Client Update: Key Points In the One Big Beautiful Bill Act

We are writing to inform you about the significant new tax legislation signed into law on July 4, 2025, informally known as One Big Beautiful Bill or OBBB. The Act is comprehensive and includes key changes for both businesses and individuals. Navigating these changes will be complex but understanding them is essential for effective tax planning and optimizing your position.

We are not summarizing the entire bill for you.  Rather, we are picking out specific changes that will likely apply to many of our clients.  Here are some key points from the legislation:

• Reduced Income Tax Rates: The Act makes the lower individual income tax rates and wider tax brackets introduced by the Tax Cuts and Jobs Act “TCJA” of 2017 permanent, preventing a scheduled tax rate increase after 2025.
• Increased Standard Deduction: The standard deduction has been permanently increased and enhanced for 2025 and beyond: $30,000 for joint filers, $22,500 for heads of household, and $15,000 for singles in 2025, with further increases to $31,500, $23,625, and $15,750, respectively, for 2026 and after.
• Increased deduction for state and local taxes: Itemized deductions include state and local taxes which previously were limited to $10,000. Taxpayers get the higher of the standard deduction or itemized deductions.  The bill increases the deduction for state and local taxes to $40,000 for tax years 2025 – 2029, but that increased limit phases back down by 30% of the modified adjusted income over $500,000 until it reverts back to $10,000.
• Child Tax Credit: The Child Tax Credit (CTC) has been permanently increased to $2,200 per qualifying child for tax years after 2024 and will be indexed for inflation in future years. The credit will only apply to children with a valid tax ID and at least one parent with a valid tax ID.
• Estate & Gift-Basic Exclusion Amount: The basic exclusion amount for federal estate and gift tax will increase to $15 million (indexed for inflation) for estates of decedents dying and gifts made after Dec. 31, 2025.
• Pease Limitation: Starting in 2026, the Pease limitation which reduced itemized deductions for high earners is permanently repealed and replaced by a smaller reduction to itemized deductions.
• Individual Alternative Minimum Tax Exemption Amounts: The AMT exemption amounts are permanently increased for 2026 and beyond, but the phaseout rate for higher-income taxpayers doubles from 25% to 50% making the exemption phase out faster.
• Deduction for Taxpayers Age 65 or Older: For tax years 2025-2028, individuals age 65 or older (and their spouses if filing jointly) can claim a new $6,000 deduction per qualified person. It phases out with adjusted gross incomes above $75,000 single, or $150,000 joint, at a rate of 6% of the excess.
• Car Loan Interest: For tax years 2025-2028, individuals can deduct up to $10,000 per year in interest paid on loans for debt incurred after 2024 on new personal-use vehicles even if they don’t itemize deductions. The deduction phases out for single filers with a modified adjusted income over $100,000 and joint filers over $200,000. To qualify, the loan must be for a new, U.S.-assembled car, SUV, van, pickup, or motorcycle (under 14,000 pounds), secured by a first lien, with the taxpayer as the original owner, and the vehicle’s VIN reported on the tax return.
• American Opportunity and Lifetime Learning Credits: Starting in 2026, you must include the Social Security Number (SSN) of the student (or yourself or your spouse, if applicable) and the Employer Identification Number (EIN) of each college or university when claiming the American Opportunity Tax Credit (AOTC).
• Deduction for Qualified Residence Interest: The deduction for mortgage interest on home acquisition debt is now permanently capped at $750,000 ($375,000 if married filing separately), rather than increasing to $1 million in 2026 as previously scheduled.
• Miscellaneous Itemized Deductions: The Act permanently eliminates miscellaneous itemized deductions for individual taxpayers rather than allowing them again in 2026. This applies to employee unreimbursed business expenses, brokerage account fees, and other expenses.
• New Tax-Deferred Investment Accounts for Children: Starting after 7/4/2025, taxpayers can open a new tax-deferred investment account for children, called a “Trump account” for children who are US citizens with a valid social security number, at least one parent with a valid social security number, and is under age 18. Taxpayers can contribute up to $5,000 per year before age 18 in after-tax dollars for each child, and funds must be invested in a diversified U.S. equity index fund. For children born between Jan. 1, 2025, and Dec. 31, 2028, the federal government will automatically contribute $1,000 to each account.
