The One Big Beautiful Bill Act (OBBBA) permanently extends many provisions of the Tax Cuts and Jobs Act (TCJA), which took effect in 2018, and introduces new tax provisions directly impacting wealthy families, working individuals, and seniors. Many of the rules now complicate tax planning, which is essential for maximizing tax savings and avoiding pitfalls under the new law.
Lower Tax Rates Made Permanent
Lower income tax brackets enacted under the TCJA—10%, 12%, 22%, 24%, 32%, 35%, and 37%—are now permanent, helping many Americans maintain lower effective tax rates long term.
Higher Standard Deduction Became Permanent
- Single: Increased from $15,000 to $15,750.
Married Filing Jointly (MFJ): Increased from $30,000 to $31,500.
A higher standard deduction allows many households to reduce their overall tax liability without having to itemize deductions. Standard deductions will be adjusted annually for inflation starting in 2026.
Increased State and Local Tax (SALT) Deduction Limit
- Increased the 2025 limit from $10,000 to $40,000 (increasing by 1% annually through 2029). The limit (cap) applies to all filing statuses except married filing separately (50% of the limit).
- Phased down (not lower than the annual cap) for (Modified Adjusted Gross Income (MAGI) between $500,000 - $600,000.
The SALT limit reverts to a $10,000 cap in 2030.
Higher SALT cap impacts residents in high-tax states who now may be able to deduct more of their property, state, and local income taxes—potentially reducing their federal tax burden.
Note: Certain pass-through business entities will continue to be eligible for a full deduction, as they are not subject to the SALT cap or phase-down applicable to individuals.
New and Temporary Deductions (Available 2025–2028)
- Overtime Income: Ability to deduct up to $25,000 (MFJ) / $12,500 (Single); reduces federal taxable income for employees working over 40 hours per week and eligible for overtime pay under the Fair Labor Standards Act (FLSA). Phases out for MAGI exceeding $300,000 (MFJ)/$150,000 (Single). Deductible from federal income taxes (not Social Security or Medicare taxes). Designed to help those working longer hours.
- Cash Tips: Ability to deduct up to $25,000 regardless of filing status. Same phase-out thresholds as for overtime income apply to taxpayers working in qualifying occupations (to be defined by the IRS later in 2025) that traditionally and customarily received tips prior to 2025. Supports service industry workers.
- Auto Loan Interest: Ability to deduct up to $10,000 for interest paid on a qualifying new vehicle (i.e. assembled in the U.S. and for personal use) purchased after 2024; phased out beginning at $200,000 (MFJ) and $100.000 (Single). Helps offset the cost of new vehicles.
Senior Deduction: Applicable where one or both taxpayers are age 65+. Allows deduction of up to $6,000 for individuals/$12,000 for a married couple; phased out beginning at $75,000 (Single)/$150,000 (MFJ). Designed to provide relief to those with fixed or lower incomes.
Charitable Deductions: New Restrictions on Itemizers and Small Expansion for Non-Itemizers
- Taxpayers Who Itemize Deductions: Beginning in 2026, a new floor on the ability to deduct charitable contributions (.5% of AGI) applies before deduction is permitted. Other existing limitations (i.e., separate existing AGI limits on deductibility of cash and capital gain property) continue to also apply, depending on the type of charitable organization involved. Taxpayers may want to consider making charitable contributions prior to 2026. The bottom line is that the tax calculations for charitable deductions will be even more complex going forward.
Non-Itemizers: Starting in 2026, a new above-the-line deduction for cash contributions only, up to $2,000 (MFJ) and $1,000 (Single), will provide those making cash gifts but who are not itemizing an additional deduction. The deductibility of those cash donations is limited, as it excludes supporting organizations and donor-advised funds.
Taxpayers in Highest 37% Bracket—Reduced Benefit from Itemized Deductions
Beginning in 2026, only taxpayers in the 37% bracket, with a taxable income of $751,600 for (MJF) and $626,350 (Single), will face a reduction in their ability to recognize the full value of their itemized deductions. In effect, it limits deductions to 35% instead of 37% and it applies to many of their deductions.
