The tax legislation enacted in 2025 (the “2025 Tax Act”) created many new provisions designed to reduce tax liability. One such tax reduction provision that will have applicability to certain taxpayers is the new “senior” deduction. This letter discusses this “senior” deduction.

As enacted by Section 70103 of the 2025 Tax Act, the new “senior” deduction appears under Internal Revenue Code Section 151(d)(5)(C) (expressly labelled as “Deduction for seniors”).  Internal Revenue Code Section 151(d)(5)(C)(i) states, “In the case of a taxable year beginning before January 1, 2029, there shall be allowed a deduction in an amount equal to $6,000 for each qualified individual with respect to the taxpayer”. There are three key elements to the “senior” deduction under Internal Revenue Code Section 151(d)(5)(c)(i). First, the deduction is set at the amount of $6,000. Second, the deduction only applies to “a taxable year beginning before January 1, 2029”. Section 70103 of the 2025 Tax Act (specifically, Section 70103(c) of the 2025 Tax Act) further explains that “[t]he amendments made by this section shall apply to taxable years beginning after December 31, 2024”. Thus, the “senior” deduction is only applicable to a taxable year beginning after December 31, 2024 and beginning before January 1, 2029, or, more generally, to taxable (calendar) years 2025, 2026, 2027, and 2028. Third, the “senior” deduction is allowable “for each qualified individual”.  The word, “each”, suggests possible multiple “senior” deductions for “qualified individuals”.

Who is a “qualified individual” for purposes of the new “senior” deduction? Internal Revenue Code Section 151(d)(5)(C)(ii) states, “For purposes of clause (i), the term ‘qualified individual’ means – (I) the taxpayer, if the taxpayer has attained age 65 before the close of the taxable year, and (II) in the case of a joint return, the taxpayer’s spouse, if such spouse has attained age 65 before the close of the taxable year”. The key to being a “qualified individual” for purposes of the “senior” deduction is to attain age 65 before the close of the applicable taxable year. If you attained age 65 on or before December 31, 2025 (apparently extended to January 1, 2026 under the special rule described in the next paragraph), you can claim a $6,000 “senior” deduction for taxable year 2025. In addition, if you file a joint return with your spouse who attained age 65 on or before December 31, 2025 (apparently extended to January 1, 2026 under the special rule described in the next paragraph), you and your spouse can each claim a $6,000 “senior” deduction for taxable year 2025 (confirming the possibility of multiple “senior” deductions as suggested above by the “for each qualified individual” language of Internal Revenue Code Section 151(d (5)(C)(i)). Thus, if you file a joint return with your spouse and are both “qualified individuals”, you and your spouse could claim a possible aggregate $12,000 “senior” deduction.

Based on the express “before the close of the taxable year” language of Internal Revenue Code Section 151(d)(5)(C)(ii), it would appear necessary to attain age 65 by December 31, 2025 to claim the new “senior” deduction. However, if you attained age 65 on January 1, 2026, there is apparently a special rule that can make you eligible for the “senior” deduction. In “Topic no. 551, Standard deduction”, the Internal Revenue Service states, “You’re considered to be 65 on the day before your 65th birthday (for tax year 2025, you’re considered to be 65 if you were born before January 2, 1961)”. The “senior” deduction is reported on Schedule 1-A to Form 1040 for taxable year 2025, and both said Schedule 1-A and the Instructions to said Schedule 1-A reference being “born before January 2, 1961” (and not born before January 1, 1961) to be eligible for the “senior” deduction for taxable year 2025.

It does not matter when you attain age 65 as long as you attained it by January 1, 2026 for purposes of the new “senior” deduction for taxable year 2025. For example, if you were age 65 on January 1, 1996 (and thus were age 95 on January 1, 2026) or on January 1, 2026, you could claim the same possible $6,000 “senior” deduction for taxable year 2025. It also does not matter if you are ineligible for a “senior” deduction in a taxable year for purposes of whether you are eligible for a “senior” deduction in a subsequent taxable year. For example, if you will not be age 65 until January 2, 2027, you cannot claim a “senior” deduction for taxable year 2025 or taxable year 2026, but you could claim a possible $6,000 “senior” deduction for taxable year 2027 (and possibly taxable year 2028).

