"One Big Beautiful Bill Act" - Tax Changes

On July 4, the One Big Beautiful Bill Act (OBBB) was signed into law by President Donald Trump, bringing significant changes to the U.S. tax code. The Bill permanently extends certain provisions from the Tax Cuts and Jobs Act (TCJA) that were set to expire at the end of this year. There are several new changes that will become effective for Tax Year 2025 or next year. Some provisions included in the new Bill is an increased state and local tax (SALT) deduction cap and introduces changes to taxes on tips and overtime for certain workers. Energy and child tax credits impacts were passed. 

Significant changes that the OBBB Act that impact tax implications:

1. Income tax rates – Beginning tax year 2026, ordinary tax rates will be reduced.
   1. Expanded income ranges for the ordinary and capital gains tax brackets.
   2. Marriage penalty eliminated except at top tax bracket.
   3. Inflation indexing modified
   4. Trusts and estate tax rates amended as well
2. Standard deduction – Effective 2025 tax year, modified with increases from 2024 amounts:
   1. Single & MFS             $14,600           to         $15,750
   2. MFS & QSS                $29,200           to         $31,500
   3. Head of Household     $21,900           to         $23,625
   4. Over age 65 or blind   No change
3. SALT – State and Local Tax Deduction
   1. Currently, $10,000 ($5,000 MFS) caps
   2. Annual increased until 2030 diverting back to 2024 level.
   3. SALT cap adjustments:
      1. 2025: $40,000 / $20,000 (MFS)
      2. 2026: $40,400 / $20,200 (MFS)
      3. 2027-2029: Increased by 1%
      4. Phasedown income threshold parameters which will bring on limited benefits
4. Itemized Deductions – other
   1. Miscellaneous itemized permanently eliminated
   2. Home mortgage interest deduction permanently per TCJA adjustment
      1. Debt secured after December 15, 2017, limits applied
   3. Excess educator expenses are new deductible expense
      1. Including athletic coaches
   4. Mortgage insurance premiums treated as qualified residence interest
   5. Overall limitation on itemized deductions updated permanently
5. No Tax on Car Loan Interest
   1. Deduction of up to $10,000 on qualified car loans interest
   2. Autos must be for personal use and final assembly in U.S.
   3. Loan interest on loans incurred after December 31, 2024
   4. Phaseouts applied
   5. VIN required on tax return
   6. Payors must report to IRS; IRS to determine method
6. Child Tax Credit (CTC)
   1. Nonrefundable maximum $2,000 through TY24
   2. CTC increases to $2,200 permanently with inflation adjustments
   3. Earned income threshold to qualify CTC $2,500
   4. Phase out at income $400,000 ($200,000 MFS, Singe)
   5. Effective TY25, at least one spouse must have SSN plus the qualifying child
   6. ITINs for parents and child does qualify for CTC
   7. SSN must be issued before tax return due date
   8. Other Dependents: $500 made permanent
7. Refundable CTC
   1. Through 2024, maximum refundable $1,700 and SSN of qualifying child
   2. Effective TY25, refundable credit $1,700 with annual inflation adjustment
      1. Qualifying child and one taxpayer must have SSN
      2. Change is permanent
8. Estate and Gift Exclusion
   1. TY25:  Basic exclusion $10 million / Inflation adjust $13.99 million
   2. TY26: Exclusion $15 million
   3. Some states may have different criteria
9. Credits for Clean Vehicles
   1. Discontinued after TY25
   2. Vehicles continue eligible on purchases before September 30, 2025
   3. Some states may still allow credits
10. Residential Energy Credits
    1. Discontinued on property placed in service after TY25
    2. Credits can still be taken on purchases made in 2025 for TY25 taxes
    3. Some states may still allow credits
11. No Tax on Tips
    1. Through 2024, tips were 100% taxed
    2. Effective 2025, deduction up to $25,000 on qualified tips
    3. Phasing off on income over $150,000 ($300,000 MFJ)
    4. Required SSN authorized to work
    5. Social security and Medicare tax still applicable
    6. States to determine if taxes to continue
    7. IRS to put out guidelines concerning taxes and tips
12. No Tax on Overtime
    1. Deduction on qualified overtime maximum $25,000
    2. Reduces taxable income
    3. Phaseout for income over $150,000 ($300,000 MFJ)
    4. Required SSN authorized to work
    5. Overtime payment is the “half” portion of the “time and a half”
    6. IRS to put out guidelines concerning taxes and tips
13. Charitable Contributions
    1. Non-itemizers can claim $1,000 ($2,000 MFS) contribution
    2. Extends 60% AGI limit for cash contributions
    3. Continual restrictions on eligible U.S. donations
14. Section 179
    1. Effective 2025, expense limit $2,500,000
    2. Adjusted per inflation
    3. Permanent change
15. Enhanced Deduction for Seniors
    1. $6,000 for over age 65
    2. Deduction reduces taxable income
    3. Phaseout at 6% past $75,000 ($150,000 MFJ)
    4. Separate from existing additional deduction
16. American Opportunity and Lifetime Learning Credits
    1. Effective after TY2025
    2. SSN required to taxpayer and dependent
    3. ITIN does not qualify
    4. SSNs must be issued before return is due
17. Trump Accounts and Contributions Pilot Program
    1. Accounts to be created before beneficiary reaches age 18
    2. Beneficiary must have SSN
    3. Beginning 2026, children born 2025-2028 receives a $1,000 deposit from US Treasury
    4. $5,000 contribution limit for 2026, inflation adjustment beginning 2028
    5. Nondeductible contributions until beneficiary age 18
    6. Excessive contributions before beneficiary age 18 taxed at 6%
    7. Employers can establish the Trump Account Contribution Program
    8. Employers can make contributions for employee or dependent
    9. Employers’ contributions limited to $2,500
    10. Not taxable to employee
    11. Count toward the $5,000 annual contribution limit

