The IRS standard deduction is getting a major upgrade—and everyday Americans stand to benefit. Thanks to the newly passed One Big Beautiful Bill, taxpayers who previously had no reason to itemize can now access new deductions and credits starting in 2025 and 2026.
Here’s what’s changing and how you can prepare ahead of the next tax season.
New charitable deduction even if you don’t itemize
In a big shift from past tax rules, OBBB permanently restores a charitable deduction for those taking the standard deduction, starting in 2026.
- Individuals can deduct up to $1,000 in cash donations
- Married couples filing jointly can deduct up to $2,000
- This is considered an above-the-line deduction, meaning it reduces your adjusted gross income
“This could benefit millions of taxpayers who previously had no tax planning opportunities under the 2017 TCJA,” said CPA Brian Gray of Gursey Schneider.
Auto loan interest becomes deductible—under specific rules
For the first time in decades, interest on personal auto loans will be deductible for standard deduction filers.
- Up to $10,000 in interest can be deducted from 2025 through 2028
- Vehicles must be new, assembled in the U.S., and for personal use
- Income limits will apply
While the requirements may narrow eligibility, this change could shift the economics of buying vs. leasing a vehicle.
Bigger tax benefits for families
Families stand to gain from two significant updates under OBBB—even without itemizing:
1. Dependent Care FSA contribution limit increased
If your employer offers a Dependent Care Flexible Spending Account (DCFSA), you’ll soon be able to contribute more tax-free income:
- Annual maximum will increase to $7,500, up from $5,000
- For married couples filing separately: $3,750 each
- Enrollment for 2025 plans opens later this year
This is the first permanent increase in decades, helping families better budget for caregiving expenses.
2. Child and Dependent Care Credit (CDCC) gets enhanced
Starting in 2026, more families will qualify for larger credits:
- Credit rate increases to 50% for qualifying expenses (up to $3,000 for one child, $6,000 for two or more)
- Income threshold for minimum 20% credit rises to $206,000 for joint filers and $103,000 for individuals
An estimated 4 million families will benefit, with many seeing their CDCC increase by up to $900 compared to today’s levels.
Planning ahead is key
Experts recommend using the remainder of 2025 to prepare for these changes:
- Boost retirement contributions to qualify for higher CDCC
- Track charitable giving for potential deductions
- Research eligible vehicles if planning a purchase
- Revisit childcare benefits during your employer’s open enrollment
“A lot of new changes with income phaseouts,” said CPA Brian Schultz. “Be mindful of income levels.”
What happens next?
Though tax season is still months away, the provisions of the One Big Beautiful Bill signal a shift in how the IRS standard deduction can work for the average household. With proper planning, millions could lower their taxable income and increase their refund—or reduce what they owe.
Stay tuned as the IRS releases more guidance in the coming months.
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