While most of us were enjoying the summer and the holiday weekend, Congress passed, and President Donald Trump signed, major tax legislation commonly called the One Big Beautiful Bill with the acronym, OBBBA. OBBBA covers a wide range of tax issues impacting both individuals and businesses. One of its focal points was making the 2017 Tax Act provisions permanent as they would have sunset at the end of this year.
The following is a very brief, non-exhaustive summary of OBBBA applicable to individual taxpayers. Understanding the details is critical to applying them to your specific tax situation. Let us know if you have any questions about how these provisions may apply to you.
- Reduced Income Tax Rates: Current rates and brackets are made permanent with some minor edits. The repeal of the marriage penalty continues. Note some changes to the Alternative Minimum Tax (AMT).
- Increased Standard Deduction: Permanently enhanced for 2025 and beyond: $30,000 for joint filers, $22,500 for heads of household and $15,000 for singles with annual increases thereafter. The standard deduction is taken when itemized deductions are lower.
- Child Tax Credit: Permanently increased to $2,200 per qualifying child. Social security numbers are required for each child.
- Lifetime Exclusion: Amount for federal estate and gift tax will permanently increase to $15 million (indexed for inflation) for estates of decedents dying and gifts made after Dec. 31, 2025.
- Itemized Deductions: State and local tax deduction maximum increases to $40,000 with reductions for higher income taxpayers, generally those with AGI exceeding $500,000. Mortgage interest limitations on the amount of principal of $750,000 for joint filers was made permanent. And no miscellaneous itemized deductions. Starting in 2026, the reduction to itemized deductions based on income has been simplified. Slight changes to charitable deductions, including a new 0.5% reduction.
- New Deductions for Non-Itemizers: For tax years 2025-2028: Individuals can deduct interest on loans for new cars up to $10,000 per year with phase outs at $100,000 modified AGI for singles and $200,000 for married filing joint; individuals age 65 or older (and their spouses, if filing jointly) can claim a new $6,000 deduction per qualified person with income phase-outs at $75,000/$150,000 of AGI. Charitable deduction are allowed for non-itemizers up to $2,000/$1,000 to active charities and credit for contribution to qualifying scholarship-granting organizations starting in 2026.
- No Tax on Tips and Overtime for 2025-2028: Limits on tips and income phase-outs. With overtime, applicable employment laws must be considered. Payroll tax changes for employers.
- Gain on Certain Small Business Stock: The exemption continues and has been expanded for stock that meets all the requirements of a Qualified Small Business Stock.
- Credit Changes: Starting in 2026, increased Child and Dependent Care Credit and additional requirements are added for American Opportunity Lifetime Learning Tax Credits. Starting in 2025, the Adoption Credit is enhanced. Starting in 2027, new rules are applicable to the premium tax credit for health plans.
- Other Changes: Casualty losses. Limit on losses from wagering. New Trump Accounts available for children born 2025-2028. Expansion of 529 plans. Additional contributions to Achieving a Better Life Experience (ABLE) accounts for employed individuals with disabilities.