Child Tax Credit
Permanently increased to $2,200 per child, and the refundable portion remains at $1,700. To be adjusted annually for inflation, except for the refundable portion. This enhances financial support for families with children.
Estate Planning
The federal estate and lifetime gift exemptions are now permanently increased to $15 million per individual (from $13.99 million) and $30 million for a married couple starting in 2026 and adjusted annually for inflation. The permanent increase allows individuals to transfer more of their wealth without triggering significant federal estate or gift taxes, further enhancing the planning opportunities available to high-net-worth families.
Frequently Asked Questions
Still need some clarity? See below for answers to frequently asked questions regarding this new tax legislation.
Will I pay more or less under OBBBA?
Many Americans will experience lower taxes thanks to permanent rate reductions and/or through expanded deductions. However, those with higher incomes may face limitations on their ability to claim deductions due to phaseouts.
Are these tax changes permanent?
Some changes, such as the expanded individual tax brackets and increase in federal estate and gift tax exemptions, as well as the QBI deduction, are now permanent, while the new auto loan interest, tips, overtime, and senior deductions expire after 2028. The SALT Cap will be significantly lower after 2029.
Under OBBBA, what happens with estate tax exemptions?
The law elevated and made permanent existing transfer taxes, including estate, gift, and generation-skipping tax exemptions. While the 40% rate has not changed, the exemption for each begins at $15 million per individual for 2026 and $30 million for a married couple, and each will be adjusted for inflation moving forward.
What is the SALT deduction, and why is the change material?
The State and Local Tax (SALT) deduction allows taxpayers to deduct their state and local income and property taxes from their federal taxable income and can impact their taxes significantly when they itemize deductions. The SALT cap maximum deduction increased from $10,000 to $40,000, with an annual increase of 1% annually through 2029, offering relief to taxpayers subject to higher state taxes—notably in New York, California, and New Jersey, among others. The expanded deduction is phased down for taxpayers with incomes over $500,000 ($250,000 for married filing separately). The SALT cap will revert to $10,000 in 2030 absent changes in the future.
What are some potential planning considerations in the wake of the increased SALT cap?
With the SALT deduction limit increased to $40,000 through 2029, higher-income taxpayers in high-tax states may benefit by reassessing deduction strategies or considering income timing, especially before the cap reverts to $10,000 in 2030. By paying special attention to the dramatic phase-down, they may experience a substantial reduction in income between $500,000 and $600,000 when the phase-down occurs. Pass-through entities can offer additional relief and are not constrained by the SALT cap.
How will the law impact my charitable giving?
A new above-the-line deduction allows even those who don’t itemize deductions to deduct their qualifying cash contributions starting in 2026 up to $2,000 for married couples and $1,000 for single individuals.
Those who itemize their deductions should be aware that timing both their income and deductions is significant. Beginning in 2026, a portion of their deduction (at .5% of their AGI) is subtracted from the deduction. And, if the taxpayer is in the top 37% income bracket, their deductions are subject to further limitations. Therefore, they may want to consider making their charitable contributions in 2025 before the change goes into effect.
What does the new tax deduction for seniors provide—and how do you know if you’re eligible?
Only applicable for tax years 2025-2028, seniors aged 65+ may deduct up to $6,000 per individual ($12,000 if married and both over 65) as an above-the-line deduction so that they can take the available deduction even if they do not itemize. This deduction phases out beginning at income levels of $75,000 (Single) or $150,000 (MFJ).
What Should You Do Now?
With some of the most valuable deductions set to expire in just a few years, 2025 is a critical year to begin making smart financial decisions. Whether you're a retiree or working professional, now is the time to review your situation and act on strategies that might reduce your tax burden for years to come.
Here are a few steps to consider:
- Update your tax projection to reflect new income and deduction rules.
- Revisit estate and gifting strategies while exemption amounts are at a historical high.
Work with a Financial Advisor to incorporate these updates into a personalized financial plan.
Contact your Financial Advisor today to schedule a personalized tax impact review.
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Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
