Significant Tax Changes from the One Big Beautiful Bill Act (OBBBA)
1. 2017 Tax Cuts Made Permanent
Makes the 2017 Tax Cuts and Jobs Act (TCJA) tax brackets and standard deduction permanent for all taxpayers, preventing any scheduled tax increases for tax year 2026. Higher rates are now permanently removed.
2025 Tax Bracket Comparison: "Old" vs. OBBBA (Made Permanent)
|
Bracket |
“Old” Rate |
OBBBA Rate |
2025 Income Range (Single) |
2025 Income Range (Married Filing Jointly) |
|
Bracket 1 |
10.0% |
10.0% |
$0 – $11,925 |
$0 – $23,850 |
|
Bracket 2 |
15.0% |
12.0% |
$11,926 – $48,475 |
$23,851 – $96,950 |
|
Bracket 3 |
25.0% |
22.0% |
$48,476 – $103,350 |
$96,951 – $206,700 |
|
Bracket 4 |
28.0% |
24.0% |
$103,351 – $197,300 |
$206,701 – $394,600 |
|
Bracket 5 |
33.0% |
32.0% |
$197,301 – $250,525 |
$394,601 – $501,050 |
|
Bracket 6 |
35.0% |
35.0% |
$250,526 – $626,350 |
$501,051 – $751,600 |
|
Bracket 7 |
39.6% |
37.0% |
Over $626,350 |
Over $751,600 |
Note: These are 2025 inflation-adjusted federal tax brackets. Under OBBBA, Tax Cuts and Jobs Act's (TCJA) lower rates and structure are made permanent and will continue to adjust annually for inflation.
Higher Standard Deduction Made Permanent - Comparison: 2024 vs. 2025 and Following
Standard Deduction by Filing Status
| Filing Status | 2024 Standard Deduction | 2025+ New Law (Permanent) | Increase |
| Single | $14,600 | $15,750 | +$1,150 |
| Head of Household | $21,900 | $23,625 | +$1,725 |
| Married Filing Jointly | $29,200 | $31,500 | +$2,300 |
| Married Filing Separately | $14,600 | $15,750 | +$1,150 |
2025 Senior Tax Deduction Summary - Effective for Tax Year 2025
This table summarizes the total federal tax deduction available to senior taxpayers (age 65 and older) under OBBBA for the tax year 2025. The new $6,000 senior above-the-line deduction (up to $12,000 per couple) is in addition to the standard deduction and the traditional age-based extra deduction.
|
Filing Status |
Standard Deduction |
Age/Blind Deduction |
OBBBA Senior Bonus (Above-the -Line) |
Total Potential Deduction |
|
Single (65+) |
$15,750 |
$2,000 |
$6,000 |
$23,750 |
|
Married Filing Jointly (One 65+) |
$31,500 |
$1,600 |
$6,000 |
$39,100 |
|
Married Filing Jointly (Both 65+) |
$31,500 |
$3,200 |
$12,000 |
$46,700 |
All 2025+ standard deductions are indexed for inflation.
2. $2,200 Child Tax Credit - Effective for Tax Year 2025
Raises the child tax credit to $2,200 per child. The refundable portion of the credit, referred to as the Additional Child Tax Credit (ACTC), is adjusted for inflation and, for the 2025 tax year, is set at $1,700. Credit begins to phase out for taxpayers with adjusted gross income (AGI) in excess of $400,000 in the case of married taxpayers filing jointly and $200,000 for all other taxpayers. It completely phases out when the taxpayer’s modified adjusted gross income (MAGI) reaches $ 240,000 and $440,000 MFJ.
3. Tip Income Deduction
Creates an above-the-line deduction of tip-based earnings capped at $25,000 per individual. The deduction is phased out by $100 for each $1,000 by which the taxpayer’s MAGI exceeds $150,000 ($300,000 MFJ) and completely phases out when the taxpayer’s MAGI reaches $400,000 ($550,000 MFJ). Effective for 2025 through 2028.
