On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) became law, extending some key provisions and introducing new deductions. Below is a highlight of the tax law changes we feel are most pertinent for our clients:
Personal Income Taxes
- The previous individual tax brackets are now permanent. This also includes capital gains taxes.
- The standard deduction is $15,750 for single taxpayers and $31,500 for married couples filing jointly.
- There’s an additional standard deduction of $1,600 per person for taxpayers over age 65.
- The deduction for state and local income taxes (SALT) is now $40,000, but it’s subject to income limitations. This deduction phases out by 30% for incomes above $500,000 for married couples ($250,000 for single taxpayers) and is fully phased out at $600,000 ($300,000 for single taxpayers).
- Beginning in 2026, taxpayers will be subject to a 0.50% of adjusted gross income (AGI) floor for itemized charitable contributions.
- Also effective in 2026, there’s a new limitation on itemized deductions for taxpayers in the 37% tax bracket.
- Charitable deductions for taxpayers who don’t itemize are now permanent. The amount is $2,000 for married couples and $1,000 for single taxpayers for the 2026 tax year.
- Qualified tips up to $25,000 ($12,500 for single taxpayers) and overtime pay up to $12,500 will receive a deduction. This deduction begins to phase out if joint income exceeds $300,000 ($150,000 for single taxpayers).
- An enhanced senior deduction is available starting in 2025 for taxpayers over age 65, allowing for up to $6,000 per person. This deduction is phased out for incomes between $150,000 for married couples ($75,000 for single taxpayers) and is fully phased out at $250,000 for married taxpayers ($175,000 for single taxpayers).
- Beginning in 2025, interest paid on new car purchases up to $10,000 can be deducted for vehicles assembled in the United States.
- The Child Tax Credit has been increased to $2,200 for each eligible child for 2025, with the same income limitations as before.
Estate Taxes
- The previous tax brackets for trusts and estates are now permanent.
- The lifetime estate and gift tax exemption rises from $13.9 million in 2025 to $15 million in 2026 and is now permanent.
529 Plans
- 529 plans have been expanded to allow up to $20,000 of tax-free withdrawals for K-12 schooling in 2026.
- Effective July 4, 2025, 529 plans now cover tuition, course materials, online learning, books, and educational tutoring. This also includes advanced placement test fees or other exams related to college tuition.
- Costs for certain high school credentialing programs are now also eligible.
New Savings Plans for Newborns
- New tax-deferred savings accounts beginning in 2026 will allow up to $5,000 to be deposited annually.
- The federal government will add a $1,000 deposit for each child born after 2024 and before 2029.
Electric Vehicles and Residential Energy Credits
- The up to $7,500 tax credit for buying electric vehicles will expire after September 30, 2025.
- Credits for residential clean energy, solar panels, and energy-efficient improvements—such as exterior doors, windows, water heaters, and heat pumps—will expire at the end of 2025.
While the above list isn’t fully inclusive of all the changes, it highlights what we believe will most significantly impact our clients. It’s always important to contact your tax preparer for any questions or issues regarding how the new tax law will affect you. We are always here to assist you with your financial planning decisions and any changes in your overall situation.
