After many campaign promises and much anticipation, the “One Big Beautiful Bill Act” (OBBBA) was signed into law on July 4, 2025. After closer examination, OBBBA might have been more aptly named the “Oh, But, But, But … Act”. For example, take the campaign promise of “no tax on overtime.” Although this promise seems straightforward, the bill is riddled with caveats. Indeed, the bill does allow a deduction for overtime pay BUT: only for the portion of overtime pay that exceeds regular pay; BUT only for the first $12,500 of overtime compensation; BUT only if you make less than $150,000 in modified adjusted gross income (MAGI). In other words, understanding the caveats and nuances of OBBBA is essential to sound tax planning.
TCJA
First and foremost, the OBBBA made many provisions of the “Tax Cuts and Jobs Act” (TCJA) of 2017 permanent. Without the OBBBA’s passage, many of these TCJA provisions would have expired at the end of 2025. Key provisions made permanent include the lower individual income rates under the current ordinary income brackets (10%, 12%, 22%, 24%, 33%, 35%, 37%) and the increased standard deduction, which also received a slight increase to $15,750 for single taxpayers and $31,500 for those married filing jointly.
State and Local Tax Deduction
The TCJA limited itemized deductions of state and local taxes (SALT) to $10,000 per year. The OBBBA increases the limit to $40,000 per year BUT if you make more than $500,000 in MAGI it is phased down, hitting the lower $10,000 limit once your MAGI reaches $600,000.
Reduction of Itemized Deductions in 37% Bracket
The OBBA implements a new limitation on itemized deductions beginning in 2026. The limitation decreases itemized deductions by 2/37 of the lesser of (1) total itemized deductions or (2) the excess of taxable income plus total itemized deductions above the threshold for the 37% bracket. Thus, when the limitation is applied, the tax benefit of itemized deductions is reduced from 37% to 35% for those in the top bracket.
Changes to Charitable Deductions
Beginning in 2026 there will be two substantial changes to charitable deductions. First, a floor of 0.5% of adjusted gross income (AGI) will be imposed on itemized charitable contribution deductions. So, only your charitable contributions in excess of the 0.5% AGI floor will be eligible for itemized deductions. Second, a separate below-the-line deduction for charitable contributions will be created and is available to taxpayers who do not itemize deductions. This deduction is limited to $1,000 for single filers and $2,000 for those married filing jointly.
Mortgage Interest Deduction Limitation
The new law maintains the limit of $750,000 of indebtedness for the mortgage interest deduction imposed by the TCJA. Starting in 2026, OBBBA allows for the itemized deduction of certain mortgage insurance premiums, treating them as mortgage interest.
Child Tax Credit
The child tax credit is increased to $2,200 with up to $1,700 being refundable per qualifying child. Beginning next year, this credit will be indexed for inflation. The credit begins to phase out when MAGI exceeds $200,000 (for singles) or $400,000 (for those married filing jointly).
Deduction for Seniors
For 2025–28, the law creates a new deduction of $6,000 for taxpayers age 65+. The deduction begins to phase out when AGI exceeds $75,000 (single) or $150,000 (married filing jointly).
Expanded Use of 529 Accounts
Beginning this year, the law increases the annual limit for K –12 expenses from $10,000 to $20,000. It expands the list of eligible expenses to include costs for tutoring outside of the home, textbooks, online education materials, exam fees, dual enrollment fees, and educational therapy for students with disabilities. OBBBA also expands eligible 529 plan use to include post-secondary credentialing expenses including tuition, books, exam fees, and continuing education needed to maintain the credential.
Estate Tax Exemption
The TCJA’s increased estate tax exemption ($13.99 million/person) was slated to decrease by 50% at the end of the year. The OBBBA maintains the exemption, increasing it to $15 million per person (effectively $30 million for a married couple) starting in 2026 and adjusts it annually for inflation.
Business Provisions
There are many new and restored deductions and incentives available to businesses. The qualified business income (QBI) deduction has been extended. Expensing limits have also been increased, allowing for a 100% immediate deduction for qualified property purchased after January 19, 2025.
Undoing the Inflation Reduction Act
The OBBBA eliminates many provisions of the Inflation Reduction Act starting in 2026, such as the energy efficient home improvement credit, the residential clean energy credit, clean vehicle credit, and new energy efficient home credit. If you plan to take advantage of any of these credits, make sure to do so before year-end.
Conclusion
Though many of the provisions of OBBBA are minor, they amount to a substantial piece of legislation, taken all together. There will be more to unravel as the year progresses and as situations arise. The nuance and wide scope of the act make proactive tax planning all the more valuable for the foreseeable future.
Your Wealth Crossing advisor is always available to answer your questions. If you need additional clarity on any of the points raised above, please get in touch with us.
