What to know about the new deductions from the One Big Beautiful Bill and other key Rocky Mengle, AARP Published November 19, 2025
If you're trying to plump up your nest egg or stretch your retirement savings, every dollar you can keep in your pocket counts. To help with that effort, the 2026 tax season arrives with a host of changes that could cut your 2025 tax bill.
Most of the changes are products of the One Big Beautiful Bill (OBBB), signed into law on July 4. If you qualify, you can take advantage of the new tax rules when you file your federal income tax return for 2025, which is due April 15, 2026.
If you're retired or approaching retirement, here are seven tax changes that could save you big bucks.
1. Higher standard deduction
If, like most people, you claim the standard deduction on your tax return, you probably know it increases each year to account for inflation. But you may not have known that the OBBB added an extra 5 percent increase to the inflation-adjusted standard deduction for the 2025 tax year. For example, a married couple claiming the standard deduction on a joint return can reduce their taxable income by an extra $1,500.
If you are 65 or older, or blind, you get a bigger standard deduction — an extra $2,000 for single filers and heads of household, or $1,600 more for each qualifying spouse on a joint return (for a total of $3,200). The extra deduction is doubled for those who are both 65-plus and blind, to $4,000 for an individual and $3,200 for each qualifying spouse filing jointly.
2. New deduction for older taxpayers
If you're 65 or older at the end of 2025, you might qualify for a new federal income tax deduction of up to $6,000 if you file an individual return, or up to $12,000 if your spouse is also 65 or older and you file jointly.
Not everyone 65 or older will receive the full deduction — or any deduction at all. The amount you can deduct depends on your modified adjusted gross income (MAGI) — your total adjusted gross income, plus certain tax-free income for people living out of the country. If your MAGI is greater than $75,000 ($150,000 for joint filers), the deduction is gradually reduced by 6 cents for every dollar over that amount.
3. Higher SALT deduction cap
If you itemize on your tax return, you can deduct certain state and local taxes (SALT) you paid during the year. This includes state and local income or sales taxes (whichever is higher), real estate taxes and qualified personal property taxes.
The SALT deduction was capped at $10,000 from 2018 to 2024, but the limit for the 2025 tax year jumps to $40,000 for single filers and married couples filing jointly ($20,000 per person for married couples filing separately). The limit will increase 1 percent each year through 2029, then drop back to $10,000 in 2030.
4. New deduction for car loan interest
If you took out a loan in 2025 to buy a new (not used) car, minivan, van, SUV, pickup truck or motorcycle, you might be able to deduct up to $10,000 of interest paid during the year.
The caveat? To qualify, the vehicle's final assembly must have taken place in the U.S., and it must weigh less than 14,000 pounds. (To find out where your car was assembled, enter the vehicle identification number into the National Highway Traffic Safety Administration’s VIN Decoder. The assembly location will be listed in the “Other Information” section.)
The deduction is gradually phased out based on your income. Once your MAGI surpasses $100,000 ($200,000 for joint filers), the deduction is reduced by $200 for every $1,000 (or portion thereof) over the applicable threshold. You're no longer eligible for the deduction if you paid $10,000 in interest for the year and your MAGI is $150,000 or more ($250,000 or more for joint filers).
As with the new deduction for people 65 and older, you can claim the car loan interest deduction whether or not you itemize, but the deduction is available only for the 2025 through 2028 tax years.
Your lender is required to provide a statement to you by January 31, 2026, indicating the total amount of interest you paid on your auto loan in 2025.
5. Larger 401(k) catch-up contributions if you're age 60 to 63
You can only contribute so much each year to a workplace retirement account such as a 401(k), 403(b) or 457 plan. For 2025,
the basic contribution limit for such plans is $23,500. Workers 50 and older can add another $7,500 — a “catch-up” contribution — for a maximum of $31,000.
Here's the big change that starts this tax year: Savers who are ages 60 to 63 at the end of the year can make an even larger catch-up contribution of up to $11,250, for a total of $34,750. The bigger catchup for this group was part of the SECURE 2.0 Act, a 2022 federal law designed to promote saving for retirement.
6. New deduction for tipped workers
7. New deduction for overtime pay