The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4th, 2025 and brought with it significant changes to the US tax code. Here is a brief summary of the major changes:
TCJA lock-ins, enhanced standard deduction, and new senior deduction
- Many of the personal tax provisions from the Tax Cut and Jobs Act of 2017 (TCJA) are now permanent. These include marginal tax rates, AMT levels, zeroed out personal exemption, itemized deduction limits, estate tax limits, etc.
- The section 199A deduction (otherwise known as the qualified business income – QBI – deduction) is now permanent. The size of the phase out ranges for specified service trades or businesses (SSTBs) increased to $75,000/$150,000 (individual/joint). There is also now a minimum deduction of $400 for taxpayers with adequate pass-through income.
- Starting in 2025, the standard deduction increased by $750 for individuals and $1,500 for joint filers. This brings the base standard deduction to $15,750/$31,500 for individuals and joint filers respectively. Per usual, the standard deduction will be indexed to inflation.
- Filers aged 65+ will receive a new deduction of $6,000 per person on top of the standard deduction. Subject to phase out starting at $75,000/$150,000 (individual/joint). Applies to the 2025-2028 tax years.
Changes to itemized deduction and charitable deductions
- If you are in the 37% marginal tax bracket, all itemized deductions will be credited at a rate of 35% (not 37%).
- Itemizers will now face a hurdle before they can start deducting charitable donations. The hurdle is 0.50% of adjusted gross income (AGI).
- The deduction for state and local taxes (SALT) increased to $40,000 subject to phase outs for very high earners. Applies to 2025-2029 tax years only.
- Both itemizers and non-itemizers can deduct up to $10,000 of interest on car loans for new vehicles assembled in the US. Subject to income phase outs starting at $100,000/$200,000 (individual/joint). Applies to 2025-2028 tax years.
- Overtime and tip income are now deductible up to $12,500 (overtime) and $25,000 (tips) subject to income phaseouts of $150,000/$300,000 (individual/joint). Applies to both itemizers and non-itemizers.
- There is a new above-the-line deduction for charitable donations for non-itemizers: $1,000/$2,000 (individual/joint). To be eligible for this deduction, donations must be made in cash to a public charity (i.e. you can’t donate appreciated securities to a donor-advised fund).
Child tax credit, newborn investment accounts, and education funding
- The maximum child tax credit increased to $2,200 subject to phase out starting at $200,000/$400,000 of income.
- Children born in the 2025-2028 tax years can receive a $1,000 seed contribution to a new “Trump account”, but only upon request. Parents can make additional pre-tax contributions up to $5,000/year for each child. Employers can contribute $2,500 to an employee’s account. Funds in the account must be invested in a US equity index fund and cannot be withdrawn until age 18. After age 18, the accounts will generally follow the same rules as traditional IRAs.
- Starting in 2026, 529 account distributions can now cover $20,000 of K-12 educational costs (i.e. not just tuition) per child per year (up from $10,000).
- As of July 5, 2025, the definition of eligible K-12 costs was expanded to include not just tuition, but also books, online courses, tutoring, standardized testing, community college courses, and educational therapies.
- 529 funds can now cover costs associated with credentialing programs after high school.
Energy tax credits
The credit for electric vehicles ends on September 30, 2025. The credit for energy efficient home improvements and solar panels ends December 31, 2025.
