Federal Tax News for Individuals: December 2025

Deferring Real Estate Taxes Requires Careful Planning

It may be possible to defer tax liability when you sell appreciated real estate or rental property. But be careful. An installment sale, for example, allows you to defer gains by spreading them over several years. However, ordinary gain from certain depreciation recapture will be recognized in the year of sale, even if you receive no cash.

With a Sec. 1031 or "like-kind" exchange, you replace one investment property with another and defer paying tax on gains until you sell the replacement property. But a deferral doesn't necessarily guarantee tax savings over the long run. If you use one of these strategies, and tax rates increase in the future, you could end up paying more tax later. Contact us to discuss the most tax-efficient option for your situation.

Important 2026 Deadlines for Reporting Tip Income

If you earn income from tips, you may want to mark your 2026 calendar now. You'll be required to report the previous month's tips income of $20 or more (cash, check, charged and any portion of pooled tips you retain) to your employer by the 10th day of every month. When the 10th falls on a weekend or holiday, the deadline shifts to the next business day. In 2026, that applies to January, May and October, with reporting deadlines of January 12, May 11 and October 13.  

You can use a form provided by your employer or create your own statement with the required information. If you receive noncash tips (for example, tickets), you don't need to report them to your employer, but you must report their value as income on your tax return.

New Funding Expands Eligibility for Trump Accounts

On December 2, President Trump announced that Michael and Susan Dell are donating $6.25 billion to expand the funding of tax-advantaged Trump Accounts. Introduced under the One Big Beautiful Bill Act, these accounts are intended to help children save for the future.

Previously, the government pledged to contribute $1,000 to accounts set up for eligible kids born between January 1, 2025, and December 31, 2028. Now, children age 10 and under, born before January 2025, may be eligible to receive a $250 Trump Account contribution. The child must live in a ZIP code where the median income is below $150,000, which is expected to be about 75% of ZIP codes. The U.S. Treasury Department administers the Trump Accounts program. Click here to learn more.

New Federal Tax Credit for Scholarship Contributions

Beginning on January 1, 2027, eligible individual taxpayers can claim nonrefundable federal tax credits for cash contributions to qualified Scholarship Granting Organizations (SGOs) that serve K-12 students from low- and middle-income families. The credit was introduced under the One Big Beautiful Bill Act.

The IRS has issued guidance (Rev. Proc. 2026-6) that allows states to make an advance election to participate. The credit is limited to $1,700 per year. To claim the credit, taxpayers must make cash contributions to SGOs that appear on a participating state's list for the applicable calendar year. Contact us for more information.

New Law Clarifies IRS Math Error Notices

In a win for taxpayers' rights, President Trump signed the bipartisan Internal Revenue Service Math and Taxpayer Help (IRS MATH) Act into law. The law requires the IRS to provide clear explanations of any math or clerical corrections it makes to taxpayers' returns and prominently inform them of the 60-day timeframe for challenging the changes.

The National Taxpayer Advocate (NTA) notes that the IRS issues several million "math error" notices annually. The NTA stresses that taxpayers have only 60 days to request abatement of the IRS's adjustment. If they fail to act within that 60-day window, the assessment becomes final. Visit the NTA website for more information.