The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, brings some of the most significant tax reforms in recent history. These changes will impact how individuals approach income planning, deductions, and estate strategies. Below is a summary of the key provisions most relevant to individual taxpayers.
Continuation of Tax Cut and Jobs Act (TCJA) Provisions
- The lower tax rates created by the TCJA have been extended and made permanent for years after 2025. Before the OBBBA was passed, tax rates were set to revert back to the former higher rates.
- The increased standard deduction was made permanent by the OBBBA. It was set to decrease by almost 50% after 2025.
- The home mortgage interest deduction is permanently limited to the first $750,000 in home mortgage debt. After 2025, the threshold would have increased back to $1,000,000.
- Miscellaneous itemized deductions subject to a 2% of AGI floor, including unreimbursed employee business expenses, are permanently eliminated. These deductions were set to return after December 31, 2025.
- The deduction for moving expenses has been permanently eliminated.
- The previously increased estate and gift tax exemption is made permanent and increases to $15M for 2026.
New Provisions
- The OBBBA created a new $6,000 deduction for individuals who are age 65 for tax years 2025-2028. The deduction starts to phase out for incomes over $75,000 ($150,000 joint filers). This is in lieu of the original promise of No Tax on Social Security.
- A temporary deduction is created for qualified tips (No Tax on Tips) up to $25,000 for tax years 2025-2028. The deduction begins to phase out with modified AGI over $150,000 ($300,000 joint filers).
- A similar deduction is created for qualified overtime pay (No Tax on Overtime) up to $12,500 ($25,000 joint filers) for tax years 2025-2028. The deduction begins to phase out with modified AGI over $150,000 ($300,000 joint filers).
- The bill also creates a temporary deduction for car loan interest on a new vehicle, but only for vehicles assembled in the US. The maximum deduction is $10,000 and begins to phase out when modified AGI exceeds $100,000 ($200,000 for joint filers). This deduction is available for tax years 2025-2028.
- The State and Local Tax (SALT) deduction has increased from $10,000 to $40,000 for years 2025-2029. The additional deduction begins to phaseout with modified AGI of $500,000.
- The OBBBA creates a new, permanent deduction for cash donations for taxpayers who do not itemize deductions. The deduction is up to $1,000 single filers or $2,000 joint filers.
- A new program is created to fund IRAs for children under 18 (Trump Accounts). After-tax contributions can be made beginning July 05, 2026 and the federal government will contribute $1,000 for children born between 2025 and 2028.
Modifications to Current Provisions
- The deduction for charitable contributions is subject to a 0.5% of AGI floor. Contributions disallowed in years where the floor is exceeded will carry forward to future years but will continue to be subject to the same limitation.
- Gambling losses are now limited to 90% of total losses for the year. Before OBBBA, gambling losses were allowed up to the amount of gambling winnings.
- The child tax credit (CTC) has been permanently increased from $2,000 to $2,200, effective this year. Before the OBBBA passed, the credit was set to decrease significantly after 2025.
- The exclusion for dependent care benefits increases from $5,000 to $7,500.
- The OBBBA adds educator expenses to the list of allowable itemized deductions beginning in 2026. This potentially allows educators to deduct more than the current maximum of $300, although it will require itemizing.
Resources:
The White House – One Big Beautiful Bill
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