2025 OBBBA Year-End Tax Strategies to Maximize Deductions and Credits

As the end of 2025 approaches, taxpayers face important decisions that can significantly affect their federal tax returns filed in 2026. The new rules introduced by the OBBBA (Omnibus Budget and Balanced Budget Act) have reshaped key deductions and credits, creating both opportunities and challenges for year-end tax planning. This guide breaks down practical moves you can make before December 31, 2025, to lock in valuable tax benefits and avoid costly mistakes.

Understanding the Expanded SALT Cap for 2025

One of the most impactful changes under OBBBA is the adjustment to the state and local tax (SALT) deduction cap. For 2025, itemizers can deduct up to $40,000 of state and local taxes, a significant increase from previous years. However, this expanded cap begins to phase out for taxpayers with a Modified Adjusted Gross Income (MAGI) around $500,000 and disappears completely shortly after that threshold. Taxpayers above this range revert to the old SALT cap limits.

What This Means for You

• If your MAGI is below $500,000, paying property taxes due in December 2025 can increase your deductible amount on your 2025 return.

• If your MAGI is near or above $500,000, avoid actions that increase income late in the year, such as bonuses, Roth conversions, or capital gains, as these could reduce or eliminate your SALT deduction benefit.

  
  

Practical Moves Before Year-End

• Prepay property taxes due in December to claim the deduction on your 2025 return if your income is under the phaseout threshold.

• Pair a high SALT deduction year with a standard deduction year in 2026 to balance your overall tax benefit.

• Use charitable giving strategically to reduce MAGI and preserve SALT benefits:

- Cash donations to public charities

- Contributions to donor-advised funds with grants planned for future years

- Donating appreciated stock or ETFs held for more than one year

- Qualified charitable distributions (QCDs) from IRAs if you are 70½ or older, which reduce AGI directly

Make sure any charitable financing is fully vetted and documented to avoid IRS issues.

Maximizing Child and Dependent Tax Credits

The OBBBA also increased the Child Tax Credit (CTC) for 2025 to $2,200 per qualifying child, up from previous amounts. The income phaseouts remain the same: $200,000 for single filers and $400,000 for joint filers.

Key Changes to Note

• Each qualifying child must have a work-eligible Social Security Number (SSN) starting in 2025.

• For joint returns, at least one parent must have a work-eligible SSN.

• The increased credit amount means families with eligible children can expect a larger tax benefit.

  
  

Planning Tips

• Confirm that all qualifying children have valid SSNs before filing.

• Consider timing income and deductions to stay below the phaseout thresholds.

• Use tax planning to maximize the number of qualifying dependents claimed.

  
  

Other Important Year-End Moves

Managing Income Timing

• Avoid pushing income into 2025 if it risks crossing thresholds that reduce deductions or credits.

• Delay bonuses, capital gains, or Roth conversions if they could trigger phaseouts.

• Conversely, accelerate income into 2025 if it helps meet thresholds for certain credits or deductions.

  
  

Charitable Contributions

• Make charitable gifts before December 31 to claim deductions on your 2025 return.

• Donating appreciated assets can provide a double tax benefit: avoiding capital gains tax and claiming a deduction.

• Use donor-advised funds to bunch donations in high-income years and spread grants over future years.

  
  

Retirement Account Strategies

• Qualified charitable distributions (QCDs) from IRAs remain a powerful tool for taxpayers 70½ or older.

• QCDs reduce your adjusted gross income, which can help preserve SALT deductions and credits.

• Consider Roth conversions carefully, as they increase MAGI and may reduce tax benefits.

  
  

Example Scenario

Imagine a married couple with a MAGI of $480,000 planning their year-end moves. They have a $15,000 property tax bill due in January 2026 and $10,000 due in December 2025.

• Paying the $10,000 property tax in December 2025 allows them to claim it under the expanded SALT cap.

• They decide to delay a $20,000 Roth conversion until 2026 to avoid pushing their MAGI above $500,000.

• They also make a $5,000 cash donation to a public charity in December to reduce MAGI further.

• These moves help them maximize deductions and keep their SALT benefits intact.

  
  

Final Thoughts on Year-End Tax Planning for 2025

The changes brought by OBBBA require careful year-end planning to maximize deductions and credits. Focus on your MAGI thresholds, timing of income and deductions, and strategic charitable giving. Taking action before December 31, 2025, can make a meaningful difference in your 2025 federal tax return.

Taxpayers should review their individual situations with a tax professional to tailor these strategies effectively. The right moves now can save thousands and reduce tax stress during filing season.