Note:
Information courtesy of USAA Life Insurance Company and USAA Life Insurance Company of New York.
When President Donald Trump signed Public Law 119-21 (also known as the (“One Big Beautiful Bill”) on July 4, it made several changes that could impact retirees. Here are a few of the key provisions and changes that could affect you. Learn more about the One Big Beautiful BillOpens in New Window. See note 1
What is Public Law 119-21?
The tax and spending legislation reshapes parts of the tax code, retirement planning rules, and Medicaid and Medicare, among other provisions. While lawmakers debated its long-term effects, the law’s immediate focus is to:
- Extend and expand provisions in the Tax Cuts and Jobs Act
- Introduce new tax cuts, including breaks for those 65 and older, those who earn tips and those with a car loan
- Expand the Child Tax Credit
- Adjust Medicare and Medicaid eligibility and cost structures
- Update rules for retirement savings and state and local tax deductions
Key tax changes
The new law makes several big changes to the tax code, that affect everything from paying off a car loan to retirement income. Here a few of the biggest changes.
$6,000 deduction for seniors
Those ages 65 and older may be able to claim up to $6,000 in deductions from 2025 to 2028, which could offer big tax relief during retirement, when many are on fixed incomes. However, the benefit is phased out for higher-income taxpayers, beginning at $75,000 for individuals and $150,000 for those filing jointly. a, b
a. https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniorsOpens in New Window See note 1
b. https://www.congress.gov/bill/119th-congress/house-bill/1/textOpens in New Window See note 1
Increases in Alternative Minimum Tax exemptions
The Alternative Minimum Tax, or AMT, is a parallel federal tax system designed to ensure high-income taxpayers pay at least a minimum amount of tax, even if they have many deductions or credits under the regular tax system. Those who may be subject to the AMT must calculate their tax liability twice: once under standard income rules and again using the AMT rules. They then pay the higher of the two.
The new One Big Beautiful Bill extends and modifies AMT exemption amounts, b which could benefit those with investment income, capital gains or other non-wage income sources.
By extending these higher exemption amounts beyond 2025, more retirees and investors may reduce their exposure to AMT, potentially lowering unexpected tax liabilities.
New tax deduction for vehicle loan interest
The new law created a temporary tax deduction for vehicle loan interest for 2025 to 2028, something we haven’t seen since the passage of the Tax Reform Act of 1986. Eligible taxpayers can write off up to $10,000 per year in interest on loans for new, American-made vehicles. Learn more about buying a new vehicle.
To qualify for the deduction:
- The loan must have been issued after Dec. 31, 2024, and secured by a first lien on the vehicle.
- The car must be new (used vehicles and leases are not eligible), for personal use only, and be either a car, SUV, pickup, minivan, van or motorcycle.
- The final assembly must have occurred in the U.S.
- The vehicle identification number, or VIN, must be reported on your tax return.
The full deduction is available to single filers with adjusted gross incomes of up to $100,000 and up to $200,000 for married couples filing jointly. a, b
The law also ends the federal tax credit for clean vehicles purchased after September 30, 2025. b
Increases to state and local tax deduction limits
In 2017, the Tax Cuts and Jobs Act capped the amount of state and local taxes that eligible taxpayers could deduct from their federal taxable income at $10,000, which primarily affected those in high-tax states. The 2025 law increases the cap to $40,000 through 2026, then it increases by 1% a year until 2030, when it is set to revert to $10,000.
Taxpayers must itemize their returns to take advantage of the deduction, which is reduced for those with a modified adjusted gross income over $500,000 in 2025, $505,000 in 2026, and increasing by 1% annually from 2027 to 2029. b
The phased approach can provide a sustained tax break for those in high-tax states, but taxpayers should work with their financial planners to be prepared for the potential significant reduction to the deduction in 2030.
Medicare and Medicaid
The new law contains sections that could affect those who rely on Medicare, the federal health insurance program for those ages 65 and older or younger individuals with disabilities, end-stage renal disease or ALS. It also includes updates related to Medicaid, which provides health coverage to millions of Americans, including low-income adults, women, children, pregnant women, elderly adults and those with disabilities. For the latest on potential changes that could impact your healthcare planning in retirement, visit the Centers for Medicare & Medicaid ServicesOpens in New Window. See note 1
How do these changes affect your retirement plans?
Retirees and those approaching retirement face a complex landscape shaped by these legislative changes. Tax provisions offer continued relief but require active planning to optimize deductions. The new law's healthcare provisions may result in some coverage and eligibility changes, meaning retirees should stay vigilant about their benefits and documentation. Overall, these changes underscore the need for working with a financial professional to help secure a stable and healthy retirement.