Deductions and Credits for 2025: What the One Big Beautiful Bill Act Changed

The 2025 figures that changed

The state and local tax cap for 2025 is $40,000, not the $10,000 that had applied since 2018. The raised cap phases down for higher incomes and rises one percent a year through 2029 before returning to $10,000 in 2030. The child tax credit is $2,200 per qualifying child, with the additional child tax credit, the refundable portion, at $1,700. Those two figures are neighbours in every practice bank and they are not the same number, which is why they make such an effective distractor pair. Beyond the revised amounts, three deductions exist for 2025 that did not exist before: qualified tips, qualified overtime and qualified passenger vehicle loan interest.

• Qualified tips: up to $25,000 of qualified tips, available without itemising, in occupations that customarily and regularly received tips on or before 31 December 2024
• Qualified overtime: only the premium element that section 7 of the Fair Labor Standards Act requires above the regular rate, generally the half-time part of time and a half
• Qualified passenger vehicle loan interest: up to $10,000 a year, without itemising, and only on a loan originated after 31 December 2024; leases and used vehicles are both excluded
• All three run for tax years 2025 through 2028
• Section 199A: a deduction of up to 20 percent of qualified business income, plus 20 percent of qualified REIT dividends and qualified publicly traded partnership income

Medical and dental expenses

Unreimbursed medical and dental expenses are deductible on Schedule A only to the extent they exceed 7.5 percent of adjusted gross income. Around that floor sit the timing and eligibility rules the exam prefers. An expense charged to a credit card is included in the year the charge is made, not the year the card bill is paid. An expense later reimbursed by insurance is not deductible. For a spouse's expenses to count, the marriage must have existed either when the expense was incurred or when it was paid. A capital improvement made for medical reasons is deductible only to the extent its cost exceeds the increase in the home's value, so a $12,000 elevator that adds $5,000 of value gives a $7,000 deduction. The standard medical mileage rate for 2025 is 21 cents a mile, and parking and tolls can be added on top of either method.

Education and other individual reliefs

The lifetime learning credit is up to $2,000 per return rather than per student, and it is entirely nonrefundable: it is limited to the tax you owe, and no part of it comes back as a refund. That is the contrast the exam draws with the American opportunity credit, 40 percent of which is refundable. The student loan interest deduction reduces income subject to tax by up to $2,500. The saver's credit disappears above $79,000 of adjusted gross income on a joint return for 2025. The child and dependent care credit can be up to 35 percent of employment-related expenses, and its exclusions are tested more often than its rate: payments do not count if made to your spouse, to the parent of a qualifying child under 13, or to your own child unless that child is 19 or older by year end and is not your dependent.

Why prior-year numbers are the whole game here

The exam is written to a fixed basis and tests whether you know which year's figure applies. For the current window that basis is calendar year 2025, fixed by the law as amended through 31 December 2025. A candidate who learned $10,000 as the SALT cap, $2,000 as the child tax credit or $1,250 as the dependent standard deduction floor will find each of those sitting in the answer list as a plausible wrong option. The practice questions below use the 2025 figures for the correct answers and the superseded figures as distractors, which is the same construction the real exam uses.