Overview of the 2025 Senior Deduction
Under the One Big Beautiful Bill Act (OBBBA), individuals aged 65 or older can claim a new senior deduction of up to $6,000 from 2025 to 2028. However, an income-based phaseout may reduce or eliminate this benefit for higher earners. Strategic year-end planning can help preserve this deduction by managing your modified adjusted gross income (MAGI). This guide explains eligibility, phaseout rules, and actionable strategies to maximize your tax savings.
Eligibility for the Senior Deduction
Eligibility for the senior deduction does not require receiving Social Security benefits. You qualify if you are 65 or older by December 31 of the tax year. For married couples filing jointly, each spouse aged 65 or older can claim up to $6,000, potentially totaling $12,000. Note that married couples filing separately are ineligible.
Combining Deductions for Maximum Savings
Seniors can combine the new senior deduction with the standard deduction and an additional senior standard deduction. For 2025, the totals are:
- Single Filer (Age 65+): Up to $23,750, comprising $15,750 (basic standard deduction), $2,000 (additional senior standard deduction), and $6,000 (new senior deduction).
- Joint Filers (Both Age 65+): Up to $46,700, including $31,500 (basic standard deduction), $3,200 (two $1,600 additional senior standard deductions), and $12,000 (two $6,000 senior deductions).
Understanding the Phaseout Rules
The senior deduction phases out when MAGI exceeds $75,000 for single filers or $150,000 for joint filers, with complete elimination at $175,000 and $250,000, respectively. The deduction reduces by 6% for every dollar of MAGI above the threshold. MAGI includes regular adjusted gross income (AGI) plus certain tax-exempt offshore income (rare for most taxpayers).
Examples of Phaseout Calculations
- Example 1 (Single Filer): A 65-year-old with a 2025 MAGI of $130,000 faces a $3,300 reduction [6% × ($130,000 − $75,000)], resulting in a $2,700 senior deduction ($6,000 − $3,300).
- Example 2 (Joint Filers): A married couple, both 65+, with a 2025 MAGI of $220,000 sees each $6,000 deduction reduced by $4,200 [6% × ($220,000 − $150,000)], yielding $1,800 per spouse, or $3,600 combined.
Year-End Tax Planning Strategies
To maximize your 2025 senior deduction, reduce your MAGI before December 31. Consider these approaches:
- Harvest Capital Losses: Sell assets in taxable brokerage accounts at a loss to offset capital gains, lowering MAGI.
- Defer Capital Gains: Postpone selling appreciated securities to avoid increasing MAGI.
- Maximize Retirement Contributions: Increase contributions to tax-deferred accounts like a traditional 401(k) to reduce taxable income and MAGI.
- Spread Out Roth IRA Conversions: Distribute conversions over multiple years to minimize taxable income spikes.
- Utilize Qualified Charitable Distributions (QCDs): For those 73 or older, QCDs from traditional IRAs can satisfy required minimum distributions (RMDs) while excluding the amount from MAGI.
Additional strategies may apply based on your financial situation.
Conclusion
The 2025 senior deduction offers significant tax savings for eligible taxpayers, but careful planning is essential to navigate the phaseout. Consult a tax professional to tailor strategies to your circumstances and ensure you maximize this valuable benefit.