4. Overtime Pay Deduction
Creates an above-the-line deduction for qualified overtime compensation. Maximum annual deduction is $12,500 ($25,000 for joint filers). The deduction is phased out by $100 for each $1,000 by which the taxpayer’s MAGI exceeds $150,000 ($300,000 MFJ) and completely phases out when the taxpayer’s MAGI reaches $275,000 ($550,000 MFJ). Effective for 2025 through 2028.
5. New Car Loan Interest Deduction
Permits up to $10,000 of interest deduction on a qualified passenger vehicle. Must be new auto loans for U.S.-assembled cars bought 2025–2028; begins to phase out for singles over $100,000 or joint filers over $200,000, and completely disappears where income exceeds $150,000 for singles and $250,000 MFJ. Above the line deduction. Car must be for personal use - not a business asset.
6. Temporary State and Local Tax (SALT) Cap Increase
Raises SALT deduction to $40,000 ($20,000 MFS) for households earning below $500,000 in 2025, phasing out between $500,000 and $600,000, but not below $10,000. Reverting to $10,000 in 2030.
|
Provision |
Details |
|
New SALT Cap (2025–2029) |
Increased from $10,000 to $40,000 in 2025; rises 1% per year until 2029 |
|
Reversion (2030+) |
Cap reverts to $10,000 unless extended by future legislation |
|
Phase-Out Threshold |
$500,000-$600,000 AGI (MFJ); cap reduced by 30% of excess income. $10,000 cap above $600,000. |
|
Phase-Out Floor |
Deduction cannot drop below $10,000 |
|
Married Filing Single Threshold and Cap |
$250,000- $300,000 AGI threshold; $20,000 cap |
|
Annual Inflation Adjustment |
Both cap and phase-out thresholds increase 1% per year (2025–2029) |
|
PTET Workaround |
Preserved for pass-through entities with anti-abuse provisions |
|
Effective Tax Year |
Applies to tax year 2025 (filed in 2026) |
7. Special Senior Bonus Deduction - Effective for 2025
Effective for 2025 through 2028, individuals who are age 65 and older may claim an additional above-the-line deduction of $6,000 ($12,000 total for a married couple where both spouses qualify). This new deduction is in addition to the current traditional age-based extra deduction standard deduction for seniors under existing law. This special deduction is “in lieu” of the “No Tax on Social Security” campaign promise. Deduction is available for both itemizing and non-itemizing taxpayers. The $6,000 exemption deduction begins to phase out by 6% by the amount a taxpayer’s MAGI exceeds $75,000 ($150,000 MFJ) and varies by filing status as detailed below:
|
Filing Status |
Maximum Deduction |
Phaseout Range |
|
Single |
$6,000 |
$75,000–$175,000 |
|
Head of Household (HOH) |
$6,000 |
$75,000–$175,000 |
|
Married Filing Jointly (One spouse 65+) |
$6,000 |
$150,000–$250,000 |
|
Married Filing Jointly (Both spouses 65+) |
$12,000 |
$150,000–$350,000 |
|
Married Filing Separately (MFS) |
$0 |
N/A |
8. "MAGA" Newborn Savings Accounts / Trump's Accounts - Effective for 2026
Taxpayers can make an election on behalf of their eligible child to have $1,000 treated as a tax payment for the taxable year. The $1,000 will be deposited into a Trump account established on behalf of the child. An eligible child, defined as a U.S. citizen child born in 2025 through 2028 for whom no previous election has been made. The account is treated in the same manner as an IRA (cannot be a ROTH IRA) with special rules, during the period when the beneficiary is under age 18.
Additional contributions to the Trump accounts can be made from parents, relatives, and other taxable entities, as well as nonprofit and government entities. Contributions to the accounts can only be made after-tax (except for employer contributions up to $2,500, which can be pre-tax) if made prior to the child turning age 18, and aggregate contributions are limited to $5,000 annually (adjusted for inflation beginning with the 2028 taxable year).
