TAX “SIMPLIFICATION” ACT OF 2025

Can Just About 1,000 Pages of New Law Changes Be Simple?

If I count the many federal income tax acts that I have reviewed over the many years I have practiced real estate and tax law, I could easily find in almost all instances of any new act a statement that “this new act will simplify the federal income tax laws in the USA.”

Come on!  I have never seen such alleged overall simplification generated from a new tax law.   

It is not different with the recent passage by Congress of the OBBB Act; that is, this is the One Big Beautiful Bill Act, sometimes labeled as HR 1 or the 2025 Federal Act.  (I will, for simplicity—yes, real simplicity—refer to this new legislation as the Act or the 2025 Act.)

This new Act is a bit under 1,000 pages, with a huge portion of the Act being devoted to tax changes or other changes related to tax issues.

If Congress can add almost 1000 pages, with limited deletions from the law that existed before this new Act, it is questionable that someone would have the nerve and audacity to label the Act as “simplification.”

There are many examples that could be examined to illustrate that the Act is not so simple.  For example:

SALT: State and Local Tax Deduction:

Looking at the SALT limitations, the intent was to allow some (not all) taxpayers to be able to deduct, when itemizing deductions, more of the State and Local Taxes (SALT).  However, without moving to the details of this change, the essence is that even though some taxpayers will be allowed to deduct more of their state and local taxes, they must meet certain requirements.  (Here come some of the complexities in the “simplified Act.”) 

First, taxpayers must itemize their deductions and not use the less burdensome approach of claiming the standard deduction.

Further, and a common theme throughout the Act, is the law provides that if a taxpayer’s income exceeds certain limits, their ability to claim the greater state and local deductions for taxes is “phased out.”  (Without developing this detail (see below), it can be clearly seen that the phase out reduces the simplicity that was promised by many legislators.)

There are additional complexities in claiming these special deductions under what were the SALT limitations that were allegedly eased for most taxpayers. (See below.)

Interest Related to Personal Auto:

Another example of a change that was to have reduced taxes-- and that was to have been without much complexity, is the allowance of a deduction for interest paid to finance a personal (not business) automobile.

In general, Internal Revenue Code Section 163, prior to the 2025 Act, did not allow for interest incurred to carry the costs to buy a personal car to be deducted.

However, the 2025 Act added a provision to allow such deduction—in come cases.  Ok, the complexity is coming now!

The taxpayer cannot deduct more than $10,000 per year of interest in this setting.

The car must be new and be for personal use.

If the taxpayer’s income exceeds certain limits, the deduction is phased out (reduced).

There are more limits.  But you get the idea!

No Tax on Social Security:

Although the “no tax on social security” was a campaign goal, it turned out that in place of this simple result of “no tax on social security,” Congress gave an extra deduction for older taxpayers (65+), if, yes, you guessed it, they meet certain tests, such as not having income over a given level.  If they exceed these stated levels, all or part of the deduction is lost. (See below.)

No Tax on Tips:

Again, it is simple to state. No Tax on Tips!

But what is a tip? 

How much is allowed as a deduction?

Is this deduction applicable for all taxpayers receiving tips?

Because of these and many related questions, the new Act details the limits on this rule.  It defines what is a tip; it states which taxpayers can come within this rule, and it limits how much income you can generate before you lose the benefit from this new provision.

The maximum that one can deduct under this rule is $25,000.  But, again, there are many limits to qualify. (Without such limits, we might have found that almost all the payments made to an employee or worker would be labeled as “tips.”)

Overtime Pay:

Another promise made during the campaign was to exclude pay received as “overtime pay.”

What is Overtime pay?  How much can be protected from taxation?

The Act allows qualified employees with qualified pay to deduct a maximum of $12,500 in such overtime pay.  As we might guess, there are many unanswered questions that must be addressed in future Regulations and Notices from the IRS. Some of those questions were noted above, such as, again, what is overtime pay?

For a detailed discussion of the above provisions and answers to many of the above questions, see the free Mark Lee Levine Newsletter and Levine, Mark Lee and Segev, Libbi Levine, Real Estate Transactions, Tax Planning, Chapters 1 and 13 (Thomson/Reuters/West).  (https://www.markleelevine.com/blog)

By

Dr. Mark Lee Levine, Professor, University of Denver