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AARP TaxAide Training�Deductions – new OBBB act

FOR USE BY AARP FOUNDATION TAX-AIDE VOLUNTEERS ONLY

OBBB Deductions Pub 4012 – Tab F� Pub 4491 – Lesson 19

• Deductions in addition to the standard or itemized deductions
• Qualified Tip deduction
• Qualified Overtime compensation deduction
• Qualified Car Loan interest deduction
• Enhanced Deduction for seniors

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Qualified Tips Income Deduction

• In addition to Standard or Itemized deductions
• Who is Eligible
• Employees
• Self-employed taxpayers (Tip deduction reduces QBI deduction)
• Tip earner must have SSN
• Tips must have been earned in a qualified occupation, customarily and regularly receiving tips

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Who is not eligible for Qualified Tips Income Deduction

• A married taxpayer filing MFS (HOH is ok)
• Self-employed individuals in a Specified Service Trade or Business (SSTB)
• Employees whose employer is in an SSTB
• An SSTB is any trade or business providing services in the fields of:

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Requirements and Limits for Tips Income Deduction

• Qualified tips up to $25k
• Must be reported on a tax form
• W-2 Box 7, 8 for employees
• 1099-NEC, -K for self-employed (For TY25, taxpayer to provide the tip amount which is included in 1099-NEC or –K)
• Must be voluntary tips
• Only cash tips (including checks, credit/debit/gift cards, cash transfer apps, etc.) are eligible
• Non-cash tips not eligible, but must be reported on W-2 entry screen along with any cash tips not reported to employer
• The deduction phases out starting at MAGI over $150k ($300k for MFJ)

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Deduction calculations are shown on Schedule 1-A (Part II)

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Qualified Business Income (QBI) Deduction

• QBI = Net Profit – SEHI deduction – SE Tax deduction – SE Tips deduction
• Deduction is smaller of:
• 20% of (QBI + Sec 199 Dividends), or
• 20% of taxable income (before QBI deduction) minus applicable net capital gains and qualified dividends

Currently TaxSlayer handles all calculations except SE Tips deduction adjustment

NTTC Training – TY2025

SE Tips deduction adjustment for QBI

• Tips deduction adjustment is only needed for Tips included in Sch C income (1099-K, - NEC or –MISC). No adjustments are necessary for tips reported on W-2s
• Manual adjustment is necessary until TaxSlayer fixes this issue
• Enter as a negative QBI adjustment at Schedule C>Qualified Business Income Deduction

NTTC Training – TY2025

SE Tips deduction adjustment for QBI- TaxSlayer

NTTC Training – TY2025

Enter as a negative number

Qualified Overtime Compensation Deduction

• In addition to Standard or Itemized deductions
• Who is eligible
• The overtime earner must have a valid SSN
• Who is not eligible
• A married taxpayer using the MFS filing status (HOH is ok)
• What qualifies
• Qualified overtime income
• Pay that exceeds the regular rate of pay that is required by the Fair Labor Standards Act
• Since Qualified OT will not be on W-2 or 1099 this year, a statement from employer will be needed

Limits for Overtime Compensation Deduction

• Maximum deduction is $12,500 ($25,000 for MFJ)
• The deduction phases out starting at MAGI over $150,000 ($300,000 for MJF)

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Deduction calculations are shown on Schedule 1-A (Part III)

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Qualified Passenger Vehicle Loan Interest Deduction

• In addition to Standard or Itemized deductions
• Who is eligible
• A taxpayer who pays interest on a loan for a new vehicle purchased for personal use during the year. Taxpayer to provide VIN
• No SSN requirement

Qualified Passenger Vehicle Loan Interest Deduction

• What qualifies
• Interest paid on a loan used to purchase a new passenger motor vehicle (a used vehicle does not qualify)
• The vehicle loan originated after December 31, 2024
• There is no limit on the number of vehicles
• Can be a car, minivan, van, sport utility vehicle, pickup truck, or motor cycle. Gross weight under 14,000 lbs
• Final assembly of the vehicle must have been in the US. National Highway Traffic Safety Administration’s website NHTSA VIN Decoder can provide plant of manufacture information
• The loan must be secured by a lien on the vehicle
• Refinancing the qualifying vehicle does not change eligibility

Qualified Passenger Vehicle Loan Interest Deduction

• What does not qualify
• Interest paid on a loan for a used vehicle
• Interest paid on fleet, commercial, or leased vehicle loans
• Interest paid on a loan to finance the purchase of a vehicle intended to be used for scrap or parts
• Maximum annual deduction is $10,000, regardless of the number of qualifying vehicle loans
• The deduction phases out starting at MAGI of $100,000 ($200,000 for MFJ)
• Taxpayers to provide a statement from the lender showing total interest paid for the year

Deduction calculations are shown on Schedule 1-A (Part IV)

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Enhanced Deduction for Seniors

• In addition to Standard or Itemized deductions
• Who is eligible
• A taxpayer (or spouse if MFJ) who has attained the age of 65 by the end of the tax year
• Who is not eligible
• A married taxpayer using the MFS filing status (HOH is ok)
• The maximum deduction is $6,000 per eligible individual (taxpayer or spouse, if MFJ)
• The deduction phases out starting with modified adjusted gross income (MAGI) over $75,000 ($150,000 if MFJ)

Deduction calculations are shown on Schedule 1-A (Part V)

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Entering in TaxSlayer

Entering in TaxSlayer

Qualified Tips Deduction

Qualified Overtime Deduction

Qualified Car Loan Interest Deduction

Deductions Pub 4012 – Tab E� Pub 4491 – Lesson 19

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