The funds from the accounts cannot be distributed prior to the calendar year in which the child turns age 18. Distributions will be taxed like any other IRA. Because the contributions made by parents and other relatives are made after-tax, these contributions would not be subject to tax when withdrawn.
No income cap specified.
9. Charitable Donations - Effective for 2026
Establishes a new above-the-line charitable contribution deduction of up to $1,000 for single filers and $2,000 for married couples filing jointly, available to non-itemizers making cash donations to qualified charitable organizations. No income limitation applies to this deduction, thereby broadening access and encouraging wider participation in charitable giving.
The existing rule allowing deductions for cash gifts to public charities up to 60% of AGI is made permanent.
For itemizing taxpayers, beginning in tax year 2026, the charitable deduction will only be allowed if total contributions exceed 0.5% of the taxpayer’s AGI. This introduces a new minimum threshold for deductibility of itemized charitable contributions.
Summary of OBBBA Charitable Donation Provisions
|
Provision |
Description |
Effective Year |
|
Above-the-Line Deduction for Non-Itemizers |
Deduction of up to $1,000 (single) / $2,000 (joint) for cash donations to public charities |
2026 |
|
New Floor for Itemizers |
Only donations exceeding 0.5% of AGI are deductible |
2026 |
|
Corporate Donation Floor |
Corporations can deduct donations only above 1% of taxable income (still capped at 10%) |
2026 |
|
Cap for High-Income Taxpayers |
Maximum tax benefit limited to 35% for taxpayers in the 37% bracket |
2026 |
|
60% AGI Limit for Cash Gifts Made Permanent |
Temporary rule (cash donations to public charities deductible up to 60% of AGI) is now permanent |
2026 |
|
Tax Credit for Scholarship Donations |
Non-refundable credit up to $1,700 for donations to scholarship-granting organizations (non-itemizers OK) |
2027 |
10. Estate and Gift Tax Exclusion Raised to $15M Per Taxpayer - Effective for 2026
Removes the potential 50% reduction permanently – makes the higher exemption permanent. The $15 million per individual ($30 million for married couples) exclusion will be inflation-adjusted annually and also applies to the generation-skipping transfer tax exemption.
11. Capital Gains Tax Step-Up Preserved
Maintains the step-up in basis for inherited assets, avoiding capital gains tax at death.
12. Repeal Clean Energy Credits – Effective for Tax Year 2025
Eliminates green-energy credits (EVs, solar, wind, hydrogen, etc.), with some as early as September 30, 2025.
Federal Energy Efficiency Tax Credits Overview
|
Item |
Credit Type |
Max Benefit |
Expiration Date |
Eligibility |
|
Solar Panels |
Residential Clean Energy |
30% of the cost |
12/31/2025 |
Yes |
|
Battery Backup (≥3 kWh) |
Residential Clean Energy |
30% of the cost |
12/31/2025 |
Yes |
|
EV Charger* |
EV Charger Installation |
Up to $1,000 |
06/30/2026 |
ZIP-based |
|
Heat Pump (HVAC) |
Energy Efficiency Upgrade |
Up to $2,000 |
12/31/2025 |
Yes |
|
ENERGY STAR Refrigerator |
Energy Efficiency Upgrade |
Up to $600 |
12/31/2025 |
Yes |
|
ENERGY STAR Windows |
Energy Efficiency Upgrade |
Up to $600 |
12/31/2025 |
Yes |
|
Hot Water Heater (Tankless/Heat Pump) |
Energy Efficiency Upgrade |
$600–$2,000 |
12/31/2025 |
Yes |
|
Solar-Integrated Roofing |
Residential Clean Energy |
30% of the cost |
12/31/2025 |
If solar-integrated |
|
Electric Oven |
Not Qualified |
— |
N/A |
No |
|
Gas Stove |
Not Qualified |
— |
N/A |
No |
|
Microwave |
Not Qualified |
— |
N/A |
No |
|
Standard Roof (Shingles Only) |
Not Qualified |
— |
N/A |
No |
|
Commercial Electric Vehicle |
Commercial Clean Vehicle |
Up to $40,000 |
09/30/2025 |
Business use |
|
EV (New) |
Clean Vehicle Credit |
Up to $7,500 |
09/30/2025 |
If it meets income/price limits |
|
EV (Used) |
Used Clean Vehicle Credit |
Up to $4,000 |
09/30/2025 |
If it meets income/price limits |
*EV Charger Credit requires property to be in a qualified low-income or rural area for eligibility.
