On July 4, 2025, President Trump signed H.R.1, the One Big Beautiful Bill Act (OBBBA) into law. This bill builds on the foundation laid by the 2017 Tax Cuts and Jobs Act (TCJA). OBBBA extends many of the provisions from TCJA and introduces a series of new deductions, credits, incentives, and planning opportunities for affluent families and business owners.
Personal Income Tax Provisions:
Tax Rates, Deductions, and Credits
- TCJA’s tax brackets and rates are now permanent, with modest upward adjustments to the 10% and 12% thresholds beginning in 2026.
- The increased standard deduction level is made permanent, and the standard deduction was increased for 2025:
Filing Status |
2025 TCJA |
2025 OBBBA |
Single |
$15,000 |
$15,750 |
Head of Household |
$22,500 |
$23,625 |
Married Filing Jointly |
$30,000 |
$31,500 |
Married Filing Separately |
$15,000 |
$15,750 |
- Personal exemptions are permanently repealed.
- New Senior Personal Exemption: For tax years 2025–2028, seniors (aged 65+) receive an additional $6,000 exemption.
- Note this is reduced by 6% of the amount of modified AGI that exceeds $75,000 (single) or $150,000 (MFJ). This deduction is fully phased out at $175,000 (single) or $250,000 (MFJ).
- The bill does not repeal the tax on Social Security income, as originally promised by President Trump, but instead includes this provision.
- New modifications to the State and Local Tax (SALT) Deduction: The bill increases the SALT deduction cap to $40,000, increasing by 1% annually, for years 2025-2028. The SALT cap will revert to $10,000 in 2029. Additionally, the increased deduction is reduced by 30% of modified AGI over $500,000 but cannot be reduced below $10,000.
- The TCJA’s rules on mortgage interest deduction were made permanent. Mortgage insurance premiums on acquisition debt are treated as interest for deductibility purposes. As a reminder, interest may be deducted on the first $750,000 of mortgage indebtedness. Interest paid for home equity loans is not a deductible expense.
- Auto loan interest is deductible in the years 2025-2028.
- This is limited to new vehicles and final assembly of the vehicle must occur in the U.S.
- The deductible is limited to $10,000 and is reduced by $200 for each $1,000 of modified AGI in excess of $100,000 (single) or $200,000 (MFJ).
- The PEASE limitation, which limits overall itemized deductions, has been re-introduced and modified. This takes effect in 2026. The new formula is 2/37 X the lesser of total itemized deductions OR total taxable income, plus itemized deductions, subject to the 37% bracket.
- Changes to Charitable Deductions:
- The bill enacts a new above-the-line deduction for individuals that do not itemize their deductions. This is limited to $1,000 for single filers and $2,000 for MFJ filers. This will be effective for 2026+.
- The bill places a 0.5% floor on itemized charitable deductions. This means that charitable donations will only be deductible to the extent that they exceed 0.5% of the taxpayer’s AGI.
- OBBBA permanently increases the deductibility of cash contributions to public charities to 60% of AGI.
- The Child Tax Credit has increased from $2,000 to $2,200 in 2025, with refundability indexed to inflation starting in 2026.
- Miscellaneous itemized deductions (e.g., CPA expenses and wealth management fees) are now permanently repealed.
- The definition of a “qualified disaster area” for casualty and theft losses has been expanded to include presidentially declared disaster zones and gubernatorial declared disaster zones.
No Tax on Tips and No Tax on Overtime
- No Tax on Tips: An above-the-line deduction is available on tip income for years 2025-2028. The deduction is limited to $25,000 and is reduced by $100 for each $1,000 that modified AGI exceeds $150,000 (single) or $300,000 (MFJ).
- Deduction is only available for qualified tips. Qualified tips are “cash tips received by an individual in an occupation which customarily and regularly received tips on or before December 31, 2024”.
