How the New Senior Tax Deduction Works

If you’re age 65 or older, there’s a new tax break that could save you thousands of dollars in retirement. Starting in 2025, the One Big Beautiful Bill (OBBB) introduced a Senior Deduction worth $6,000 per person. For married couples where both spouses are 65 or older, that’s a $12,000 deduction added to your normal standard deduction.

A breakdown of the standard tax deduction for those 65 and older with the new Senior Bonus Tax deduction

Why This Matters

The Senior Deduction may be able to lower your tax bill for the year by:

• Keep you in a lower tax bracket longer.

• Reduce how much of your Social Security benefits are taxable.

• Create flexibility to use advanced tax planning strategies like Roth conversions, capital gains harvesting, and IRA withdrawals.

The Numbers Behind the Deduction

Here’s how it works for a married couple earning $150,000 in retirement income in 2025:

• Standard Deduction (Married Filing Jointly): $31,500

• Additional Deduction for 65+: $3,200 ($1,600 each spouse)

• Senior Deduction Bonus: $12,000 ($6,000 each spouse)

• Total Deduction: $46,700

That means instead of paying tax on the full $150,000, the couple would only pay tax on $103,300. This may result in a significant reduction in taxable income and open the door to effective planning strategies.

Income Phaseouts

There is one limitation to know:

• The full deduction begins to phase out once income is above $75,000 for single filers and $150,000 for married couples.

• For retirees with higher incomes, the deduction may be reduced or eliminated.

Planning Opportunities

This deduction is temporary (2025–2028), so retirees should view it as an opportunity to plan accordingly. Here are three ways to use it to your advantage:

1. Roth Conversions

   • Converting money from a traditional IRA to a Roth IRA increases taxable income, which often discourages retirees from making the move.

   • With the Senior Deduction, you may have extra room to convert without being pushed into a higher bracket.

   • This may allow you to pay taxes now at a lower rate and create a pool of tax-free income for the future.

     
     

2. Capital Gains Harvesting

   • Selling appreciated investments usually triggers capital gains taxes.

   • With the extra deduction, you may be able to sell investments and realize gains while staying under the phaseout threshold.

   • In some cases, this could mean realizing gains at the 0% capital gains rate, giving you a chance to diversify or rebalance your portfolio tax-efficiently.

     
     

3. IRA Withdrawals and Social Security Planning

   • Many retirees worry about how IRA withdrawals will make more of their Social Security taxable.

   • The Senior Deduction lowers your taxable income, which can reduce the percentage of Social Security that is taxed.

   • This makes it easier to withdraw the money you need while keeping your tax bill in check.

Frequently Asked Questions About the Senior Deduction

Who qualifies for the Senior Deduction? Anyone age 65 or older in 2025 and beyond qualifies. The deduction is $6,000 per person, or $12,000 for a married couple when both spouses are 65+.

How long will the Senior Deduction last? The current law allows it from 2025 through 2028. Unless Congress extends it, the deduction will expire at the end of 2028.

Does the Senior Deduction reduce Social Security taxes? Indirectly, yes. By lowering your taxable income, it can reduce how much of your Social Security benefits are taxed.

Does income level matter? Yes. The deduction begins phasing out at $75,000 of income for single filers and $150,000 for married couples. Those above the limit may not get the full benefit.

Can I combine the Senior Deduction with other deductions? Yes. It is in addition to the standard deduction and the regular deduction for individuals aged 65 and older. This creates a much larger shield against taxable income.

Final Thoughts

The Senior Deduction is a short-term but powerful tax benefit for retirees. For those 65 and older, it offers a unique opportunity to reduce taxable income and incorporate long-term tax efficiency into your retirement plan. Because it includes income phaseouts and is only scheduled to last until 2028, retirees should review their income and withdrawal strategies now to ensure their plan is optimized.

If you’re turning 65 or already retired, this is the time to take advantage of the deduction while it’s available.

To learn how this deduction could fit into your retirement plan, schedule a call with me today.