On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law, a comprehensive tax reform passed through budget reconciliation. This legislation extends and modifies key provisions of the 2017 Tax Cuts and Jobs Act (TCJA), introduces new tax incentives, and adjusts certain Inflation Reduction Act (IRA) credits.
We will be doing a series of articles on the bill to break it down into planning opportunities for categories of the bill that can affect clients.
Below is a summary for our clients about parts of the bill that may have impact:
- The bill makes permanent the tax rate reductions of the 2017 TCJA at 10%, 12%, 22%, 24%, 32%, 35%, and 37%, adjusted for inflation, ensuring long-term tax savings.
- Standard deduction increases by:
- $2000 for joint filers
- $1,000 for single filers
- Taxpayers over 65 receive an additional $6,000 deduction per eligible individual, even if they itemize. This phases out at income of $150,000 (joint) and $75,000 (single).
- Temporary increase on the cap for state and local tax (SALT) deductions. The bill raises the SALT cap from$10,000 to $40,000 from 2025 through 2029, with the cap increasing 1% per year before reverting to the previous $10,000 limit in 2030.
- The expanded cap phases out for filers earning more than $500,000 (joint) or $250,000 (single).
- Starting in 2025 tax year, there will be no federal tax on reported cash tip income for eligible workers up to $25,000 per year through 2028. The benefit phases out for individuals earning more than $150,000.
- There is also no federal tax on overtime pay up to $12,500 per year, through 2028.
- Increased federal child tax credit to $2,200 per child for 2025 (up from $2,000), with future inflation adjustments.
- Increased estate tax exemption, raising the threshold to $15 million per person ($30 million per couple) beginning in 2026, indexed to inflation.1
- Deduction for up to $10,000 of car loan interest on cars with “final assembly” in the US. This will be for purchases made from 2025-2028. Refinancing will count if done in this timeframe. You do NOT have to itemize to claim the deduction. This deduction phases out for individuals earning between $100,000–$150,000 and joint filers earning between $200,000–$250,000.2
- There is a new limitation on the value of itemized deductions, starting in 2026, to 35 cents on the dollar for taxpayers in the top tax bracket. This new rule applies only to higher-income taxpayers in the top 37% Federal tax bracket (taxable income above $626,350 for single or$751,600 for joint filers).
- For the first time, the new bill reduces deductibility of charitable contributions equal to 0.5% of AGI, starting in 2026. This means that deductions are only allowed to the extent an individual's deductible contributions exceed 0.5% of their AGI. Individuals who take the standard deduction are not affected by this floor; however, they will still be able to deduct up to $1,000 in cash donations ($2,000 for joint filers).1
- Since 2022, taxpayers could not deduct mortgage insurance premiums, which are generally paid by homeowners who owe more than 80% of their home's value in mortgage debt and can add a few hundred dollars to homeowners' monthly mortgage payments. Starting in 2026 the bill restores the deductibility of mortgage insurance premiums.
- The bill expands the list of K–12 expenses eligible for tax-free 529 plan distributions as well as the annual limit, from $10,000 to $20,000 beginning in 2026. These are some of the additional expenses that will qualify for tax free withdrawal from the 529:
- Expenses for curriculum materials, textbooks, instructional materials, and online education materials
- Costs for tutoring provided outside the home, if the tutor is unrelated to the student and meets specific qualifications
- Fees for standardized tests, AP exams, and college admission exams
- Dual enrollment fees for college courses taken in high school)
- Educational therapy costs for students with disabilities
The bottom line is that the expansion of the Internal Revenue Code under OBBBA will serve to make planning more complicated in the years to come, particularly from 2025 through 2028, when the temporary new deductions are in effect. These changes offer opportunities for tax savings and strategic planning but require proactive steps to maximize benefits, especially for time-limited provisions.
Contact us today to discuss how the One Big Beautiful Bill Act impacts your financial future!
1Breaking Down The “One Big Beautiful Bill Act” (OBBBA)
2New GOP Car Loan Tax Deduction: Which Vehicles and Buyers Qualify | Kiplinger
Read more articles by Christopher John Kelly