Massive Tax Overhaul Creates Deductions for Rent, Daycare, and Commuting, but Hikes Capital Gains Rate to 25%

The All-Americans Tax Relief Act of 2025 is a major shake-up of the federal tax code, introducing a host of new deductions for everyday expenses and significantly expanding benefits for families. The core idea is to shift the tax burden and make the system more accessible to people who take the standard deduction—which is most of us. Just know that almost all the good stuff here doesn't kick in until tax years beginning after December 31, 2026.

The Family Financial Lifelines

This bill throws serious muscle behind two major tax credits. First, the Earned Income Tax Credit (EITC) gets more generous. For example, if you have two or more kids, the income threshold used to calculate your maximum credit jumps to $20,000 (Sec. 2). This means low- to moderate-income workers will see a bigger benefit and can earn more before the credit starts phasing out, which is a big win for working families trying to keep up with inflation.

Second, the Child Tax Credit (CTC) is completely revamped and made fully refundable (Sec. 3). This is huge. It means that even if you don't owe any federal income tax, you can still get the full credit back as a refund—up to $2,000 for each of the first three kids. The credit starts phasing out if your income exceeds $110,000 for joint filers or $75,000 for single filers, but this refundability change ensures the lowest-income families get the full benefit, which they often couldn't under the old rules.

Deductions for Daily Life

One of the biggest themes here is making common, necessary expenses deductible, even if you take the standard deduction. This is often called an “above-the-line” deduction, and it’s a game-changer for middle-class taxpayers who don't have enough itemized deductions to surpass the standard deduction.

• Rent Deduction: For the first time, you can deduct rent paid on your primary residence (Sec. 9). This is massive news for renters. However, be aware: this deduction phases out quickly if you make too much—starting at $150,000 for joint filers and $75,000 for others. For every $500 you earn over that limit, your deduction shrinks by 1%. Renters in high-cost cities with decent incomes might find this benefit disappears fast.
• Daycare and Tutoring: Parents get two new breaks. You can deduct qualified daycare expenses for children under age 7 (Sec. 5). Plus, there’s a deduction up to $2,500 for tutoring services (Sec. 7). The tutoring deduction is tightly restricted: it must be for a dependent attending a public or charter school that receives Title I funding, and the sessions must meet strict structural rules (like being small groups of four or less, lasting 1-3 hours, and occurring weekly for at least six weeks). If your kid’s tutoring doesn't fit that rigid schedule, you won't get the break.
• Commuting and Debt: If you use public transit to get to your job (working at least 20 hours a week), you can deduct those fare costs, provided your income is below $250,000 (joint) or $125,000 (single) (Sec. 6). There’s also a new deduction for up to $2,500 in credit card interest paid annually (Sec. 8). Both are above-the-line, meaning they help reduce your taxable income immediately.

Medical Bills and Debt Forgiveness Get Easier

Right now, you can only deduct medical expenses if they exceed 7.5% of your Adjusted Gross Income (AGI)—a high bar for most people. This bill removes that minimum threshold entirely and, critically, allows non-itemizers to claim medical expenses (Sec. 4). This means if you have a few thousand dollars in unexpected medical bills, you can subtract that amount from your income even if you take the standard deduction. This is a huge simplification and benefit for anyone facing health costs.

Separately, the bill addresses debt forgiveness. If you are an individual and your debt is forgiven, that forgiven amount will no longer be counted as taxable income (Sec. 10). This applies to debt taken on after 2026 and provides a significant shield for people who get relief from crushing debt, preventing a surprise tax bill.

The Trade-Off: Higher Capital Gains Tax

While the bill delivers broad tax relief for families and workers, it funds or balances some of this by increasing the top tax rate on long-term capital gains—the profit you make from selling assets like stocks or real estate (Sec. 11). For the highest earners, that rate jumps from 20% to 25%. This is a targeted tax hike on investment income for those in the top bracket and is the one major provision in this bill that increases taxes rather than reducing them.