New Deduction Changes from the One Big Beautiful Bill

A simple guide to what these changes mean for you

The "One Big Beautiful Bill" brought several important updates that can help taxpayers save more and plan better. At Hillman Financial Services, our goal is to make these changes easy to understand so you know exactly what you qualify for and how these deductions can work for you. Here is a clear breakdown of the newest updates and how they may impact your taxes.

Mortgage Insurance

Beginning in 2026, mortgage insurance premiums will become tax deductible. This means homeowners can finally receive some financial relief on a cost that many people pay every single month. If you own a home, this change gives you another opportunity to reduce your taxable income and keep more money in your household.

Car Loan Interest

From 2025 to 2028, taxpayers can deduct up to $10,000 of paid auto loan interest. This deduction applies only to new vehicles that meet the weight and assembly requirements, so it is important to confirm eligibility before you make a purchase. For many families, this can be a helpful deduction that offsets the cost of financing a newer car.

Energy Efficient Home Improvements

If you have been thinking about upgrading your home with energy saving improvements, now is the time. This new deduction applies to energy efficient doors, windows and appliances. The credit is capped at $2,000 or $1,200 depending on the expense. This is the final year to take advantage of this deduction.

Child Tax Credit

The Child Tax Credit has also been affected by the OBBB. Low-income earners may qualify for a refund up to $1,700, while high-income earners may receive up to $2,200. These changes can make a meaningful difference for parents who are managing the rising costs of living.

Electric Vehicles

The OBBB also expands deductions for electric vehicle owners. You can receive up to $7,500 for a NEW EV if it was purchased before September 30, 2025. You can also receive up to $4,000 for a qualifying USED EV purchased before September 30, 2025. These incentives reward taxpayers who choose cleaner transportation options.

Overtime Pay

The OBBB brings a major win for workers who rely on extra hours. Overtime pay is no longer taxed which means employees keep more of what they earn during busy seasons. This change also allows taxpayers to deduct up to $25,000 of overtime pay if married filing jointly and up to $12,500 for all other filing statuses except married filing separately. Married filing separately cannot claim this deduction. For example:

If someone is filing as Single or Head of Household and their income is under $150,000, this is how the deduction is calculated:

Modified Adjusted Gross Income (MAGI): $140,000

Tax-Free Overtime: $12,500

MFJ likely marginal tax bracket: 24%

Maximum Tax Savings = $12,500 × 24% = $2,880

If a couple is filing MFJ (Married Filing Jointly) and their income is under $150,000, this is how the deduction is calculated:

Modified Adjusted Gross Income (MAGI): $140,000

Tax-Free Tips: $25,000

MFJ likely marginal tax bracket: 22%

Maximum Tax Savings = $25,000 × 22% = $5,500

For Single and Head of Household, after $150,000 there is a phaseout which results in taxpayers receiving less of the credit. For Married Filing Jointly, after $300,000 there is a phaseout which results in taxpayers receiving less of the credit. These changes create real financial relief for service workers and make taking on additional hours more rewarding.

Tips

Taxpayers who earn tips can claim up to $25,000 of their tips as a deduction for every filing status except married filing separately. Married filing separately cannot claim this benefit. To receive the full $25,000 deduction, the worker must have a MAGI of $150,000 or below. For example:

If a couple is filing MFJ (Married Filing Jointly) and their income is under $150,000, this is how the deduction is calculated:

Modified Adjusted Gross Income (MAGI): $140,000

Tax-Free Tips: $25,000

MFJ likely marginal tax bracket: 22%

Maximum Tax Savings = $25,000 × 22% = $5,500

If a couple is filing MFJ (Married Filing Jointly) and their income is over $150,000 and under $300,000, this is how the deduction is calculated:

Modified Adjusted Gross Income (MAGI): $290,000

Tax-Free Tips: $25,000

MFJ likely marginal tax bracket: 24%

Maximum Tax Savings = $25,000 × 24% = $6,000

For Single and Head of Household, after $150,000 there is a phaseout which results in taxpayers receiving less of the credit. For Married Filing Jointly, after $300,000 there is a phaseout which results in taxpayers receiving less of the credit. Tips will still go through payroll with taxes withheld. If eligible, a taxpayer can deduct those tips. This deduction gives service workers meaningful financial relief during the rising costs of living.

Residential Clean Energy Credit

The OBBB updates the residential clean energy credit to make renewable energy upgrades tax deductible for homeowners. This credit covers 30% of the cost of clean energy improvements and remains one of the largest incentives for installing solar panels on individual property. The credit ends on December 31, 2025, so the system must be installed by 2025 in order to qualify.

The OBBB is giving taxpayers more opportunities to save and reduce their tax burden, but only if you understand which deductions apply to you. The rules can feel confusing, but you do not have to figure it out alone.

At Hillman Financial Services, we help you navigate every update with clarity and confidence so you can file correctly and take advantage of every deduction available to you.