2025 Tax Year Adjustments

It’s that time of year again! In addition to the noticeable spread of pumpkin pies, gingerbread houses, and peppermint mochas, there are also federal tax changes. On October 22, 2024, the Internal Revenue Service (“IRS”) announced inflation adjustments to several key tax provisions for the upcoming tax year 2025. See Rev. Proc. 2024-40. These changes will affect taxpayers when they file their income tax returns in 2026. Below is a quick summary of many of the key changes taxpayers can expect next year.‍

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Tax Rate Tables:

For taxable years beginning in 2025, the following tax rate table applies to single, unmarried individuals (excluding surviving spouses and heads of households):

- 10% for taxable income that is $11,925 or less;

- 12% for taxable income that is over $11,925;

- 22% for taxable income that is over $48,475;

- 24% for taxable income that is over $103,350;

- 32% for taxable income that is over $197,300;

- 35% for taxable income that is over $250,525; and

- 37% for taxable income that is over $626,350.

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The following tax rate table applies to married individuals filing joint returns and surviving spouses:

- 10% for taxable income that is $23,850 or less;

- 12% for taxable income that is over $23,850;

- 22% for taxable income that is over $96,950;

- 24% for taxable income that is over $206,700;

- 32% for taxable income that is over $394,600;

- 35% for taxable income that is over $501,050; and

- 37% for taxable income that is over $751,600.

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Additionally, the following tax rate table applies to heads of households:

- 10% for taxable income that is $17,000 or less;

- 12% for taxable income that is over $17,000;

- 22% for taxable income that is over $64,850;

- 24% for taxable income that is over $103,350;

- 32% for taxable income that is over $197,300;

- 35% for taxable income that is over $250,500; and

- 37% for taxable income that is over $626,350.

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Capital Gains Rates:

For taxable years beginning in 2025, the following capital gains rate table applies to single, unmarried individuals (excluding surviving spouses and heads of households):

- 0% for taxable income that is $48,350 or less;

- 15% for taxable income that is over $48,350; and

- 20% for taxable income that is over $533,400.

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The following capital gains rate table applies to married individuals filing joint returns and surviving spouses:

- 0% for taxable income that is $96,700 or less;

- 15% for taxable income that is over $96,700; and

- 20% for taxable income that is over $600,050.

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Additionally, the following capital gains rate table applies to heads of households:

- 0% for taxable income that is $64,750 or less;

- 15% for taxable income that is over $64,750; and

- 20% for taxable income that is over $566,700.

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Standard Deduction:

For taxable years beginning in 2025, the following standard deduction amounts apply:

- Single, unmarried individuals (excluding surviving spouses and heads of households): $15,000

- Married individuals filing joint returns and surviving spouses: $30,000

- Heads of households: $22,500

Additionally, for aged (over age 65) or blind individuals, taxpayers may enjoy an additional standard deduction amount of $1,600. The additional amount is further increased to $2,000 if the taxpayer is unmarried and not a surviving spouse.

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Certain Deductions and Contribution Limits:

For taxable years beginning in 2025, the $2,500 deduction for interest paid on qualified education loans begins to phase out for taxpayers with a modified adjusted gross income (“MAGI”) of $85,000 ($170,000 for joint returns). The deduction is completely phased out for taxpayers with a MAGI of $100,000 ($200,000 for joint returns).

Starting in 2025, the Section 199A qualified business income (“QBI”) threshold amounts and phase-in range amounts also increase:

- Married individuals filing joint returns: $394,600 threshold amount and $494,600 phase-in range amount;

- All other returns: $197,300 threshold amount and $247,300 phase-in range amount.

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Certain Tax Credits: 

For taxable years beginning in 2025, the amount of the child tax credit that is refundable is $1,700.

Moreover, starting in 2025, the maximum adoption credit increases to $17,280.

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Gift and Estate Taxes:

For taxable years beginning in 2025, the lifetime exemption amount applicable to estates (for decedents who die during 2025) increases to $13,990,000.

Additionally, the annual gift tax exclusion increases to $19,000 per recipient, starting in 2025.

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Fora complete review of the IRS’s announcement of new inflation adjustments for tax year 2025, click here.

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Contact Montgomery Legal today to discuss your federal tax situation with a dual-credentialed attorney and CPA. Schedule a Consultation, email us at info@mlegaltx.com, or call (214) 432-6100.