13. 529 Plan Expansion – Effective for 2025
K–12 tuition withdrawal limit doubled up to $20,000 per year and expanded K–12 expenses to cover books, tutoring, test prep, online learning, and educational therapy.
Broadens scope beyond traditional college education, and 529 funds can now be used for vocational, trade, and credentialing programs. Tax-free rollovers from 529 plans to ABLE accounts are now permanently allowed.
ABLE account enhancements like Saver’s Credit and ABLE-to-Work contributions are also made permanent. No stated income cap on withdrawing funds from a 529 plan.
529 Plan Changes Summary - Most Effective 7/5/2025
|
Provision |
Description |
Effective Date |
Notes |
|
K–12 Education Limit Increase |
Annual tax-free withdrawal limit raised from $10,000 to $20,000 per beneficiary |
July 5, 2025 |
Applies to tuition at elementary & secondary schools |
|
Expanded K–12 Expenses |
Includes books, tutoring, test prep, online resources, and educational therapy |
July 5, 2025 |
Includes students with disabilities |
|
Post-Secondary Credentialing |
529s can now fund vocational, trade, and certification programs |
July 5, 2025 |
Includes program fees, books, supplies, and exams |
|
529-to-ABLE Rollovers (Permanent) |
Tax-free rollover to ABLE accounts is now a permanent provision |
Immediately |
Beneficiary must be the same or a qualified family member |
|
Other ABLE Enhancements |
Saver’s Credit and ABLE-to-Work contributions rules made permanent |
Immediately |
Improves long-term disability savings planning |
|
State Tax Treatment |
May vary by state — check for conformity with federal rules |
Varies by state |
Important for K–12 and new qualified expense categories |
14. Health Savings Accounts (HSAs)
Permanent allowance for first-dollar telehealth coverage under high deductible health plans (HDHPs) without affecting HSA eligibility. Afforable Care Act (ACA) marketplace Bronze and Catastrophic plans now count as HDHPs for HSA eligibility. Up to $150/month (individual) or $300/month (family) in Direct Primary Care fees are now HSA-eligible.
OBBBA HSA Changes Summary
|
Provision |
Description |
Effective Date |
Included in Final Bill? |
|
Telehealth Coverage |
Permanent allowance for first-dollar telehealth coverage under HDHPs without affecting HSA eligibility |
Plan years starting in 2025 |
Yes |
|
Bronze & Catastrophic Plans |
ACA marketplace Bronze and Catastrophic plans now count as HDHPs for HSA eligibility |
Jan 1, 2026 |
Yes |
|
Direct Primary Care (DPC) Fees |
Up to $150/month (individual) or $300/month (family) in DPC fees now HSA-eligible |
Jan 1, 2026 |
Yes |
|
HSA contributions after enrolling in Medicare Part A |
Would have allowed contributions post-Medicare enrollment |
— |
No |
|
Higher contribution limits for low-income individuals |
Proposed expansion of contribution caps |
— |
No |
|
Combined catch-up contributions for spouses |
Would have allowed one combined catch-up for both spouses aged 55+ |
— |
No |
|
Fitness/gym expense reimbursement |
Up to $500/year in gym or fitness fees using HSA |
— |
No |
|
60-day retroactive reimbursements |
Proposed coverage of medical expenses incurred before HSA opened |
— |
No |
|
HSA eligibility with spousal Flexible Spending Account (FSA) or clinic access |
Would have removed disqualifications tied to spouse’s FSA or employer clinic |
— |
No |
15. Mortgage Interest Deduction
Permanently extends the TCJA’s limitation of qualified residence interest deduction for the first $750,000 in home mortgage acquisition debt.
