Examining the Impact: How the 'One Big Beautiful Bill Act' (OBBBA) Might Apply to You
As we approach the closing chapters of the Tax Cuts and Jobs Act (TCJA), implemented during President Trump's first term, taxpayers find themselves at a crossroads. With many of the TCJA's provisions set to expire after 2025, the introduction of the One Big Beautiful Bill Act (OBBBA) offers timely extensions and nuanced modifications to these sunsetting policies. Acting as both a continuation and a re-envisioning of prior legislation, the OBBBA not only extends key tenets of the TCJA—such as individual tax rates and business deductions—but also introduces innovative changes that reflect the evolving economic landscape. By addressing emerging challenges while capitalizing on the TCJA's foundational successes, the OBBBA aims to solidify a path toward a more sustainable and inclusive fiscal future, ensuring relief and opportunity across all levels of the American taxpayer spectrum.
On July 4th, President Trump signed OBBBA into law, introducing myriad changes to the tax landscape. Some of the changes will impact the current year, 2025, and other subsequent years.
This article focuses specifically on the provisions of the OBBBA that directly impact individual taxpayers, small businesses, and family-oriented tax benefits, deliberately omitting the changes and extensions that pertain solely to large corporations and big business. This approach ensures that the content remains highly relevant and applicable to the everyday decisions of individual taxpayers and small business owners, who often navigate their financial responsibilities without the same resources that large corporations possess.
By concentrating on these facets, the blog provides a tailored snapshot of the OBBBA's impact, ensuring that readers are equipped with information that is not only pertinent but also actionable within their tax planning and financial management strategies. This focus allows individual taxpayers to comprehend and leverage the changes that matter most to them, without being overwhelmed by the complexities inherent to provisions designed for big business.
These reforms are aimed at offering widespread relief and financial improvements to millions of taxpayers. Below, we provide an in-depth look at the various key elements of the Act, essential for understanding its impact and implications.
NOTE: MAGI (Modified Adjusted Gross Income) is referred to multiple times in this article. For most taxpayers it is the same as the AGI. AGI is AGI with foreign and territory excluded income added to the AGI.
Individual Tax Rates: OBBBA prolongs and enhances reduced individual tax rates, which are now extended beyond January 1, 2026. The Act aims to continue the legacy of lower rates initially brought in with past resolutions, thereby mitigating tax burdens for middle-income families. Tax bracket adjustments linked to inflation will apply from taxable years after December 31, 2025. The extensions of the TCJA rates favors the wealthy by continuing the elimination of the 39.6% tax bracket.
Standard Deductions: OBBBA extends, increases and makes permanent the higher TCJA standard deductions. The 2025 standard deductions, the last year under TCJA, were originally scheduled to be $15,000 for single and married filing separate taxpayer, $22,500 for heads of household, and $30,000 for married taxpayers filing jointly. However, OBBBA also makes an inflation adjustment to the 2025 rate using a different prior-year base that will significantly increase in the standard deductions for 2025. We will have to wait for the IRS to make that calculation and release the updated amounts for 2025.
Senior Tax Deduction - A temporary additional deduction for seniors aged 65 and older has been introduced, allowing a $6,000 deduction per qualified individual. This is phased out with higher income levels, beginning for taxable years before January 1, 2029. However, it only applies to taxpayers with a MAGI less than $75,000 ($150,000 for married couples filing jointly) which limits applicability. This deduction is in place of Trump’s campaign promise to eliminate the tax on Social Security. This provision becomes effective in 2025.
Child Tax Credit – OBBBA enhances support for families by increasing Child Tax Credit from $2,000 to $2,200 per qualifying child, beginning in 2025 and inflation adjusting the credit in subsequent years. The modifications also include some strict Social Security number requirements for children and parents. The credit phases out for higher income taxpayers beginning at a MAGI of $400,000 married taxpayers jointly and surviving spouse and $200,000 for others.
Qualified Business Income (QBI) Deduction - The QBI deduction receives a boost, with increased phase-in amounts from $50,000 to $75,000 for individuals and $100,000 to $150,000 for joint filings ensuing after December 31, 2025.
Minimum QBI Deduction – OBBBA creates a new, inflation-adjusted, minimum deduction of $400 for taxpayers who have at least $1,000 of QBI from one or more active trades or businesses in which the taxpayer materially participates. This ensures small business owners with a certain QBI level are entitled to an enhanced baseline deduction. Both the $400 and $1,000 are inflation adjusted to the nearest $5.
Estate and Gift Tax Exemption – OBBBA permanently extends the estate and lifetime gift tax exemption, increases the exemption amount to $15 million for single filers ($30 million for married filing jointly) effective in 2026, and indexes the exemption amount for inflation going forward. That is up from $13.99 million in 2025. This change serves to preserve more wealth within families.
Alternative Minimum Tax (AMT) - Enhancements in AMT exemptions and phaseout thresholds continue, preventing middle-income taxpayers from undue burdens under the AMT system starting January 1, 2026.
Gambling Losses – The new law permanently continues the current provision that limits gambling loss to gambling income. In addition, beginning in 2026, the deduction for gambling losses is limited to 90% of the actual losses.
