Retirement Tax Deductions 2025: What Pre-Retirees Should Know About the One Big Beautiful Bill  

The One Big Beautiful Bill (OBBBA), signed into law on July 4, 2025, made headlines for freezing tax brackets and raising estate exemptions. While those changes captured most of the attention, the bill also included a set of smaller, time-limited deductions that could play a strategic role for those nearing retirement. 

These provisions are only available between 2025 and 2028 and come with income limits that determine who qualifies. For many pre-retirees navigating the complex mix of part-time work, Social Security, and retirement account withdrawals, understanding these deductions could help reduce taxable income and support broader planning goals. 

The Four Hidden Deductions Under OBBBA  

  Beyond the headline items, the bill introduced four lesser-known deductions that may affect how income is reported during the transition from work into retirement. While not everyone qualifies, those who do may benefit from reduced income on their tax return at a time when every dollar matters. 

1. No Tax on Tips  

 Taxpayers can deduct up to $25,000 in reported tip income annually between 2025 and 2028. The IRS will define which occupations qualify. The deduction begins phasing out at $150,000 MAGI for single filers and $300,000 for joint filers. For pre-retirees working part-time in service-based roles, this provision could help reduce taxable income and keep them within favorable tax or Medicare thresholds. 

2. No Tax on Overtime  

  If you are working extra hours before retirement, the premium portion of your overtime pay may now qualify for a deduction. Singles can deduct up to $12,500 and couples up to $25,000. The same MAGI limits of $150,000 for individuals and $300,000 for couples apply here too. This deduction gives late-career professionals an opportunity to reduce taxes during years of higher income. 

3. Car Loan Interest Deduction  

 For the first time, a portion of interest on personal-use car loans may be deductible. To qualify, the vehicle must meet eligibility rules, including final assembly in the United States. Singles can deduct up to $10,000 in interest, phasing out at $100,000 MAGI for singles and $200,000 for joint filers. For pre-retirees who plan to purchase a vehicle before leaving the workforce, this could offer both a timing and planning opportunity. 

4. Extra Deduction for Seniors (65+)  

 Taxpayers aged 65 and older may deduct an additional $6,000 each or $12,000 per couple on top of the existing senior deduction. The benefit phases out at $75,000 MAGI for singles and $150,000 for joint filers. This added deduction may help households offset income from Social Security or required minimum distributions during early retirement years. 

How These Provisions Fit into Retirement Planning  

  The value of these deductions lies in how they affect reported income. Lowering MAGI can help some retirees avoid crossing into higher Medicare IRMAA brackets, reduce how much of their Social Security is taxable, and better time Roth conversions or other income strategies. 

These deductions are not a replacement for long-term planning, but they do offer a layer of flexibility during a period when financial decisions often overlap with healthcare enrollment, investment distributions, and lifestyle changes. For example, generating income in retirement becomes more efficient when deductions are timed strategically. 

Action Steps for Pre-Retirees  

  Because these deductions are temporary and tied to income limits, now is the time to assess your eligibility and consider the planning opportunities available. Start by reviewing your expected MAGI for 2025 through 2028, keeping good records of tips, overtime, and vehicle purchases, and evaluating how timing your income may impact eligibility. 

As you coordinate these elements, it is helpful to think about how they align with broader decisions like when to enroll in Medicare or claim Social Security. You may also want to revisit whether your current income strategy still fits. 

Key Takeaways for Pre-Retirees  

  The smaller provisions of OBBBA will not apply to everyone, but for those who qualify, they offer a rare opportunity to lower taxable income during a pivotal life stage. Their temporary nature means households have a narrow window to act before they phase out in 2028. 

Understanding how these deductions fit into your overall retirement plan can help you make more informed choices, whether you are working part-time, planning a car purchase, or timing retirement account withdrawals. If Medicare costs are a concern, these strategies may also help you stay below IRMAA thresholds, as explained in our article on Medicare costs for high-income retirees in 2025. 

Conclusion  

While most attention has gone to OBBBA’s headline tax reforms, these four lesser-known deductions offer unique benefits for pre-retirees if you act before they expire. 

To explore them in greater detail, download our free guide, 4 Hidden Deductions in the One Big Beautiful Bill Every Pre-Retiree Should Know, or schedule a complimentary review with our team to discuss how these deductions may apply to your specific situation. 

Standard Disclosure  

This blog expresses the author’s views as of the date indicated, are subject to change without notice, and may not be updated.  The information contained within is believed to be from reliable sources.  However, its accurateness, completeness, and the opinions based thereon by the author are not guaranteed – no responsibility is assumed for omissions or errors.  This blog aims to expose you to ideas and financial vehicles that may help you work towards your financial goals. No promises or guarantees are made that you will accomplish such goals.   

Past performance is no guarantee of future results, and any expected returns or hypothetical projections may not reflect actual future performance or outcomes. All investments involve risk and may lose money. Nothing in this document should be construed as investment, tax, financial, accounting, or legal advice. Each prospective investor must evaluate and investigate any investments considered or any investment strategies or recommendations described herein (including the risks and merits thereof), seek professional advice for their particular circumstances, and inform themselves about the tax or other consequences of any investments or services considered.    

Investment advisory services are offered through Liberty Wealth Management, LLC (“LWM”), DBA Liberty Group, an SEC-registered investment adviser.  For additional information on LWM or its investment professionals, please visit www.adviserinfo.sec.gov  or contact us directly at 411 30^th Street, 2^nd Floor, Oakland, CA  94609, T: 510-658-1880, F: 510-658-1886,  www.libertygroupllc.com. Registration with the U.S. Securities and Exchange Commission or any state securities authority does not imply a certain level of skill or training.