Limitations on the “senior” deduction

The remaining language of Internal Revenue Code Section 151(d)(5)(C) imposes three limitations on the new “senior” deduction. First, and probably most significantly, Internal Revenue Code Section 151(d)(5 (C)(iii)(I) states, “In the case of any taxpayer for any taxable year, the $6,000 amount in clause (i) shall be reduced (but not below zero) by 6 percent of so much of the taxpayer’s modified adjusted gross income as exceeds $75,000 ($150,000 in the case of a joint return)”. In defining “modified adjusted gross income” for purposes of the “senior” deduction, Internal Revenue Code Section 151(d)(5)(C)(iii)(II) states, “For purposes of this clause, the term ‘modified adjusted gross income’ means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933”. Internal Revenue Code Section 911 generally relates to certain “foreign earned income” and “housing cost amount”, Internal Revenue Code Section 931 generally relates to income from sources within Guam, American Samoa, or the Northern Mariana Islands, and Internal Revenue Code Section 933 generally relates to income from sources within Puerto Rico.

The above-described provisions under Internal Revenue Code Section 151(d)(5)(C)(iii) in effect impose an income limitation on the possible availability of the new “senior” deduction; the higher your “modified adjusted gross income”, the generally greater likelihood that your “senior” deduction could be limited. Specifically, if your “modified adjusted gross income” for “senior” deduction purposes is $75,000 or less ($150,000 or less for a joint return), Internal Revenue Code Section 151(d)(5)(C)(iii) will not apply to reduce the available “senior” deduction, if your “modified adjusted gross income” for “senior” deduction purposes is more than $75,000 but less than $175,000 (more than $150,000 but less than $250,000 for a joint return), Internal Revenue Code Section 151(d)(5)(C)(iii) generally will apply to reduce the available “senior” deduction by $60 for every $1,000 of “modified adjusted gross income” in excess of $75,000 (in excess of $150,000 for a joint return), or if your “modified adjusted gross income” for “senior” deduction purposes is $175,000 or more ($250,000 or more for a joint return), Internal Revenue Code Section 151(d)(5)(C)(iii) will apply to eliminate any “senior” deduction.

Social security number required

Second, Internal Revenue Code Section 151(d)(5)(C)(iv)(I) states, “Clause (i) shall not apply with respect to a qualified individual unless the taxpayer includes such qualified individual’s social security number on the return of tax for the taxable year”. In explaining the term, “social security number”, for purposes of Internal Revenue Code Section 151(d)(5)(C)(iv), Internal Revenue Code Section 151(d)(5)(C)(iv)(II) states, “For purposes of subclause (I), the term ‘social security number’ has the meaning given such term in section 24(h)(7)”. Internal Revenue Code Section 24(h)(7)(B) (as part of the “Child tax credit” under Internal Revenue Code Section 24) states, “For purposes of this paragraph, the term ‘social security number’ means a social security number issued to an individual by the Social Security Administration, but only if the social security number is issued . . . (i) to a citizen of the United States or pursuant to subclause (I) (or that portion of subclause (III) that relates to subclause (I)) of section 205(c)(2)(B)(i) of the Social Security Act, and (ii) before the due date for such return”. Internal Revenue Code Section 151(d)(5)(C)(iv) in effect imposes a “Social Security number” limitation on the possible availability of the new “senior” deduction; a key element of this “Social Security number” limitation is that the Social Security number is obtained “before the due date” of the applicable reporting tax return. As explained in the Instructions to Schedule 1-A to Form 1040 for taxable year 2025, “A valid SSN for purposes of the enhanced deduction for seniors is one that is valid for employment and that is issued by the SSA before the due date of your 2025 return (including extensions)”.

Married must file jointly

Third, Internal Revenue Code Section 151(d)(5)(C)(v) states, “If the taxpayer is a married individual (within the meaning of section 7703), this subparagraph shall apply only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year”. Internal Revenue Code Section 7703 generally determines “marital status” for tax purposes. Internal Revenue Code Section 151(d)(5)(C)(v) in effect imposes a “married filing jointly” limitation on the possible availability of the new “senior” deduction for married taxpayers; “married filing separately” taxpayers cannot claim the “senior” deduction.

