Below are some of the new provisions from the One Big Beautiful Bill Act, signed into law on July 4, 2025 that go into effect for 2025.
Things to Consider When Selling a Principal Residence
Taxpayers are allowed an exclusion of a portion of the gain on the sale of their personal residence of up to $250,000, and $500,000.00 if married.
Any gain thereafter is taxable at as much as 20% for federal purposes, and as much as 14.3% which includes the 1% “insanity tax” if one is a resident of California.
Minimum requirements
To qualify for the exclusion a homeowner must meet ownership and use tests which at the minimum requires that during the five-year period ending on the date of the sale, the homeowner must have owned the home and lived in it as their primary home for at least two years. There are a number of other requirements including having declared in the filing of the individual tax returns during the five year period prior to sale having declared that home as being one’s primary residence.
Multiple homes
Taxpayers who own more than one home can only exclude the gain on the sale of their primary home which is the address one has claimed as their primary home on their tax returns during the required holding period.
Many taxpayers attempt to claim some other property as their primary residence when a sale occurs, but the taxing authorities define the property that qualifies for the exclusion based upon what address the taxpayers have indicated as their primary residence on their tax returns. Taxes apply to any gain from selling any other home.
Worksheets and documentation
Most taxpayers calculate their cost basis of their residence based upon the original purchase price plus any improvements.
The IRS, and other taxing authorities can, and will, request documentation as to the costs and improvements if the sale is audited.
It is best to keep and maintain all records relating to the acquisition and improvement costs, otherwise you may find yourself in the awkward position of paying taxes on gains that the IRS may calculate if you do not have those records.
Losses
As incredible as it may seem in the current economy, some homeowners incur a loss when selling their primary residence. Those losses are not deductible.
IRC Sections 121 and 1031
If the gain on the sale of the property will be significant and you want to avoid immediate taxation for any gain above the exclusion amounts, and should you have held the property that previously was your primary residence for at least a two-year period prior to the sale as a rental property, you can utilize IRC Section 1031 and sell the property in a tax free exchange if you meet all of the requirements, and still utilize IRC 121 which allows for the $250k/$500k exclusion for the sale of a primary residence. The requirements to do so are complex and will require you to seek professional guidance, but it can be done.
No Tax on Tips
- New deduction: Effective for 2025 through 2028, employees and self-employed individuals may deduct qualified tips received in occupations that are listed by the IRS as customarily and regularly receiving tips on or before December 31, 2024, and that are reported on a Form W-2, Form 1099, or other specified statement furnished to the individual or reported directly by the individual on Form 4137.
- “Qualified tips” are voluntary cash or charged tips received from customers or through tip sharing.
- Maximum annual deduction is $25,000; for self-employed, deduction may not exceed an individual’s net income (without regard to this deduction) from the trade or business in which the tips were earned.
- Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
- Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers.
Self-employed individuals in a Specified Service Trade or Business (SSTB) under section 199A are not eligible.
Employees whose employer is in an SSTB also are not eligible.
Taxpayers must: include their Social Security Number on the return and file jointly iF
married, to claim the deduction.
- Reporting: Employers and other payors must file information returns with the IRS (or SSA) and furnish statements to taxpayers showing certain cash tips received and the occupation of the tip recipient.
- Guidance: By October 2, 2025, the IRS must publish a list of occupations that “customarily and regularly” received tips on or before December 31, 2024.
The IRS will provide transition relief for tax year 2025 for taxpayers claiming the deduction and for employers and payors subject to the new reporting requirements.
No Tax on Overtime
- New deduction: Effective for 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay – such as the “half” portion of “time-and-a-half” compensation — that is required by the Fair Labor Standards Act (FLSA) and that is reported on a Form W-2, Form 1099, or other specified statement furnished to the individual.
Maximum annual deduction is $12,500 ($25,000 for joint filers).
Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
- Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers.
Taxpayers must include their Social Security Number on the return and file jointly if married, to claim the deduction.
- Reporting: Employers and other payors are required to file information returns with the IRS (or SSA) and furnish statements to taxpayers showing the total amount of qualified overtime compensation paid during the year.
- Guidance: The IRS will provide transition relief for tax year 2025 for taxpayers claiming the deduction and for employers and other payors subject to the new reporting requirements.
No Tax on Car Loan Interest
- New deduction: Effective for 2025 through 2028, individuals may deduct interest paid on a loan used to purchase a qualified vehicle, provided the vehicle is purchased for personal use and meets other eligibility criteria. (lease payments do not qualify.)
Maximum annual deduction is $10,000.
Deduction phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers).
- Qualified interest: To qualify for the deduction, the interest must be paid on a car loan that:
Originated after December 31, 2024
Is used to purchase a new vehicle
Is a personal use vehicle
Secured by a lien on the vehicle
If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction.
- Qualified vehicle: A qualified vehicle is a car, minivan, van, SUV, pick-up truck or motorcycle, with a gross vehicle weight rating of less than 14,000 pounds, and that has undergone final assembly in the United States.
- Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers.The taxpayer must include the Vehicle Identification Number (VIN) of the qualified vehicle on the tax return for any year in which the deduction is claimed.
- Reporting: Lenders or other recipients of qualified interest must file information returns with the IRS and furnish statements to taxpayers showing the total amount of interest received during the taxable year.
- Guidance: The IRS will provide transition relief for tax year 2025 for interest recipients subject to the new reporting requirements.
Deduction for Seniors
- New deduction: Effective for 2025 through 2028, individuals who are age 65 and older may claim an additional deduction of $6,000.
- This new deduction is in addition to the current additional standard deduction for seniors under existing law. The $6,000 senior deduction is per eligible individual (i.e., $12,000 total for a married couple where both spouses qualify).
- Deduction phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers).
- Qualifying taxpayers: To qualify for the additional deduction, a taxpayer must attain age 65 on or before the last day of the taxable year.
- Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers.Taxpayers must:include the Social Security Number of the qualifying individual(s) on the return, and file jointly, if married, to claim the deduction
Pete Muffoletto, CPA, of Muffoletto & Company, believes that the more informed you are in regards to the rules and regulations that affect you, the more he has been of service. He may be reached at (818) 346-2160, or you can visit him on the web at www.petemcpa.com.