THE ONE BIG BEAUTIFUL BILL ACT:
HOW IT MAY IMPACT YOU
After much discussion and uncertainty, the One Big Beautiful Bill Act (OBBA) was signed into law on July 4th 2025. The biggest effect of the bill is to extend the tax cuts passed in 2017 under the Tax Cuts and Jobs Act (TCJA). Most clients will see little or no change to their current tax situation. However, we are highlighting a few key provisions that are most likely to affect our clients. A longer summary of the bill can be found HERE.
State and Local Tax Deduction (SALT)
- The SALT deduction limit, formerly $10,000/yr, is increased to $40,000 starting in 2025. This number applies to both single filers and married filing jointly.
- The $40,000 limit will increase by 1% per year from 2026-2029, then will revert back to $10,000 in 2030.
- The SALT deduction phases down for filers with Modified Adjusted Gross Income (MAGI) exceeding $500,000 and reaches the minimum deduction level of $10,000 above $600,000 in income.
Estate Tax Exemption
- The estate tax exemption amount was scheduled to decrease from $13.99 million to about $7 million per person at the end of 2025. The OBBA raises the estate tax exemption to $15 million per person ($30 million for a married couple) beginning in 2026.
- The exemption will continue to adjust annually for inflation, as it has previously.
Enhanced Standard Deduction for Seniors
- The bill contains an additional $6,000 standard deduction for individuals over age 65 ($12,000 per couple if both people are over 65). This is in addition to the regular standard deduction, and in addition to current $1,600 extra deduction if blind or aged 65+.
- The additional $6,000 deduction per person phases out between $75,000 and $175,000 of MAGI for single filers, and between $150,000-$200,000 if married filing jointly.
- This enhanced standard deduction will be in place from 2025-2028.
- Note that the bill does not affect the taxation of Social Security in any way.
Charitable Deduction Changes
- Filers claiming the standard deduction can now also claim deductions for charitable contributions – up to $1,000 for single and $2,000 for married filing jointly. Clients may remember that there was a similar temporary provision in 2020 and 2021; the new provision is permanent.
- Filers who itemize and claim a charitable deduction are now subject to a 0.5% AGI floor on charitable contributions. The details of this are complex, but the net effect is to slightly reduce the value of charitable deductions for taxpayers who itemize deductions. Charitable donations made in 2025 will not be subject to this floor.
Expanded list of 529 eligible expenses
- Under current law, 529 owners can use up to $10,000/yr for K-12 tuition. The OBBA expands that limit to $20,000 and expands the eligible expenses beyond tuition to include tutoring, materials/textbooks, and standardized test fees, among others.
- Postsecondary credential expenses – such as a CERTIFIED FINANCIAL PLANNER® designation – can now be paid out of a 529 also.
37% Tax Bracket limited deductions
- Those in the top tax bracket ($626,350 single, $751,600 married filing jointly) will have their itemized deductions reduced slightly
- The details of the calculation are beyond our scope, but essentially, itemized deductions for filers in this bracket will save $0.35 per $1 dollar of deductions, rather than the full $0.37.
Child Tax Credit
- The child tax credit was scheduled to fall to $1,000 with the sunset of the TJCA. The OBBA increases it to $2,200 per child and it will be indexed to inflation going forward for the first time.
- The child tax credit phases out for filers with incomes above $200,000 (single) and $400,000 (married filing jointly).
