The recently passed One Big Beautiful Bill Act (OBBBA) introduces significant changes affecting a broad spectrum of taxpayers. My aim is to help you anticipate how this legislation will impact your own financial planning—whether you’re a homeowner, parent, student, retiree, business owner or high-income employee. Let’s break down the key provisions and what they mean.
For Itemizers: An Expansion of Property and Income Tax Deductions and a Reduction in Charitable Deductions
One of the far-reaching changes in OBBBA is the overhaul of property-related deductions.
The State And Local Tax (SALT) deduction cap has been adjusted from $10,000 to $40,000. The deduction will increase by 1% each year until 2030, at which time it will revert to $10,000.
The SALT deduction includes the following state and local (town, city, county) taxes paid during the year:
● Income Taxes (including those withheld from your pay)
● Real Estate Taxes
● Personal Property Taxes (such as auto/boat excise taxes assessed annually on the item’s value)
● General Sales Taxes
Beginning in 2026, Charitable contributions will be subject to a floor of 0.5% of Adjusted Gross income. For someone with an AGI of $400,000, that means that the first $2,000 contributed will not be deductible. The floor is applied to appreciated securities and other capital gain property donations before cash contributions.
Homeowners: Increasing Deductions and Decreasing Credits
The change to the SALT deductions (see above) may benefit middle-income homeowners, especially in high-tax states, but high-income earners may find their deductions more restricted, as the deduction cap is reduced for taxpayers with a modified adjusted gross income (MAGI (1) ) over $500,000 in 2025, and is completely phased out (2) at
$600,000.
Starting in 2026, mortgage insurance premiums will be deductible.
The Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit are repealed for property placed in service after December 31, 2025.
Parents: New Tax-Deferred Accounts and Expanded 529 Plans
Starting in 2026, up to $5,000 can be contributed to new tax-deferred “Trump Accounts” for children. This money can come from a variety of sources, including employers. The federal government will make a one-time $1,000 contribution for qualified children born in 2025 through 2028. The money must be invested in a qualified index mutual fund.
Beginning in 2026, 529 Plan distributions may be used for many K-12 expenses above tuition costs. These include tutoring, exam fees, books, fees for college courses taken while in high school, and educational therapy for students with disabilities. Distributions are limited to $20,000 per child per year.
People with Car Loans: Check your Vehicle ID Number (VIN)
The purchaser of new cars assembled in the US may deduct up to $10,000 in interest for the years 2025-2028. The vehicle must be for personal use, and the deduction starts to be phased out when MAGI reaches $100,000 ($200,000 for married couples filing jointly (MFJ)). This deduction applies to car loans taken out after December 31, 2024 and includes the refinance of the remaining balance of an existing car loan.
How do you know if your car was assembled in the US? Look at your car’s Vehicle ID Number!
Note: this won’t apply to many purchases but is worth noting, nonetheless.
Non-Itemizers: Charitable Contribution Deduction
Starting in 2026, up to $1,000 for individuals ($2,000 for MFJ) of cash contributions to public charities can be deducted. Although non-itemizers had an opportunity to deduct some charitable contributions in the past ($300 in tax years 2020 and 2021), this new law allows everyone to reap a tax benefit from more charitable giving, whether you itemize or not.
Senior Taxpayers: More Possible Deductions, but Proceed with Caution
For tax years 2025-2028, taxpayers 65 and over will be given an additional $6,000 deduction. If taxpayers are married, filing jointly, and are both age 65 or older, the deduction increases to $12,000. Eligibility begins to phase out when MAGI is over $75,000 for single taxpayers and $150,000 for married taxpayers filing jointly (MFJ), with a complete phaseout for MAGI over $175,000 (single), or over $250,000 (MFJ).
Please note: this deduction is taken after Adjusted Gross Income is calculated and is considered to be “below the line”. Any income recognized to offset the deduction (such as a Roth IRA conversion) may result in a higher percentage of Social Security income being taxed. This could lead to a higher tax bracket.
Business Owners: Additional Depreciation, QBI phaseout
The bonus first-year depreciation is back to 100% for property bought after January 19, 2025. In addition, the limit for expensing business property placed in service has increased to $2.5 million per year, with the phaseout increasing to $4 million.
Higher income business owners will see increased phaseout of the Qualified Business Income Deduction (QBI). For owners of Specified Service Trade or Business (doctors, attorneys, consultants, etc), the entire deduction will be phased out once their income hits $272,300 ($544,600 MFJ).
Businesses will be able to write off qualifying expenses for Research and Development in the year of the expense.
For Employees:
529 account distributions can now be used for qualified post-secondary education, credentialing exam fees, and continuing education expenses.
The $300 educator expense deduction has been replaced by a separate itemized deduction allowing them to deduct more expenses from their income. The catch here is the need to itemize.