Mortgage Interest – OBBBA makes permanent the $750,000 ($375,000 in for married taxpayers filing separate). However, OBBBA also restores the deduction for certain mortgage insurance premiums that sunset back in 2021 on home acquisition indebtedness and treats the premiums as qualified residence interest but also included as part of the $750,000/$375,000 limits.
No Tax on Tips - OBBBA permits a deduction up $25,000 for tips received by an individual in an occupation, other than a “specified trade or business”, which customarily and regularly receives tips including tip sharing. The tips must be voluntary, not subject to any consequence for non-payment, not negotiable, and the amount determined by the payer.
No Tax on Overtime – There also is a new deduction for overtime. However, for this provision overtime pay is the difference between the workers regular pay rate and the overtime pay rate not the entire amount for working overtime. The maximum amount that can be deducted is $12,500 ($25,000 for a married couple).
The Following Applies to Both the Tips and Overtime Deductions | ||
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Car Loan Interest – The new tax bill includes a temporary interest deduction, 2025 through 2028, for qualified passenger vehicles including cars, minivans, vans, SUV, pickup trucks, or motorcycles. Does not include campers or recreational vehicles. The $10,000 maximum deduction begins to phase out for when the taxpayer’s MAGI exceed $100,000 ($200,000 for married couples filing jointly) and is fully phased out at $150,000 ($250,000 for married couples filing jointly. The loan cannot be with a related party; the vehicle must be assembled in the U.S. and must weigh 14,000 pounds or less.
Trump Accounts - The legislation introduces "Trump accounts," tax-advantaged savings accounts for children born between 2025 and 2028, with a $1,000 initial federal deposit. U.S. citizen children can receive up to $5,000 annually from parents and $2,500 from employers, invested in a diversified U.S. stock index fund. Earnings grow tax-deferred, with qualified withdrawals taxed as long-term capital gains. Some experts prefer 529 college plans due to their higher contribution limits and tax benefits. The individual must not have reached the age of 18 by the end of the calendar to establish a Trump account.
State and Local Tax (SALT) Deduction - OBBBA imposes new limits on the SALT deduction, initially capping it at $40,000 starting in 2025. The cap is increased a small amount for each subsequent year until it reaches $41,624 in 2029. Then in 2030 reverts to the $10,000. One-half of those amounts for married taxpayers filing separate. The deduction is also subject to a MAGI inflation adjusted phaseout threshold of $500,000 for 2025, at which point the annual SALT limit is reduced by 30% of the difference between the threshold and the actual AGI but not less than $10,000.
Casualty Loss Deduction – Under TCJA casualty loss deductions were suspended except for those encountered in federally declared disaster area. OBBBA continues and makes permanent that limitation with one exception. The scope of the casualty loss deduction is expanded to include both state-declared and federally declared disasters.
Pease Limitation – Prior to 2018 there was limitation on itemized deductions that impacted higher income taxpayers. TCJA suspended that limitation through 2025. Effective for tax years after 2025, OBBBA permanently repeals the Pease limitation and replaces it with a new overall limitation on itemized deductions that impacts taxpayers in the 37% (the highest) tax bracket.
Adoption Credit – OBBBA makes $5,000 of the adoption credit refundable effective for taxable years after 2025.
Dependent Care Assistance – OBBBA amends the existing limit for dependent care assistance, increasing it from $5,000 to $7,500. For taxpayers filing separately, it increases from $2,500 to $3,750
Bonus Depreciation – Primarily applies to tangible property with a recovery period of 20 years or less. OBBBA restores 100% bonus depreciation after January 19, 2025.
Energy Credit Terminations – Under prior law, clean vehicle and associated tax credits didn’t sunset (terminate) until after 2032. OBBBA accelerates the sunsets.
Previously Owned Clean Vehicle Credit: September 30, 2025
Clean Vehicle Credit: September 30, 2025
Qualified Commercial Clean Vehicle Credit: September 30, 2025
Alternative Fuel Vehicle Refueling Property Credit: June 30, 2026
Energy Efficient Home Improvement Credit: After December 31, 2025
Residential Clean Energy (includes solar): After December 31, 2025
Contributions To Scholarship Granting Organizations – OBBBA creates a tax credit (dollar for dollar) up to a maximum $1,700 for contributions to qualified organizations granting scholarships to eligible students. Unused credit can be carried forward 5 years. Includes qualifications for scholarship recipients and organizations granting scholarships. Effective for tax years beginning after 2025.
Charitable Contribution Non-itemizers - The new law allows non-itemizers to claim cash contributions to qualifying charities of up to $1,000 ($2,000 for joint filers). Effective tax years beginning after 2025.
The One Big Beautiful Bill Act introduces a range of important provisions that can significantly impact individuals and small businesses. Understanding these changes is crucial to optimizing your tax strategy and ensuring compliance. As these provisions unfold, it’s important to stay informed about how they may specifically affect your financial situation. We encourage you to contact our office should you have any questions or wish to schedule a planning appointment. Our team is here to guide you through this evolving landscape, helping you navigate the complexities of tax regulations with confidence and clarity.
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