23 Jul Let’s Dive Into the One Big Beautiful Bill
The One Big Beautiful Bill Act (OBBB) was signed July 4, 2025 and is the biggest piece of tax legislation to come through since the Tax Cuts and Jobs Act (TCJA) in 2017. Not only does this bill permanently extend most of the temporary changes from the TCJA, but it also adds new changes. Although there are numerous changes for businesses, individuals, and international tax, we are highlighting just some of the individual changes for you. It is important to keep in mind that the effective dates of these changes vary.
Estates, Gifts, & Trusts
- Permanently [provided the law is not changed in the future] increases the estates and gift tax exemption amount to $15 million, indexed annually for inflation (effective on estates of decedents dying and gifts made after December 31, 2025).
Individuals (Effective tax year 2025)
- Temporarily creates a deduction for seniors (age 65 before the end of the taxable year) equal to $6,000 ($12,000 joint) reduced (not below zero) by 6% of AGI exceeding $75,000 ($150,000 joint). Requires valid SSN. Requires married taxpayers to file a joint return. Treats incorrect SSNs as mathematical or clerical errors. (Effective Date: Applies to taxable years beginning after December 31, 2024, and before January 1, 2029).
- Increases limitation on SALT (state and local tax) deduction to $40,000 for 2025 and $40,400 for 2026, increasing to 101% of previous year’s cap for 2027, 2028, and 2029, and reverting to $10,000 for 2030 and beyond. MAGI (modified adjusted gross income) phaseout begins at $500,000 for 2025 and $505,000 for 2026, increasing to 101% of the previous year’s threshold for 2027, 2028, and 2029 (half of those amounts for married filing separately). Phaseout cannot reduce deduction below $10,000. (Effective Date: Applies to taxable years beginning after December 31, 2024).
- Permanently increases standard deduction from $12,000 to $15,750 for individuals and from $18,000 to $23,625 for head of household. (Effective Date: Applies to taxable years beginning after Dec. 31, 2024).
- Temporarily creates deduction of up to $25,000 for qualified tips for individuals in traditional and customarily tipped industries. Excludes highly compensated employees by phasing out deduction for joint filers with AGI over $300,000 ($150,000 for others). Extends FICA tax tip credit to tips received in connection with food service and beauty and barber services. Does not require spouse’s Social Security number. Deduction available to both itemizers and non-itemizers. (Effective Date: Applies to taxable years beginning after December 31, 2024, and before January 1, 2029).
- Temporarily creates deduction for qualified overtime compensation (not including qualified tips), excluding highly compensated employees, for taxable years 2025 through 2028. Limits deduction to $12,500 of qualified overtime income ($25,000 for joint returns). Deduction available to itemizers and non-itemizers. (Effective Date: Applies to taxable years beginning after December 31. 2024, and before January 1, 2029).
Individuals (Effective tax year 2026)
- Makes permanent TCJA income tax rate and threshold decreases for individuals, estates, and trusts. Applies inflation adjustment to 10%, 12%, and 22% brackets. (Effective Date: Applies to tax years beginning after December 31, 2025).
- Permanently reinstates the non-itemizer partial charitable contribution deduction and increases it to a maximum of $1,000 ($2,000 for joint returns). (Effective Date: Applies to tax years beginning after December 31, 2025).
- Eliminates the energy efficient home improvement credit, the residential clean energy credit, the previously-owned clean vehicle credit, the clean vehicle credit, and the credit for qualified new energy efficient homes. (Effective Date: Applies to property placed in service after December 31, 2025).
- Amends definition of “qualified higher education expense” to include certain expenses in connection with enrollment in or attendance at an elementary or secondary public, private, or religious school. For tax years beginning after December 31, 2025, increases the annual aggregate per-beneficiary distribution limitation from $10,000 to $20,000. (Applies to distributions made after July 4, 2025).
- Increases the dependent care service exclusion to from $5,000 to $7,500 ($3,750 for married filing separate) for expenses paid or incurred by employer under qualified dependent care assistance program. (Effective taxable years beginning after December 31, 2025).
- Increases credit amount from 35% to 50% of child and dependent care expenses, reduced (not below 35%) by 1% for each $2,000 by which AGI exceeds $15,000, and further reduced (not below 20%) by 1% for each $2,000 ($4,000 joint) by which AGI exceeds $75,000 ($150,000 joint). (Effective taxable years beginning after December 31, 2025).
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