- No Tax on Overtime: An above-the-line deduction is available on overtime income for years 2025-2028. The deduction is limited to $12,500 (single) or $25,000 (MFJ) and is reduced by $100 for each $1,000 that modified AGI exceeds $150,000 (single) or $300,000 (MFJ).
- Deduction is only available for qualified overtime compensation which is defined as “overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate”.
Other Notable Changes
- The unified estate and gift exemption amount is $15 million, indexed for inflation, beginning in 2026.
- Eligible expenses from 529 Plans now include K–12 tuition and postsecondary credentialing programs.
- Increased ABLE Account contribution limits were made permanent.
- Contributions to ABLE Accounts are considered qualified retirement savings contributions which makes them eligible for the savers credit.
- The bill makes permanent the ability for taxpayers to rollover funds from Qualified Tuition Plans (529 Plans) to ABLE Accounts.
- A new tax-exempt savings account for children has been created. This new account is referred to as “Trump Accounts”.
- Cash contributions to these accounts can begin in 2026 and the annual contribution limit is $5,000, indexed for inflation.
- A one-time governmental credit to the account of $1,000 per beneficiary may occur for individuals born in 2025-2028.
- Beneficiaries must be under age 8 at the establishment of the account and contributions must cease prior to the beneficiary reaching age 18.
- Funds must be invested in mutual funds or ETFs that track a U.S. equity index. We are awaiting further guidance from the Department of Treasury on the definition of qualified investments. The investments grow tax-deferred.
- Distributions are allowed after age 18 and are taxed at capital gains rates if used for qualified expenses such as higher education, first-time home purchase, or small business expenses. A 10% early withdrawal penalty may apply if not used for qualified expenses and these non-qualified withdrawals will be taxed at ordinary income tax rates. We expect further guidance on the definition of qualified expenses.
- The new bill ends several clean/alternative energy credits ahead of their original sunset period.
- Gambling losses are deductible to the extent they do not exceed winnings and are limited to 90% of losses.
Business Provisions:
Pass-Through Businesses (Section 199A)
- The 20% QBI deduction is now permanent.
- Income thresholds for phaseouts increased in 2026:
- Single: $75,000 (up from $50,000)
- MFJ: $150,000 (up from $100,000)
- New minimum deduction of $400 for active businesses with $1,000+ of QBI.
Qualified Small Business Stock (QSBS)
- Under previous law, individuals were able to exclude up to the greater of 10X their basis or $10 million of capital gains on Qualified Small Business Stock that was held for five years. Under OBBBA, exclusion tiers were introduced, and taxpayers may exclude 50% of their gain if they held the stock for three years, 75% of gain if they held for four years, and 100% of the gain if they meet the five-year holding period.
- The exclusion cap was increased to $15 million (up from $10 million).
- Corporate asset cap for a qualified small business increased from $50 million to $75 million.
Depreciation & Expensing
- 100% Bonus Depreciation reinstated permanently.
- Section 179 Expensing limit raised to:
- $2.5M per asset
- Phase-out begins at $4M total
- R&D expensing for U.S. activities made permanent and retroactive to 2022 for small businesses.
Corporate Charitable Deductions
- There is a 1% floor on the deductibility of charitable donations. Aggregate charitable donations that exceed 1% of taxable income is deductible.
- The 10% ceiling still applies (aggregate charitable deductions in excess of 10% of taxable income are not deductible).
- The rules for carryforward of unused charitable deductions were updated. There is now a 5-year carryforward period on a first-in, first-out basis. Contributions disallowed by the 1% floor can only be carried over if the 10% ceiling is also exceeded.
Other Notable Changes
- The energy efficient commercial buildings deduction is scheduled to sunset 6/30/2026.
Conclusion
H.R.1 is a tax bill that largely preserves and expands upon the Tax Cuts and Jobs Act of 2017. Affluent individuals, families, and closely held business owners should take note of the permanent QBI deduction, continued elevated estate exemption amount, enhanced QSBS treatment, and additional deductions that are now available. If you’d like to explore how these changes apply to your specific situation, contact us.