The Bill included additional changes or additions but are not listed here. A brief summary of some of provisions which have tax implications are presented here.

Below is an additional tool for understanding the Bill with several articles providing additional information especially on some specific categories. 

Tax Planning Considerations

Charitable Contributions: consider making contributions before December 31 for tax benefits.

Child Tax Credit: Taxpayers affected by phaseout amount could lower income by using deferral vehicles, such as retirement accounts. If possible, obtain the SSN if you hold an ITIN. It must be issued before the return is due.

Estate Tax: Ultra-high-net-worth taxpayers should revaluate gifting plans.  Review state estate tax exemption levels

Clean vehicles credit: If planning on purchasing an EV, do so before September 20, 2025. Car interest loan could also be deductible for 2025.

Residential energy credits: If planning on improvements in 2025, do so before December 31, 2025.

Tips: Subject to Social Security and Medicare taxes and must be reported to the IRS. Must be an occupation customarily paying tips.

Enhanced Seniors Deduction: Consider taking a RMD, if possible, when deduction will be awarded.

Summary of OBBB Effective Dates

Individuals (Changes effective 2025)

• Increased Child Tax Credit
• SALT Deduction Increase
• Enhanced Senior Deduction
• Tip & Overtime Deduction
• Auto Loan Interest Deduction
• Charitable Contribution Deduction for Non-Itemizers
• 529 Account Expansion (changes effective for distributions made after July 4, 2025)

Individuals (Changes effective 2026)

• Charitable Contribution Deduction Floor
• Child & Dependent Care Credit
• American Opportunity & Lifetime Learning Credits
• 37% Tax Bracket Itemized Deduction Limitation
• New Information Reporting
• Casualty Loss Deduction Expansion
• Wagering Losses
• Trump Accounts

Businesses (Changes effective 2025)

• Higher Section 179 Expensing 
• New QSBS Rules (effective for qualified stock acquired after July 4, 2025)
• 100% Bonus Depreciation (effective for property acquired after January 19, 2025)
• Qualified Production Property (effective for property placed in service after July 4, 2025, and before January 1, 2031, provided construction begins after January 19, 2025, and before January 1, 2029)
• R & D Expenditures

Businesses (Changes effective 2026)

• Corporate 1% Floor on Charitable Contribution Deductions

International

• No CFC 1-month deferral (effective for tax years beginning after November 30, 2025)
• GILTI changes to Net CFC Tested Income (effective 2026)

Estate and Gift Tax

• Permanent increase of $15 million exemption, indexed annually for inflation, for estate of decedents who passed away and gifts made in 2026