Shortly after the 2025 Tax Act was enacted, the Internal Revenue Service issued a “Fact Sheet”, “One, Big, Beautiful Bill Act: Tax deductions for working Americans and seniors” (FS-2025-03, July 14, 2025), which included a description of the new “senior” deduction. This “Fact Sheet” cites two additional important points concerning the “senior” deduction, as follows:

• “Deduction is available for both itemizing and non-itemizing taxpayers”. This point is also generally made in the Instructions to Schedule 1-A to Form 1040 for taxable year 2025; and
• “This new deduction is in addition to the current additional standard deduction for seniors under existing law”. The “senior” deduction thus can be aggregated with both the standard deduction available for all taxpayers (for taxable year 2025, $15,750 for “single” taxpayers and $31,500 for “married filing jointly” taxpayers), and the additional standard deduction available for taxpayers who are age 65 or over (already in the law prior to and separate from the “senior” deduction) or blind (for taxable year 2025, $2,000 each for “single” taxpayers and $1,600 each for “married” taxpayers). The aggregate effect of combining these standard deductions with the “senior” deduction for taxable year 2025 can be up to a deduction of $23,750 for “single” taxpayers who are age 65 or older (more for blind taxpayers) and up to a deduction of $46,700 for “married” taxpayers who are both age 65 or older (more for blind taxpayers)

The White House has at times used the phrase, “No Tax on Social Security”, in generally describing the new “senior” deduction. Such description is not correct. Social Security benefits remain taxable under current law. In addition, the eligibility requirements for Social Security do not match up with the eligibility requirements for the “senior” deduction. For example, you can start collecting Social Security benefits as early as age 62, but cannot claim the “senior” deduction until age 65.

Even if the “No Tax on Social Security” description is incorrect, the new “senior” deduction can provide an important tax benefit for taxpayers. With proper planning, the “senior” deduction can be used to offset in whole or in part taxable income. One area in which this planning strategy may be utilized is to offset “Roth conversion” income. The challenging issue is to find the “sweet spot” between recognizing income before the “senior” deduction is due to expire after taxable year 2028 and not recognizing too much income to cause the “modified adjusted gross income” limitation of Internal Revenue Code Section 151(d)(5)(C)(iii) to be triggered and thereby reduce availability of the “senior” deduction.

If you have any questions concerning the new “senior” deduction, including how to implement tax planning concerning the “senior” deduction, please discuss these issues with your advisers.

Note – March 1, 2026 FinCEN “Residential Real Estate” Reporting Requirement

Effective March 1, 2026, certain changes of ownership in residential real estate must be reported by certain real estate professionals on a “Real Estate Report” to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”). The changes of ownership to which this “FinCEN” reporting will apply generally include transactions that do not involve financing from a bank or similar financial institution, such as certain “all cash” purchases or gifts. There are also exceptions for transfers to individuals, transfers to trusts for no consideration when the transferor and/or the transferor’s spouse is grantor(s) of the trust, transfers resulting from or incident to death, divorce, or bankruptcy, and transfers to a “qualified intermediary” in a “like-kind” exchange. The reporting obligation generally is not imposed on the transferor or transferee of the residential real property, but rather on the settlement or closing agent, or even possibly the title insurance company agent, escrow agent, or attorney, involved with the transaction. The required “Real Estate Report” must be filed with FinCEN by the last day of the month following the month in which the date of closing occurred or 30 calendar days after the date of closing, whichever is later. There are significant potential civil and criminal penalties for failure to file a required “Real Estate Report”.

If you have any questions concerning this March 1, 2026 FinCEN “residential real estate” reporting requirement, please discuss these issues with your advisers.

If you wish to discuss any of the above, find Pen Pal Gary’s contact info here.

Disclaimer: please note that nothing in this article is intended to be, or should be relied on as, legal advice of any kind. Neither LHBR Consulting, LLC nor Gary Stern provides legal services of any kind.