• Qualified Higher Education Expenses: Changes to 529 savings plans after 7/4/2025 allow families to use tax-free distributions for a much broader range of K-12 education expenses including not just tuition, but also curriculum, books, online materials, tutoring, standardized test fees, dual enrollment, and educational therapies for students with disabilities. Starting in 2026, the annual limit for K-12 distributions doubles from $10,000 to $20,000 per beneficiary.
• Higher Education Expenses for 529 Accounts: 529 plan distributions after 7/4/2025 can now be used tax-free for a wider range of education expenses, including not only college costs but also “qualified postsecondary credentialing expenses.” This means you can use 529 funds for tuition, fees, books, supplies, and equipment required for enrollment in recognized certificate, licensing, or apprenticeship programs even if they are not traditional degree programs.
• Wagering Losses: Starting in 2026, only 90% of your wagering losses can be deducted against your winnings, even if your losses equal or exceed your winnings.
• Deduction and Exclusion for Moving Expenses: Moving expenses are now permanently nondeductible for most taxpayers, and any employer reimbursement for moving costs is fully taxable as income. Only active-duty military members moving under orders and, certain intelligence community employees remain eligible for this deduction.
• Floor on charitable contributions: Starting in 2026, a .5% floor will be applied to charitable contributions for itemizers. That means that contributions will be deductible only to the extent they exceed .5% of adjusted gross income.
• Charitable deduction for non-itemizers: Effective starting in 2026, non-itemizers will be allowed a charitable deduction up to $1,000 ($2,000 for joint returns), but only if the donation is paid in cash to a qualified charity or donor advised fund.
• Qualified Business Income (QBI) deduction: The Act makes this deduction permanent. It was set to expire at the end of 2025.
• Bonus depreciation: The Act makes additional first-year (bonus) depreciation for certain qualified property permanent at 100% (under prior law, it was to phase out to zero ). This provision is effective for property acquired after Jan. 19, 2025.
• 179 Expensing limits: For property placed in service after 2024, the Code Sec. 179 expensing limits are increased to $2,500,000 and the phasedown threshold is increased to $4,000,000 (both subject to inflation adjustments).
• Information reporting, Forms 1099-NEC, 1099-MISC: For payments made after 2025, the reporting thresholds for Forms 1099-NEC and 1099-MISC are increased from $600 to $2,000 (adjusted for inflation after 2026). Backup withholding may apply if there is no tax ID.
• Energy efficient home improvement and new energy efficient home credits: The energy efficient home improvement credit for energy efficient windows, doors, heat pumps, water heaters, central air conditioners, furnaces, and home energy audits. is terminated for property placed in service after 2025.
• Residential clean energy credit: The residential clean energy expenditures credit for solar and geothermal energy costs is terminated for any expenditures made after 2025.
• Clean vehicle credits: The credits for new and previously owned clean vehicles (qualifying electric vehicles) terminate for vehicles acquired after Sept. 30, 2025. The credit for qualified commercial clean vehicles also terminates for vehicles acquired after Sept. 30, 2025.
• Alternative fuel vehicle refueling property credits: The credit for “alternative fuel vehicle refueling property” (such as an EV charger) terminates for property placed in service after June 30, 2026.
• No tax on tips: Starting 1/1/2025 and going through 12/31/2027, employees may deduct up to $25,000 annually in qualified overtime pay from their taxable wages.
• No tax on overtime: Starting 1/1/2025 and going through 12/31/2027, employees may deduct up to $12,500 ($25,000 filing jointly) annually in qualified tip income from their taxable income. Qualifying income only includes the portion of overtime above the normal pay rate and phases out for modified adjusted gross incomes above $150,000 single, $300,000 joint filing.
• Employee Retention Credit: This act imposes new penalties and enforcement measures for improper claims of the ERC and prohibits new claims after 1/31/2024.

We hope you find this helpful. As noted above, these are just some of the changes in the Act. If you wish to discuss further, please call our office to schedule an appointment for a tax consultation.