On Friday, July 4th, the One Big Beautiful Bill Act (OBBBA) was signed into law. While the name may sound lighthearted, this sweeping legislation brings serious changes to the U.S. tax code—many of which could impact your financial plan starting in 2025.

We’ve summarized the most relevant updates for our clients below and will follow up individually to recommend any changes to your planning strategy.

Key Permanent Tax Changes (Starting in 2025)

Tax Cuts and Jobs Act (TCJA) Provisions Made Permanent:

• Current income tax brackets and standard deduction levels will no longer end in 2026.
• The personal exemption remains eliminated.
• Limits on itemized deductions—like the cap on mortgage interest ($750,000), removal of moving expense deductions (except military/intelligence), and elimination of miscellaneous deductions—are now permanent.
• Alternative Minimum Tax (AMT) exemption levels are locked in.
• The child tax credit phaseout thresholds ($200,000 Single / $400,000 Married Filing Jointly) are now permanent.
• The lifetime gift and estate tax exemption will permanently increase to $15 million per person / $30 million per married couple in 2026 (up from ~$14M per person today).
• 529 funds can permanently be used for private elementary and secondary school expenses. The new bill increases the amount from $10,000 per year to $20,000 per year and widens the definition of "qualified expenses," to include credentialing programs after high school.

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Qualified Business Income (QBI) Deduction:

• The 20% deduction for pass-through income is now permanent.
• More generous income phaseouts for specified service businesses (like doctors, consultants, and advisors).
• A new minimum deduction of $400 for taxpayers with at least $1,000 of QBI.

New Tax Breaks and Adjustments

Standard Deduction Boost:

• An increase of $750 for individuals and $1,500 for married couples, indexed for inflation after 2025.

Itemized Deduction Limit for High Earners:

• For those in the 37% tax bracket, itemized deductions will be capped at 35% of their value.

Charitable Giving Changes:

• A new above-the-line deduction: $1,000 for individuals / $2,000 for couples—even if you don’t itemize.
• Itemizers will now see a 0.5% income floor before charitable deductions count.

Child and Dependent Benefits:

• Child tax credit increases from $2,000 to $2,200 (inflation adjusted).
• Increased dependent care FSA limit: $7,500 (up from $5,000).
• The child and dependent care credit now covers 50% of expenses (up from 35%), with a more gradual income phaseout.

Temporary Provisions (2025–2028/2029)

Extra Senior Deduction (2025–2028):

• An additional $6,000 deduction per person age 65+, on top of the standard senior deduction.
• Begins to phase out at $75,000 (Single) / $150,000 (Married Filing Jointly).

Car Loan Interest Deduction:

• Up to $10,000 in deductible car loan interest, with income phaseouts starting at $100,000 (Single) / $200,000 (MFJ).
• Above the phaseout, interest becomes taxable at 20%.
• The vehicle must be new and assembled in the United States.

SALT Cap Raised Temporarily:

• The State and Local Tax (SALT) deduction cap increases to $40,000 (from $10,000), with phaseouts for income above $500,000.
• Returns to $10,000 in 2030.

Tax Deductions for Overtime and Tips:

• Deduct taxes on up to $12,500 of overtime and $25,000 in tips, with income phaseouts starting at $150,000/$300,000.

New Child Savings Account and Credit:

• Newborns may receive $1,000 seed credit from the government, with potential for parents to open accounts and contribute $5,000/year pretax for any child under 18.
• The language of the bill suggests distributions from these accounts will be treated like IRAs in that growth would be taxed as ordinary income - though specific details and implementation are still to come.
• Distributions would be allowed once the child turns 18.

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Note: Several energy-related tax credits from the Inflation Reduction Act (e.g., for EVs, solar panels) are scheduled to end early - September 30, 2025 for EVs and December 31, 2025 for solar panels.

What This Means for You

In the coming weeks, we’ll be reviewing each client’s tax situation and will reach out with specific recommendations. In the meantime, please let us know if you have any questions or would like to discuss the potential implications sooner.

Sources:

• Journal of Accountancy Summary
• Tax Foundation Analysis
• Final Version of the Bill – H.R.1 – One Big Beautiful Bill Act

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