In July 2025, President Trump signed into law Public Law 119-21, commonly known as the One Big Beautiful Bill Act (OBBBA) of 2025. Among the provisions passed into law is one provision affecting all individual income tax filers and another provision called the Senior Deduction that affects individuals age 65 and older. This column discusses both provisions and planning opportunities for individuals age 65 and older.
Repeal of the Personal Exemption
OBBBA amended Internal Revenue Code (IRC) Section 151(d) by making the Tax Cuts and Jobs Act of 2017 (TCJA) repeal of the personal exemption permanent. For the years 2018 through 2025 the personal exemption deduction was reduced to $0. The last year before the personal exemption was repealed (2017), the personal exemption was $4,050. Due to expire effective January 1, 2026, OBBBA extended the personal exemption repeal indefinitely. This means that no personal exemption deductions are allowed for individuals or dependents.
Despite the $0 personal exemption amount, IRS Section 151(d) clarifies that personal exemptions are still considered allowed or allowable for determining eligibility for some tax credits such as the Child Tax Credit or eligibility for the Head of Household filing status.
Senior Tax Deduction
A new deduction of up to $6,000 is available to an individual age 65 and older by December 31, or a deduction of up to $12,000 for a married couple filing a joint federal tax return in which both spouses are at least age 65. The deduction is called the Senior Tax Deduction and applies to tax years 2025 through 2028 only. Note that an individual turning 65 on January 1,2026 is treated as attaining age 65 on December 31, 2025.
The Senior Tax Deduction is a below-the-line deduction that does not affect an individual’s adjusted gross income (AGI) but instead reduces taxable income. The new deduction is in addition to the existing extra standard deduction for individuals age 65 and older. No change was made to the normal age 65 and over additional standard deduction, or the additional deduction if blind.
The $6,000 deduction amount is reduced (but not below $0) by 6 percent of an individual’s Modified Adjusted Gross Income (MAGI) in excess of $75,000 for individuals filing as single, head of household, or MAGI in excess of $150,000 for married filing joint returns. Individuals over age 65 who file as married filing separate are not eligible for the senior tax deduction.
MAGI is defined as adjusted gross income plus any foreign earned income exclusion taken, plus income from Guam, American Samoa, or the Northern Marina Islands and Puerto Rico.
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The following two examples illustrate the phase-out of the senior deduction:
Example 1. At the end of 2025, William, age 67 and Meredith, age 64, intend to file their 2025 federal income tax return as married filing joint. Only William is eligible for the Senior Tax Deduction of $6,000. Their 2025 MAGI is $180,000. William $6,000 senior deduction is reduced to $4,200, shown as follows:
6 percent of ($180,000 less $150,000) = $1,800
$6,000 less $1,800 = $4,200
Example 2. Laura, aged 70, is single. Her 2025 MAGI is $125,000. Laura’s $6,000 senior deduction is reduced to $3,000 as follows:
6 percent ($125,000 less $75,000) = $3,000
$6,000 less $3,000 = $3,000
Individuals aged 65 and older should note that the Senior Tax Deduction is available to all individuals whether they itemize (file Schedule A) on their federal income tax return, or they take the standard deduction.
Some other points related to the new Senior Tax Deduction:
- Taxation of Social Security retirement benefits. Contrary to the email sent by the Social Security Administration (SSA), and social media with respect to the taxation of Social Security retirement benefits. The law has not changed. Monthly Social Security disability and retirement benefits are potentially federal taxable and continue to be so. The Senior Tax Deduction is not tied to the potential taxation of Social Security benefits.
- Some Senior Tax Deduction optimizations strategies. If an individual over age 65 is over the MAGI threshold ($150,000 if single or $250,000 if married filing joint), and has capital gain income, then the individual should use “capital loss harvesting” strategies in order to reduce their MAGI.
- Using Qualified Charitable Distributions (QCDs). If an individual is over age 70.5, a qualified charitable distribution (QCD) can be used to either meet charitable giving goals or satisfy required minimum distribution (RMD) requirements. QCDs are not included in gross income and can potentially reduce MAGI by offsetting a traditional IRA required minimum distribution (RMD) dollar-for-dollar thereby reducing AGI.
Federal retirees over age 65 are advised that there is always an ongoing need for tax planning for all individuals, but especially those individuals over age 65. Tax planning, if done in a tax beneficial and efficient way, cannot only minimize current and future year income tax liabilities but also reduce Medicare Part B and Medicare Part D Income-Related Monthly Adjustment Amounts (IRMAA) charges. As noted above, the Senior Tax Deduction reduces taxable income, not AGI.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
The case studies presented are hypothetical stories and not indicative of any specific situations or client. It is presented only as an example and not intended as investment advice. Investing involved risk and there is no assurance that any investment strategy will be successful.
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Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.