It’s been a little over a month since the One Big Beautiful Bill Act (OBBBA) was passed on July 4, 2025.
I’ve been meaning to get a post out detailing the most relevant and impactful parts of it pertaining to you, my clients, but between reading the bill and family vacations it’s taken a bit longer than expected!
Reading about tax law is never exciting and so I’ll make this as short and to the point as possible. As we continue with our client meetings between now and the end of the year, we’ll be addressing any of the tax changes that are specific to your situation, in the meantime, if you want to chat about something before your meeting, please feel free to reach out!
Tax Brackets
The new law permanently extends the tax brackets of 10%, 12%, 22%, 24%, 32%, 35%, and 37% that have been in place since the Tax Cuts and Jobs Act (TCJA) became effective in 2018.
Standard Deduction
The standard deduction will receive a slight increase starting this year, 2025. $15,750 for single filers; $23,625 for heads of household; and $31,500 for joint filers.
Enhanced Senior Deduction
The enhanced senior deduction is an additional temporary deduction for seniors age 65 or older from 2025 through 2028. The new deduction is set at $6,000 per person.
However, it does come with a phaseout. For single filers your deduction is reduced starting at income of $75,000 and is completed phased out at income of $175,000. The same is true for married filing jointly at income of $150,000 to $250,000.
Itemized Deductions
The OBBBA makes numerous changes to itemized deductions.
State and Local Tax (SALT)
With the passing of the TCJA, deductibility on SALT was capped at $10,000. Under the OBBBA the deduction limit will be increased to $40,000 starting in 2025. From 2026 to 2029 that will increase by 1% each year and then will revert back to $10,000 in 2030.
There is a phasedown provision, reducing the deduction limit by 30% of the amount by which the taxpayers MAGI exceeds $500,000.
As an example, if you have MAGI of $550,000 your deduction will reduced by $15,000 ($550,000 – $500,000 = $50,000 x 30% = $15,000).
Charitable Donations
There were two significant changes made to the deductibility of charitable donations. One that will reduce your available charitable deduction and one that could potentially increase it. We’ll start with the reduction:
Only charitable donations above 0.5% of your AGI are deductible. For example, if your AGI is $200,000, 0.5% of that is $1,000. So, the first $1,000 of charitable donations is not deductible when itemizing. If you donate $30,000 worth of cash and property, you can deduct $29,000.
Now, the possible increase:
Normally, in order to receive a deduction for charitable donations you need to itemize deductions. Starting in 2026, a new line item on the tax return will allow you to deduct up to $1,000 for single filers and $2,000 for joint filers of charitable donations even if you don’t itemize. Unlike the itemized version of charitable donations, this won’t be subject to the 0.5% floor of AGI.
Qualified Business Income Deduction (QBI)
The QBI deduction is for business owners of pass-through entities (sole props, S-corps, and partnerships). They receive a deduction up to 20% of their net profit. However, there are a handful of business (doctors, lawyers, accountants, financial advisors, consultants, etc.), called specified service businesses, that are subject to an income limitation, at certain levels they are phased out of this deduction. The phase-out was increased by $25,000 for single filers and $50,000 for joint filers. Specified services business owners will now be phased out of the deduction at $272,300 of taxable income for single filers and $544,600 for joint filers.
Auto Loan Interest Deduction
2025 through 2028 auto loan interest will be deductible for qualified vehicles. A qualified vehicle is one that is used for personal use, is new, weighs less than 14,000 pounds, and is assembled in the US.
Child Tax Credit
The Child Tax Credit has been set to decrease from the current $2,000 per qualifying child down to $1,000 in 2026. Instead, the OBBBA increases the credit to $2,200. The Additional Child Tax Credit remains the same at $1,700.
The income-based phaseouts remain the same. Households with MAGI over $200,000 or $400,000 (joint) will have the credit phase out by $50 for every $1,000 of AGI above those limits.
Estate Tax Exemption
The estate tax exemption was set to return to it’s pre-2017 levels of $7 million. The OBBBA prevents that scheduled reduction and slightly increases the exemption to a flat $15 million per person ($30 million per couple) starting in 2026. Very few people will be subject to the estate tax.
Health Saving Accounts
Eligibility for HSAs has been expanded with the passing of the OBBBA. Under the new rule, all “Bronze” and “Catastrophic” plans offered on the Federal or state ACA exchanges now qualify as high deductible health care plans which qualifies you for an HSA. Additionally, if you are covered by a direct primary care arrangement in which you pay a monthly or annual fee to a primary care practitioner, you are eligible to contribute to an HSA.
Trump Accounts
A new alternative account for starting retirement savings at an early age has been created and dubbed a “Trump account”. This account can be opened and funded on behalf of any individual with a social security number until they turn 18. Unlike an IRA you don’t have to have earned income to contribute to the account. You can contribute up to $5,000 per year and the investment options will be restricted to funds that rack a qualified index like the S&P 500. No distributions can be made from the Trump account until the beneficiary turns 18, at that point, the account, for tax purposes, behaves mostly like an IRA.
To jumpstart this program the new law institutes a pilot program in which parents can elect to have a $1,000 credit paid by the US government into a Trump account on behalf of an eligible child. The logistics of where these accounts will be open, how they will be funded and invested is still in the works.
Clean Energy Credits
One way the House aimed at increasing taxes is to rollback several of the clean energy tax credits. Most notably the following:
– The Clean Vehicle credit up to $7,500 for a new electric vehicle and $4,000 for a used one. These credits will be terminated for vehicles acquired after September 30, 2025.
– Alternative Fuel Vehicle Refueling Property Credit up to $1,000 for EV charging equipment installed at a personal resident. This credit will be terminated on June 30, 2026.
– Energy Efficient Home Improvement Credit. Up to $1,200 towards the cost of energy-efficient improvements (windows, doors, insulation, heating, cooling, etc.). This credit will be terminated at the end of 2025.
– Residential Clean Energy Credit. Up to 30% of the cost of purchasing or installing solar panels. This will terminate at the end of 2025.
Summary
Most of this bill, in my opinion, was extending the tax cuts from 2017. It included a handful of small changes that could be meaningful in some scenarios, but overall, the vast majority of people won’t see a drastic change in their taxable income and tax liability.
In any case, when new tax law is passed, it’s important to fine-tune your tax plan, which we’ll be doing in the upcoming meetings for the rest of the year. In the meantime, feel free to reach out with any questions you have.