New Federal Tax Changes for 2025 Include Higher SALT Deduction Cap, Child Savings Accounts

Chicago-area taxpayers face several significant tax changes for 2025 under President Donald Trump’s One Big Beautiful Bill Act, with implications that will affect returns filed in 2027.

The most notable change increases the cap on state and local tax (SALT) deductions from $10,000 to $40,000 for the 2025 tax year, according to the new legislation. This deduction allows filers to claim certain taxes they’ve already paid, including sales and property taxes.

The SALT deduction only applies to taxpayers who itemize rather than take the standard deduction, according to the tax law. First introduced in 2017 during Trump’s first presidential term, the cap will increase annually by 1% until 2029, after which it reverts to the 2017 cap of $10,000.

For 2026, the cap increases by $400 to $40,400, or $20,200 for married couples filing separately. These amounts apply when filing by April 15, 2027, according to the legislation.

The full deduction phases out for filers with modified adjusted gross income exceeding $500,000, or $250,000 for those married filing jointly, according to the tax provisions. The phaseout levels also increase by 1% annually through 2029.

Starting in 2026, itemized deductions for those in the 37% tax bracket will be capped at 35%, or about 35 cents for every dollar deducted, according to Fidelity.

Mark Gallegos, tax partner at accounting and consulting firm Porte Brown’s Elgin office, advised taxpayers to “confirm they’re not subject to the alternative minimum tax and that Illinois properly credits their prepayments before they accelerate such payments.”

The legislation introduces a new tax-advantaged investment account for children. American citizens who have a baby between Jan. 1, 2025, and Dec. 31, 2028, will receive a $1,000 federal contribution into a 530A account, also known as a Trump Account, according to the new law.

The account functions similarly to an individual retirement account and becomes available starting in July, according to the legislation. Families, employers and others may contribute up to $5,000 annually in after-tax money to each child’s account until they turn 18.

From ages 18 to 30, children can withdraw funds tax-free for higher education, job training, first-time home purchases, starting small businesses or certain workforce expenses, according to the law. After age 30, withdrawals are taxed as ordinary income.

Beverly Moran, tax law expert and professor emerita at Vanderbilt University, expressed skepticism about the program’s benefits for working families. “My message would be, ‘Don’t be fooled by the hype,’” Moran said. “[The account] has been billed as good for working Americans. Mostly, it’s not.”

Moran cited the challenge most families face in having an extra $5,000 to save for extended periods. She noted that low-income working families will encounter “tighter eligibility, smaller benefits and greater costs in time, expenses and recordkeeping” under the tax bill.

The legislation also expands 529 education savings plans, which offer tax-free growth and withdrawals for qualified educational expenses. Previously, these plans allowed qualified educational expenses of up to $10,000 per year, per beneficiary for K-12 tuition, certain apprenticeship programs and student loan repayments, according to the prior law.

Under the new provisions, families can now withdraw $20,000 versus the previous $10,000 limit as of Jan. 1, according to the legislation. Qualified expenses previously included tuition, fees, books, school supplies, campus food and meal plans, technology for schoolwork and certain room and board costs for students enrolled at least half time.

The expanded flexibility represents the most significant change to 529 plans under the new tax law, providing Chicago-area families with greater options for education-related expenses.