New Federal Deductions for Retirees, and When They Expire

The senior deduction

The 2025 law created a deduction of up to $6,000 for each taxpayer aged 65 or older, available for tax years 2025 through 2028. A married couple where both spouses are 65 or older can claim up to $12,000 between them.

Two features make it unusual. It sits on top of the standard deduction rather than replacing it, so you do not have to itemize to use it. And it is separate from the additional standard deduction for older taxpayers that already existed, which continues alongside it.

It also has nothing to do with Social Security taxation. The law was widely described as eliminating tax on Social Security benefits, and it did not. The rules governing how much of your benefit is taxable are unchanged, and we cover those in the Social Security tax torpedo. What the senior deduction does is reduce taxable income for people over 65, whatever the source of that income.

The phase-out, and why it matters

The deduction begins to phase out once modified adjusted gross income passes $75,000 for a single filer or $150,000 for a joint return, and it can be reduced to nothing at higher incomes.

That is the part worth real attention, because it interacts directly with the other decisions in these years. A Roth conversion adds to modified adjusted gross income. So does a large capital gain, an unusually big required distribution, or the sale of a property. Any of those can reduce or eliminate a deduction worth up to $6,000 per person, in a year when you were focused on a different number entirely.

It does not follow that conversions are a mistake during these years. It follows that the cost of a conversion in 2026 includes something it did not include in 2024, and that the sizing calculation should include it. The same reasoning applies to the Medicare premium tiers two years downstream, covered in coordinating income, Medicare, and investments. Three separate income-tested effects now sit on the same decision.

The SALT cap

The deduction for state and local taxes paid, which covers state income tax and local property tax, had been capped at $10,000 since 2018. The 2025 law raised that cap to $40,000 beginning in tax year 2025, with the cap increasing by about 1 percent each year through 2029. It is scheduled to return to $10,000 in 2030.

The higher cap also phases down for high incomes, so households well above the thresholds return toward the $10,000 figure.

The practical effect is a change in who benefits from itemizing at all. Since 2018, the combination of a $10,000 cap and a large standard deduction meant most households, including most retirees, took the standard deduction and got no benefit from their property tax bill. A cap four times higher puts itemizing back within reach for households with substantial property taxes, charitable giving, or both.

Why this lands differently in Illinois

Illinois households are unusually exposed to both halves of the SALT deduction. The state has among the highest effective property tax rates in the country, and it levies a flat state income tax on non-retirement income.

At the same time, Illinois exempts most qualified retirement income from state income tax, so for a retired household the state income tax component of SALT is often small and the property tax component is nearly all of it. For a long-tenured homeowner in Cook or Will county, the property tax bill alone can approach or exceed the old $10,000 cap.

That combination is what makes this window matter more here than it does in a state with low property taxes. It sits alongside the county-level relief already available to older homeowners, the Senior Citizen Homestead Exemption and the assessment freeze, which we cover in fee-based financial advisors in Chicago for retirees. Those reduce the bill itself. The SALT cap governs how much of what remains is deductible federally.

Figures reflect the law as of the publication date of this article. Several are adjusted annually and all are subject to change by Congress. Confirm current amounts and your own eligibility with your CPA.

Bunching

When itemizing is close to worthwhile but not quite, concentrating deductible payments into alternating years can put you over the line in one year and let you take the standard deduction in the next.

For retirees the two candidates are charitable giving and, where the timing of an installment allows it, property tax payments. A donor-advised fund is the common vehicle on the charitable side: a larger contribution in one year, granted out to charities over several.

One caution specific to this audience. If you are over 70 and a half and giving from an IRA, a qualified charitable distribution and an itemized charitable deduction are alternative routes, not complementary ones. The QCD keeps the amount out of income entirely, which is usually the stronger result for someone whose income is being tested three different ways, but it does not also produce a deduction. Which one is better is arithmetic on your own return, and it is a conversation for your CPA.

Planning to a closing window

Temporary provisions invite two errors. One is ignoring them. The other is building a plan that depends on them continuing.

The dates are known: the senior deduction is scheduled to end after 2028, the higher SALT cap after 2029. Congress may extend either, and a plan should not assume it will. What the dates do justify is treating the intervening years as a period with a particular tax character, in the same way the years between retirement and required distributions have a particular character.

Those two windows overlap for many households approaching or newly into retirement, which is the practical reason to look at them together rather than one at a time. The conversion window is covered in required minimum distributions.

Richard Casolari, Financial Advisor, Investment Advisor Representative, CFP®, has spent roughly fifty years in financial services. The practice is founder-led and based in Palos Heights, and the work coordinates tax-aware withdrawal sequencing and conversion analysis in coordination with your CPA, retirement income planning, investment management, and Medicare enrollment timing, into one written plan that is revisited on a schedule.