“No Tax on Tips”
The new law allows up to $25,000 of ”qualified tip income” as a “below the line” – after Adjusted Gross Income (AGI) – deduction. This is available whether the employee itemizes or not. However, income from tips is still included in income “above the line” and is also subject to payroll taxes. The deduction is phased out at $150,000 MAGI ($300,0000 MFJ).
“No Tax on Overtime”
Up to $12,500 ($25,000 MFJ) of overtime pay can be taken as a “below the line” deduction. Only the amount over the employee’s base rate is deductible. For example, an employee with a base rate of $60 per hour and an overtime rate of $90 per hour is allowed to deduct $30 per hour in overtime earnings. The phaseout for this deduction begins at
MAGI $150K ($300K MFJ)
Keep in mind that “below the line” deductions are not as valuable as “above the line” deductions. Above the line deductions, taken as a part of calculating Adjusted Gross income, help taxpayers avoid phaseouts and lessen the impact of tax thresholds.
The IRS will not be changing withholding tables for the rest of 2025. Instead, workers who receive tips and/or earn overtime wages will receive larger refunds when they file their 2025 tax returns next year.
High-Income Earners: Deduction Phaseout and AMT Risk
Taxpayers in the 37% bracket (taxable income of $626,350 single/$751,600 MFJ) will see their allowable itemized deductions reduced slightly, essentially dropping the value of a 37% deduction to 35%.
Due to a high taxable income floor, only 0.1% of taxpayers are subject to the Alternative Minimum Tax (AMT) under the current tax code. Under OBBBA, however, the exemption phaseout drops to taxable income of $500,000 ($1 million MFJ) with a new 50% rate of phaseout. Items subject to the AMT include: standard deduction, state income taxes, real estate taxes, the sale of Incentive Stock Options (ISO) shares, and the ISO exercise “bargain element” (the difference between the value of the stock and the exercise price). If you have ISOs, you need to watch out for this. For most other taxpayers, AMT will not apply.
HSA Expansion
The list of eligible High-Deductible Health Plans (HDHPs) has been expanded. In addition, the new law allows people with direct primary care arrangements to keep their HSA eligibility.
Estate and Gift Taxes: Higher Exemptions
Previously set by the Tax Cuts and Jobs Act to revert back to $5 million on January 1, 2026, the Estate and Gift Tax Exemption will increase to $15 million per taxpayer ($30 million for married couples). You are able to gift, tax-free, up to $19,000 (2025 amount, subject to inflation) to any one person per year. Gifts above that exemption will be subject to a lifetime exclusion of $15 million.
Future Tax Credit: Donations to Organizations that Provide Scholarships
Starting in 2027, all taxpayers, itemizers or not, will be allowed to claim a “School Choice Credit " of up to $1,700 ($3,400 MFJ) per year for contributions to organizations that grant scholarships for elementary and high school students at private and religious schools.
What you can do: Planning Under OBBBA
Pay attention to Dates
● If you intend to buy a clean vehicle, and the deduction is applicable given your income, do so before September 30, 2025.
● If you’re planning any energy-efficient home improvements, make those upgrades before December 31,
2025.
● For new energy-efficient homes, buy before June 30, 2026.
● Install EV chargers by June 30, 2026.
● If possible, make your 2026 charitable contributions in 2025. If you have a Donor-Advised Fund, a contribution in 2025 may be worth more to you than one made next year. Keep in mind that capital gain property donated to a private foundation is limited to a net deduction of 20% of Adjusted Gross Income (AGI).
● Review your Trusts and Estate Plan for wealth-transfer opportunities after January 1, 2026
This post touches on the highlights of OBBBA and is not meant to be a comprehensive analysis of the new legislation. Tax laws are never static, and OBBBA represents a substantial shift that will require careful planning. As always, if you need help navigating these changes and optimizing your financial position under the new law, contact me and your tax preparer.
For more information:
https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions
https://www.bny.com/wealth/global/en/insights/one-big-beautiful-bill-act.html
https://www.morningstar.com/financial-advisors/10-things-know-about-trump-savings-account
(1) AGI vs MAGI: Adjusted Gross Income (AGI) is the total of your taxable income after subtracting some “above the line” deductions. Modified Adjusted Gross Income (MAGI) is AGI plus some of those deductions, such as IRA contributions, student loan interest, and foreign earned income, added back. MAGI is used to calculate eligibility for various credits. For many taxpayers, AGI and MAGI are the same.
(2) Tax Phase Outs: Tax phase outs are the gradual reduction in eligibility for a tax credit. The IRS designates an income range for the phaseout and determines the rate at which the eligibility is reduced. Most phase-outs reduce the credit at a constant rate over the phase-out range, although some reduce the credit by a specific amount per income increment.