Real estate agents negotiating a transaction advise clients on tax consequences

The Internal Revenue Service (IRS) has announced new tax rates and standard deductions for 2025, adjusted for inflation by various CPI gauges.

The new tax rates for income earned in 2025 are:

  • 35% for married couples filing jointly with incomes over $501,050 ($250,525 for single filers);
  • 32% for joint filers with incomes over $394,600 ($197,300 for single filers);
  • 24% for joint filers with incomes over $206,700 ($103,350 for single filers);
  • 22% for joint filers with incomes over $96,950 ($48,475 for single filers);
  • 12% for joint filers with incomes over $23,850 ($11,925 for single filers); and
  • 10% for joint filers with incomes of $23,850 or less ($11,925 for single filers), as published by the IRS.

The 2025 standard deduction is:

  • $30,000 for joint filers, up from $29,200 in 2024;
  • $22,500 for heads of households, up from $21,900 in 2024; and
  • $15,000 for individual filers, up from $14,600 in 2024.

Tax brackets for Capital Gains tax have also increased to:

  • 0% for joint filers with incomes up to $96,700 ($48,350 for single filers);
  • 15% for joint filers with incomes over $96,701 ($48,351 for single filers); and
  • 20% for joint filers with incomes over $600,050 ($533,400 for single filers).

The alternative minimum tax (AMT) exemption amount has increased to $137,000 for joint filers ($88,100 for single filers). The phaseout threshold beyond which taxpayers are no longer eligible for the AMT exemption has increased to $1,252,700 for joint filers ($626,350 for single filers).

The AMT is a supplemental income tax targeting high-income earners who strategically have a high ratio of standard income tax (SIT) deductions.

 Some relief — but the bracket creep will get you

2025’s adjusted tax brackets offer some measure of relief to taxpayers who have seen their purchasing power battered away first by recent surges in consumer inflation, then by the continuing rise in interest rates.

Critically , the 2018 tax overhaul tied tax bracket adjustments to the chained consumer price index (CPI). This CPI index rises more slowly than the traditional CPI measure for the price of consumer goods you actually buy.

In turn, tax brackets rise more slowly than the consumer inflation everyone experiences as retail buyers – and the resulting increase in earnings. This means, whether or not your household income rises, you are shifted into higher tax brackets (and rates) more quickly than under the old measure which kept brackets more in line with rises in inflation and personal incomes to keep the standard of living from declining.

By design, you as a taxpayer annually suffer from rate adjustment mathematics, more generally termed bracket creep. The rate of tax automatically moves up into a higher tax bracket despite your receiving no real increase in the amount of your income (after deducting the annual consumer-goods price inflation).

Meanwhile, the government’s take increases at a faster clip than inflation. True, your income may have increased in total dollar amount from the previous year, but not enough to actually match or increase your purchasing power from the prior year. But your taxes increased more than the rate of inflation.

This occurs when consumer inflation exceeds the percentage increase in your after-tax income. Here, the math is due to the CPI index used not equaling or exceeding consumer price inflation experience by the taxpayer. So, you end up a bit poorer than in the prior year.

As real estate licensees come off the high of 2020-2021’s inflated earnings, the hit to sales volume and pricing in 2022 forward has presented major adjustments, amounting to significant losses in income across the industry.

As a result, bracket creep may not actually be an issue for most agents in 2025, as they continue to adjust to flat or reduced income. Look ahead to around 2027-2028 for bracket creep to become a real issue once again. Then, the housing market will enter its next sustainable expansion, as will the proportion of income paid for taxes compared to prior years.