The “One Big Beautiful Bill Act” (OBBBA), signed into law on July 4, 2025, represents the most sweeping overhaul of the U.S. tax code since the 2017 Tax Cuts and Jobs Act. It permanently extends many TCJA provisions and introduces several new deductions and credits.
Below is a summary of the key changes affecting individual taxpayers beginning in tax year 2025:
Tax Rates & Standard Deduction
- TCJA tax brackets made permanent: 10%, 12%, 22%, 24%, 32%, 35%, 37%.
- Standard deduction increases:
- $15,750 (Single)
- $23,625 (Head of Household)
- $31,500 (Married Filing Jointly)
- Adjusted for inflation after 2025.
New Deductions & Credits (2025–2028)
Deduction for Tips
- Up to $25,000 in qualified cash tips may be deducted annually.
- Applies to occupations that customarily received tips as of December 31, 2024.
- Phases out at $150,000 modified AGI for single filers ($300,000 for joint).
- Employers must report tips and occupations on Form W-2.
- Effective through December 31, 2028.
Deduction for Overtime Pay
- Deductible portion is the FLSA-mandated premium (e.g., the “half” in time-and-a-half).
- Capped at $12,500 for individuals ($25,000 for joint filers).
- Phases out at $150,000/$300,000 AGI.
- Employers must separately report the premium portion on W-2s.
- Effective through December 31, 2028.
Vehicle Loan Interest Deduction
- Up to $10,000 of interest on loans for U.S.-assembled passenger vehicles is deductible.
- Applies only to purchases (not leases) made in 2025-2028.
- Phases out at $100,000 AGI for single filers ($200,000 for joint).
Other Deductions & Credits
- Charitable Giving: Non-itemizers can deduct up to $1,000 ($2,000 joint) for cash donations.
- Child Tax Credit: Increased to $2,200 per child, made permanent, and indexed for inflation.
- Senior Deduction: $6,000 deduction for taxpayers 65+ on top of the standard deduction. Income phaseouts of $75,000 for individuals and $150,000 for married filing joint.
- Adoption Credit: Now partially refundable up to $5,000.
- Dependent Care: Section 129 exclusion raised to $7,500; credit rate increased to 50% (Begins in 2026).
Trump Accounts (New)
- Federally seeded $1,000 savings accounts for children born 2025–2028.
- Annual contributions up to $5,000 allowed.
- Tax-deferred growth; tax-free withdrawals for education, home purchase, or business startup.
Housing & Property
- Mortgage Interest: Deduction capped at $750,000 of acquisition debt (permanently).
- SALT (state and local income taxes) Cap: Raised to $40,000 in 2025, with phased increases through 2029. Income phaseouts apply. Returns to $10,000 in 2030.
- Casualty Losses: Deduction permanently allowed for federally or state-declared disasters.
Education & ABLE Accounts
- 529 Plans: Expanded to cover more K–12 and credentialing expenses. K–12 tuition limit raised to $20,000.
- ABLE Accounts: Contribution limits and rollover rules made permanent. Eligibility age raised to 46 in 2026.
- Student Loan Forgiveness: Exclusion for death/disability discharges made permanent.
Energy Tax Credits – Terminated or Accelerated
- Clean Vehicle Credits: End Sept 30, 2025 (new and used EVs, commercial vehicles).
- Home Energy Credits: End Dec 31, 2025 (Energy Efficient Home Improvement and Residential Clean Energy).
- Commercial Building and New Home Credits: End June 30, 2026.
- Alternative Fuel Refueling Credit: Ends June 30, 2026.
Health & Savings
- Telehealth: Safe harbor for HDHPs made permanent (allows high deductible health plans to cover telehealth services without a deductible).
- HSAs: Now compatible with Bronze and Catastrophic ACA plans.
- Direct Primary Care: HSA-eligible under new rules.
Estate and Gift
- The One Big Beautiful Bill (OBBB) Act permanently extends and enhances the estate and lifetime gift tax exemption:
- Current Law (2025): Exemptions were set to expire after December 31, 2025. For 2025, the exemption amounts are:
- $13.99 million for individuals
- $27.98 million for married couples
- New Provision (2026 Onward):
- Permanently increases the exemption to $15 million for single filers and $30 million for joint filers
- Applies to estates of decedents dying and gifts made after December 31, 2025
- The exemption amount will be indexed for inflation starting in 2026
