Tax Shake-Up on the Horizon: Proposed 2025 Act Expands Credits, Adds New Deductions, and Hikes Capital Gains Rate

Alright, let's break down the "All-Americans Tax Relief Act of 2025." This bill is looking to make some pretty big waves in how your taxes get handled, mostly kicking in for the tax year 2027 (so, the taxes you'd file in 2028). Think more money back for some families, new ways to write off everyday costs, but also a bigger tax bite for investors. It's a mixed bag, so let's get into the nitty-gritty.

More Cash for Your Crew? Tax Credits Get a Makeover

First up, two biggies for families: the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) are getting a facelift.

Under Section 2, the EITC, which helps out low- to moderate-income working folks, would see its maximum credit amounts go up. We're talking up to $15,000 for someone with one kid, $20,000 for two or more, and even some bumps for those without kids (like $10,000 for joint filers). The income levels where this credit starts to phase out are also getting adjusted – for instance, to $47,120 for joint filers. This could mean a bit more breathing room for working families trying to make ends meet.

Then, Section 3 proposes making the Child Tax Credit fully refundable. This is a big deal. It means even if the credit is more than what you owe in taxes, you could get the difference back as a refund. The bill sets the credit at $2,000 per kid for up to three children, plus $500 for each additional qualifying child (under 17). But, there are income caps: the credit starts shrinking if your Modified Adjusted Gross Income (MAGI) goes over $110,000 for joint filers or $75,000 for most single filers. You'll also need Social Security numbers for yourself and the kids to claim it. These changes, like the EITC ones, are slated to start after December 31, 2026.

Trimming Your Tax Bill: New Write-Offs for Real Life

This bill introduces a whole slate of new deductions, and here's a key detail a lot of folks will appreciate: many of these are "above-the-line" deductions, meaning you can take them even if you don't itemize and just use the standard deduction. That's a win for simplicity.

• Medical Expenses (Section 4): Currently, you can only deduct medical expenses that exceed 7.5% of your Adjusted Gross Income (AGI). This bill proposes to scrap that threshold entirely. So, if this passes, you could deduct all your eligible medical expenses, not just the portion above that AGI floor. Plus, non-itemizers get in on this too.
• Daycare Costs (Section 5): Got kids under 7 in daycare? You might be able to deduct those expenses. The bill specifies "qualified daycare expenses" for attending a childcare institution. Again, non-itemizers can claim this.
• Commuting Costs (Section 6): If you use public transit to get to work (and work at least 20 hours a week), you could deduct those costs. There are income limits here: your MAGI can't be more than $250,000 (joint) or $125,000 (single). The fine print on what counts as "qualified commuting expenses" and how you'll prove it is still to be determined by the Treasury Secretary, with regulations due by January 1, 2027.
• Tutoring for the Kids (Section 7): Parents could deduct up to $2,500 for "qualified tutoring expenses" for a dependent in a public or charter school that's eligible for Title I funds (these are typically schools with a higher percentage of low-income students). The bill gets specific about what counts as tutoring – think small groups, certain subjects, and regular sessions.
• Credit Card Interest (Section 8): This one's interesting. You might be able to deduct up to $2,500 in interest paid on credit card debt under an open-end credit plan (that's your typical revolving credit card). Given how much folks rely on credit cards, this could offer some relief.
• Rent Payments (Section 9): Renters, listen up! This bill proposes a deduction for the rent you pay on your primary home. However, it phases out for higher earners. The deduction gets reduced by 1% for every $500 your MAGI is over $150,000 (joint) or $75,000 (single). So, if you're a single filer making $80,000, your rent deduction would be cut by 10% (that's $5,000 over the $75,000 threshold, divided by $500, which equals 10 increments of 1%).

All these new deductions are set to kick in for tax years after December 31, 2026.

Debt Forgiveness & Investor Taxes: The Balancing Act

Beyond credits and deductions, there are a couple of other notable changes.

Section 10 touches on "discharge of indebtedness." Usually, if a lender forgives some of your debt, the IRS counts that forgiven amount as taxable income. This bill wants to make an exclusion for individuals, meaning if certain debts are discharged (for debts incurred after December 31, 2026), you might not have to pay taxes on that forgiven amount. The bill specifies this individual exclusion would take priority over other existing exclusions, like for insolvency.

Finally, Section 11 is where some folks might see their tax bill go up. The bill proposes to increase the top capital gains tax rate from 20% to 25%. This would affect individuals who make money from selling assets like stocks or real estate, if those assets were held for more than a year. This change would also apply to tax years starting after December 31, 2026.

So, that's the rundown. The "All-Americans Tax Relief Act of 2025" is packing a lot of changes. It aims to put more money in some pockets through expanded credits and new deductions for common expenses, especially for families and those who don't itemize. But it also looks to increase taxes on investment profits. As always, the devil's in the details, and how these provisions play out in the real world will depend on those final rules and how easy they are for regular people to navigate.