Tax adjustments vital for retirees to observe in 2025: Four significant modifications to keep in mind
News Article: Key Tax Changes Benefit Older Adults and Retirees in 2025
In a significant move to ease the tax burden on older adults and retirees, several key changes have been introduced in the tax landscape for the year 2025. These changes, which include increases to the standard deduction, a new senior bonus deduction, a temporarily higher SALT deduction cap, and a proposed elimination of capital gains tax on sales of a primary residence, aim to make retirement dollars stretch further between 2025 and 2028.
The standard deduction, the primary way most taxpayers lower their taxable income, received a boost as part of the recent tax law updates. For 2025, the standard deduction rises to £15,750 for single filers and married individuals filing separately, £23,625 for heads of household, and £31,500 for married couples filing jointly. These amounts are indexed for inflation annually.
Taxpayers aged 65 or older qualify for an additional £6,000 deduction (£12,000 for married couples where both are 65+) on top of the standard deduction. This senior bonus deduction is temporary for 2025 through 2028 and phases out starting at modified adjusted gross income (MAGI) of £75,000 for singles and £150,000 for joint filers, with complete phase-out at £175,000 and £250,000 respectively. This deduction is available regardless of whether one itemizes or takes the standard deduction, but it does not reduce adjusted gross income (AGI) and thus does not affect Social Security benefit taxation or Medicare premiums.
The State and Local Tax (SALT) deduction cap is temporarily increased from £10,000 to £40,000 for taxpayers with AGI up to £500,000 in 2025, after which it phases down by 30% for AGI above £500,000, returning to £10,000 for taxpayers with AGI of £600,000 or more. This change benefits retirees in high-tax states who itemize deductions.
There is a proposal under consideration to eliminate capital gains tax on the sale of a primary residence, which would be a significant tax relief for older homeowners looking to downsize or relocate. However, this remains proposed and not yet enacted into law by mid-2025.
In summary, these changes combine to potentially reduce taxable income significantly for seniors through increased standard deductions and senior bonuses while also allowing greater deductions for state and local taxes for many retirees. The capital gains tax proposal, if enacted, would further ease tax burdens on home sales for older adults. These measures aim to make retirement dollars stretch further between 2025 and 2028.
It's important to note that the Congressional Budget Office (CBO) estimates that the GOP tax bill will add £4.1 trillion to the budget deficit over the next decade. Additionally, the OBBB offers several new tax breaks and makes significant changes to Medicaid and SNAP reporting. In 2025, President Trump signed a reconciliation legislation known as the "One Big Beautiful Bill" (OBBB) that extends many provisions from the 2017 Tax Cuts and Jobs Act (TCJA).
In the realm of personal-finance, these tax changes for 2025, such as increased standard deductions and the temporary senior bonus deduction, aim to benefit older adults, including retirees, by defi-nitely making it possible for their retirement dollars to stretch further. The proposed elimination of capital gains tax on the sale of a primary residence could further ease the tax burden on home sales for older homeowners, if enacted.
