modified adjusted gross income and filing status. The deduction is reduced by $200 for every $1,000 of MAGI over the following thresholds:

• • $100,000 for Individuals
  • $200,000 for Married Filing Jointly

State and Local Tax Deduction (SALT)

The state and local tax deduction, also known as SALT is a deduction available to those taxpayers that itemize deductions. Prior to the OBBBA enactment, the SALT deduction was limited to $10,000 per return ($5,000 if MFS). However, the OBBBA enhances the SALT deduction by increasing the deduction cap from $10,000 to $40,000 for eligible taxpayers.

The state and local tax deduction allows taxpayers to deduct the following state and local taxes:

• • State and Local Income Taxes including W-2 state withholding, estimated tax payments and state taxes paid for a prior year (if paid during the current year)
  • Real Estate Taxes on personal residence, second home and/or land
  • Personal Property Taxes

The SALT deduction enhancement only applies to tax years 2025-2029.

Eligible taxpayers to claim the enhanced SALT deduction are those households modified adjusted gross income of less than $500,000 ($250,000 MFS). This deduction is not subject to a phase-out. Ineligible taxpayers will still be able to claim a SALT deduction capped at $10,000 per year. 

The OBBBA makes permanent the individual income tax rates introduced by the Tax Cuts and Jobs Act that were previously set to expire at the end of 2025. The federal income tax rates remain at the same levels as the 2024 tax year: 10%, 12%, 22%, 24%, 32%, 35% and 37%. The top tax marginal tax rate of 37% applies to single filers with taxable income of $626,350 or more ($751,600 or more for married couples filing jointly).

The taxation of Social Security Benefits remains unchanged following the passage of the One Big Beautiful Bill Act of 2025. Social Security Benefits remain taxable and must be reported on taxpayer’s annual tax return.

Some taxpayers may owe little or no tax on Social Security depending on their circumstances. To determine the taxation of Social Security benefits, a special calculation to determine provisional income is required. If the provisional income is less than a certain threshold, the benefits are not taxable or only a portion are taxable. Once the  income treshold is exceeded, 85% of social security benefits are taxable.

If you have questions about how this topic will impact you, Team LittleOwl CPA is here to help. Schedule a discovery call today!