Key Tax Changes Under the One Big Beautiful Bill Act

On July 4, 2025, the One Big, Beautiful Bill Act (OBBBA) was signed into law. The OBBBA includes the largest tax changes since the Tax Cuts and Jobs Act of 2017 (TCJA), and it will affect almost every individual and business in the United States. The provisions in the new law go into effect on various dates, but most of the key ones affecting individuals apply to the current tax year.

I'm writing to give you a brief rundown of what's in the new law and how it might affect you and your tax situation. Since the OBBBA was signed into law less than two weeks ago, some information is still being defined and clarified. The information below is our current understanding of provisions in the OBBBA and we will have more details on these changes as the year progresses. We want to share this information with you as there are misconceptions about some parts of the bill. This is general information about the law and is not intended to be tax advice tailored to your specific tax situation.

The following is a brief overview of OBBBA's key tax changes specifically affecting individuals.

Tax Rates and Brackets:

The OBBBA makes the current tax rates permanent, which had been set to revert to higher rates at the end of 2025. Tax brackets will continue to be indexed for inflation each year.

Personal Exemptions and Standard Deduction:

The TCJA repealed the personal exemption deductions, but nearly doubled the standard deduction amounts for taxpayers who do not itemize their deductions. The OBBBA makes these changes permanent and increases the standard deduction for 2025 to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married filing jointly. These amounts will be indexed for inflation in future years.

Deduction for State and Local Taxes: 

For taxpayers who itemize, the TCJA capped the deduction for state and local taxes at $10,000. The OBBBA provides relief by increasing the cap to $40,000 for 2025. The amount is increased to $40,400 for 2026 and then indexed for inflation annually before reverting to the current $10,000 limit in 2030. The enhanced cap is phased out for taxpayers with modified adjusted gross income over $500,000.

New Deduction for Tip Income (No Tax on Tips):

The OBBBA creates a new deduction of up to $25,000 for qualified tips received by an individual in an occupation which customarily and regularly receives tips during a given tax year. The deduction is allowed for both employees and independent contractors. The deduction begins to phase out when the taxpayer's modified adjusted gross income exceeds $150,000 ($300,000 in the case of a joint return). The deduction, which is allowed for the 2025-2028 tax years, is available regardless of whether you itemize or take the standard deduction.

New Deduction for Overtime Pay (No Tax on Overtime):

The OBBBA creates a new deduction for up to $12,500 ($25,000 in the case of a joint return) for "qualified overtime compensation" (defined as overtime compensation paid to an individual under Section 7 of the Fair Labor Standards Act). The deduction begins to phase out when the taxpayer's modified adjusted gross income exceeds $150,000 ($300,000 in the case of a joint return). The deduction, which is allowed for the 2025-2028 tax years, is available regardless of whether you itemize or take the standard deduction.

New Senior Deduction (No Tax on Social Security):

The OBBBA adds a deduction for all individuals who have reached age 65 before the end of the tax year. The deduction amount is $6,000 per individual. The senior deduction begins to phase out when the taxpayer's modified adjusted gross income exceeds $75,000 ($150,000 in the case of a joint return). The deduction, which is allowed for the 2025-2028 tax years, is available regardless of whether you itemize or take the standard deduction.

New Deduction for Car Loan Interest:

The OBBBA creates a new deduction of up to $10,000 for interest paid on debt incurred after December 31, 2024 for the purchase of a qualifying new vehicle assembled in the U.S. The deduction is allowed for tax years 2025 through 2028 and begins to phase out when the taxpayer's modified adjusted gross income exceeds $100,000 ($200,000 in the case of a joint return). The deduction is available regardless of whether you itemize or take the standard deduction.

Charitable Contribution Deduction:

Beginning in 2026, the OBBBA provides a charitable contribution deduction for non-itemizers of up to $1,000 in cash contributions for single filers ($2,000 for married filing jointly). For individuals who elect to itemize, the OBBBA imposes a new 0.5% adjusted gross income floor on charitable contributions.

Deduction for Mortgage Insurance Premiums:

Beginning in 2026, the OBBBA permanently restores the deduction for mortgage insurance premiums (previously available from 2018-2021) by treating such premiums as interest on acquisition indebtedness. As before, the deduction is phased out for taxpayers with adjusted gross income above $100,000 ($50,000 for married filing separately).

New Limit on Gambling Losses:

Under current law, deductions for gambling losses are limited to gambling winnings. This will remain for 2025 as well. Beginning in 2026, the OBBBA limits the deduction for gambling losses to 90% of the amount of such losses. Any deduction remains limited to the amount of gambling winnings.

Child Tax Credit: 

The OBBBA permanently increases the child tax credit to $2,200 per child beginning in 2025 and indexes it for inflation.

Adoption Credit:

The OBBBA makes the adoption tax credit partially refundable up to $5,000 beginning in 2025 and indexes it for inflation.

Termination of Clean Energy Credits:

The OBBBA terminates the new clean vehicle credit and the previously owned clean vehicle credit for vehicles acquired after September 30, 2025. It also terminates the energy efficient home improvement credit and residential clean energy credit at the end of the year.

Changes to 529 Plans:

Beginning in 2026, the OBBBA increases the annual limit on distributions from 529 savings plans from $10,000 to $20,000. Beginning on July 5, 2025, it allows distributions to be used for additional educational expenses in connection with enrollment or attendance at an elementary or secondary public, private, or religious school, including: curriculum and curricular materials; books or other instructional materials; online educational materials; tutoring or educational classes outside the home; certain testing fees; fees for dual enrollment in an institution of higher education; and certain educational therapies for students with disabilities.

Creation of Trump Accounts:

The OBBBA creates Trump accounts, a new type of tax-advantaged savings account administered by banks and other financial institutions. Starting in 2026, parents of any child under age 18 may open a Trump account for their child. Aggregate contributions are limited to $5,000 annually, but the limit does not apply to contributions from tax-exempt entities such as private foundations. Beginning at age 18, account holders may beginning accessing funds for a limited set of purposes, including higher education. Under a pilot program, for U.S. citizens born between January 1, 2024, and December 31, 2028, the federal government will contribute $1,000 per child into every eligible account. This does not have any effect for 2025 so we will provide more information on these accounts as more information becomes available later in the year.

Final thoughts:

As you can see, the OBBBA’s provisions are extensive and many critical details are still pending IRS regulations and guidance. Our team is actively monitoring updates and will continue providing communications as needed.

We will be reaching out later this year with more detailed information on the provisions that will affect your specific tax situation. In the meantime, if you have questions, please don’t hesitate to contact us. We’re here to help you navigate these significant tax law changes.