Business Taxation in the OBBBA
1. 100% Bonus Business Depreciation Made Permanent
Allows for the immediate expensing of 100% of qualifying property costs, permanently restoring the full write-off for businesses without income limits. Applied to property acquired after January 19, 2025.
2. Full R&D Expensing
Permanently allows full expensing of domestic specified research or experimental
expenditures (SREs) starting with the 2025 taxable year, reversing prior amortization rules— available to all businesses, no income limitation. Small business taxpayers (i.e., those with average annual gross receipts of $31 million or less) can apply the change retroactively to taxable years beginning after December 31, 2021. In addition, all taxpayers who capitalized domestic research or experimental expenses between December 31, 2021, and January 1, 2025, may elect to accelerate the deduction of any remaining unamortized amounts over one or two years.
3. Section 199A Qualified Business Income (QBI) Deduction
Makes the 20% QBI deduction permanent and adds a minimum deduction of $400 for taxpayers with at least $1,000 of QBI from an active trade or business, adjusted for inflation. Beginning with the 2026 taxable year, the phaseout ranges for purposes of computing the §199A deduction are increased from $50,000 ($100,000 MFJ) to $75,000 ($150,000 MFJ), which means that the size of the phaseout range is now wider.
Phaseout Ranges by Filing Status
|
Filing Status |
2025 Threshold Amount |
2025 Phaseout Ends |
|
Married Filing Jointly |
$394,600 |
$494,600 |
|
All Other Taxpayers |
$197,300 |
$247,300 |
4. Qualified Opportunity Zone (QOZ): New Series Approved – Effective for Tax Year 2027
Permanently extends Opportunity Zones and introduces a new series of designated zones with a 5-year deferral of original gain. Enhanced tax incentives for rural QOZs.
Qualified Opportunity Zone Changes - 2027 Onward
|
Category |
OBBBA Changes |
|
Permanence & New Designation Cycle |
• Makes QOZ program permanent |
|
Rolling 5-Year Gain Deferral |
• For investments from Jan 1, 2027 onward |
|
Basis Step-Ups |
• Standard QOFs: 10% step-up at 5 years (no more 7-year bonus) |
|
Long-Term Hold Rules |
• No capital post-acquisition gains tax after 10 years on QOZ investment - step-up to FMV for 10 to 30 years |
|
Zone Eligibility Changes |
• Lowered income threshold: ≤70% of area median |
5. Qualified Small Business Stock (QSBS): Expanded Reliefs
Existing rules unchanged. For new investments made after July 4, 2025, there are new rules. Potential for partial relief after as little as three years.
Qualified Small Business Stock (QSBS) - Two Regimes
|
Feature |
Pre-OBBB (Before July 4, 2025) |
Post-OBBB (On or After July 4, 2025) |
|
Holding Period Requirement |
≥ 5 years for 100% gain exclusion |
≥ 3 yrs → 50%, ≥ 4 yrs → 75%, ≥ 5 yrs → 100% |
|
Exclusion Cap |
$10M or 10× basis (whichever is greater) |
$15M or 10× basis (indexed from 2027) |
|
Issuer Gross Asset Limit |
≤ $50M |
≤ $75M (indexed from 2027) |
|
Applies To |
Stock issued before July 4, 2025 |
Only to stock issued on or after July 4, 2025 |
|
Other QSBS Rules (e.g., entity type, active business) |
Unchanged |
Unchanged |
6. Section 179 Expensing
Raises the maximum Section 179 expensing limit to $2.5 million, reduced by the amount by which the cost of qualifying property exceeds $4 million, both of which will be adjusted annually for inflation.
7. Corporate Charitable Contribution Deduction
Establishes a floor of 1% of taxable income to deduct charitable contributions, up to a ceiling of 10% of taxable income. Effective after December 31, 2025.
If you have any questions about these updates, please contact BakerAvenue.