Editor’s Note: This is the first of two articles by Salvatore M. Capizzi, executive vice president with Dunham & Associates Investment Counsel Inc., that he is writing about OBBBA and was first published by Dunham. After a brief overview, Part 1 below explains changes that may affect your individuals clients. Part 2 will explain changes that may affect your business-owner and estate clients. His goal is that you can use these articles as a resource when questions arise. Other Rethinking65 articles have featured Sal.
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law, creating one of the most significant tax overhauls since the original Tax Cuts and Jobs Act of 2017. This massive, almost 1,000-page document extends existing tax breaks and fundamentally reshapes how you, I, your clients, and your business owner clients will pay taxes.
Quick Overview Reference Guide
Brand New Provisions
• No federal income tax on tips
• No federal income tax on overtime pay
• Baby Savings Accounts for newborns
• Enhanced tax breaks for businesses under QSBS – IRC 1202
• New senior citizen deduction
What is Permanent With No More Expiration Dates
• Lower tax brackets from the 2017 Tax Cut and Job Act (TCJA)
• Higher standard deductions
• Estate and gift tax exemption increased to $15 million per person and indexed for inflation annually.
• 20% small business deduction
• 100% bonus depreciation
• Student loan payment exclusion made permanent
• 60% of AGI for charitable contributions made with cash
• Senior citizen deduction
• Changes under QSBS – IRC 1202
What is Temporary
• SALT cap increase to $40,000 for 2025-2029 tax years for taxpayers earning under $500,000
• Some green energy credit phase-outs
• Automobile-loan interest deduction
• One-time $1,000 federal contribution to Baby Savings Accounts for children born between 2025-2028
• Tax relief on overtime pay for tax years 2025-2028
• Most green energy tax credits
• Various international tax benefits
• Some pandemic-era provisions
• The permanent repeal of the personal exemption deduction
Key Numbers to Remember
• 20% – Small business deduction rate
• 100% – Bonus depreciation rate
• $2.5 million – Section 179 expensing limit
• 35% – starting in 2026, the maximum itemized tax break for clients in the top tax bracket
• $15 million – 2026 estate and gift tax exemption
• $5,000 – Baby Savings Account contribution limit
• $6,000 – Senior citizen additional deduction
• 0% – Tax rate on most tips and overtime
• 3 years – Tiered holding period for QSBS
• $15 million – Increased gain exclusion cap for QSBS
• $75 million – QSBS initial corporate asset threshold for company value
Key Dates to Remember
2025
July 4: OBBBA signed into law.
January 19: 100% bonus depreciation begins for property acquired after this date.
December 31: Last day for most green energy credits before termination/phase-out.
December 31: Estate and gift tax exemption remains at current levels through this date.
2026
January 1: Estate and gift tax exemption increases to $15 million per person and is permanent.
January 1: Enhanced QBI deduction changes take effect.
January 1: Mortgage interest deduction changes take effect.
July 1: First decennial determination date for new Qualified Opportunity Zone designations.
December 31: Deferred gain from pre-2027 QOZ investments must be recognized.
2027
January 1: Student loan exclusion inflation adjustments begin.
January 1: Estate and gift tax exemption inflation adjustments begin.
2028
End of year: Last year for Baby Savings Account federal contributions, which is $1,000 for children born 2025-2028.
End of year: Last year for automobile loan interest deduction.
2029
January 1: Deduction for seniors with Social Security income applies only for the 2025-2028 tax years. It ends for the 2029 tax year.
2030
January 1: SALT cap reverts to $10,000 for 2030 tax year and beyond.
What is In It for the Individual Taxpayer?
The Tax Brackets That Are Here to Stay
Remember those lower tax rates from 2017? They are now permanent. You will not face a tax increase when these rates were scheduled to expire.
2025 Tax Brackets for Married Filing Jointly
• 10% on income up to $23,200
• 12% on income from $23,201 to $94,450
• 22% on income from $94,451 to $201,050
• 24% on income from $201,051 to $383,900
• 32% on income from $383,901 to $487,450
• 35% on income from $487,451 to $731,200
• 37% on income over $731,200
Higher Standard Deductions Are Permanent Too
The OBBBA makes the higher standard deductions permanent and increases them further for you and your clients in 2025.
2025 Increased Standard Deductions
• Married Filing Jointly: $31,500
• Head of Household: $22,500
• Single: $15,000
This means that many of your clients will likely continue to take the standard deduction rather than itemizing, simplifying tax filing, and reducing taxes for most families. But if they are charitably inclined, talk to us about “bunching” and potentially creating a nice tax refund.
State and Local Tax Deduction
This is a temporary provision of the OBBBA. This deduction limit is not 100% but has been temporarily increased to $40,000 for tax years 2025 through 2029. The previous cap was $10,000 under the Tax Cuts and Jobs Act of 2017 (TCJA).
Here is a breakdown of how the increased SALT deduction works under the OBBBA:
The deduction limit is $40,000 ($20,000 if married and filing separately) for tax years 2025-2029.
The $40,000 cap begins to phase down for taxpayers with modified adjusted gross incomes exceeding $500,000.
The deduction limit will revert to $10,000 ($5,000 if married filing separately) starting in 2030, regardless of income level.
The $40,000 cap will be adjusted upward by 1% annually from 2026 to 2029.
This increase to the SALT cap may benefit taxpayers in high-tax states; however, your clients with incomes over $600,000 MAGI will still be limited to a $10,000 deduction, and those who do not itemize will not benefit from the increased cap.
A 35% Cap on the Value of Itemized Deductions
The One Big Beautiful Bill Act caps the value of itemized deductions for your clients in the highest income bracket of 37% at 35%. This means the tax reduction for each dollar deducted is limited to 35 cents rather than 37 cents.
This limitation applies to most itemized deductions. Two major ones include:
• Interest paid on qualifying home loans. It remains deductible up to $750,000 for new mortgages. However, for high-income earners subject to the 35% cap, the tax benefit of this deduction will be limited to 35 cents per dollar.
• Contributions to qualified charities. The tax benefit is limited to 35% for those in the top tax bracket. There is also a new floor for itemizers in 2026, where deductions are only allowed for amounts exceeding 0.5% of their AGI.
The 35% cap generally applies to most itemized deductions claimed by those in the highest income bracket, except for the State and Local Tax deduction, which has specific caps and phase-down provisions.
In addition to mortgage interest and charitable contributions, other standard itemized deductions that would likely be subject to this 35% limitation include medical expenses over a certain percentage of AGI, and certain taxes subject to the SALT cap. Remember, the 35% cap only impacts clients in the top income tax bracket. Taxpayers not in this bracket will not experience this limitation.
New Senior Citizen Deduction
There is a new temporary deduction for seniors under the OBBBA. This new deduction provides an additional $6,000 deduction for eligible seniors with Social Security income.
Who Qualifies:
• Taxpayers must be 65 or older by the end of the 2025 tax year.
• For married couples filing jointly, both spouses can claim the deduction if they meet the age requirement, for $12,000.
• To be eligible, the taxpayer and their spouse must have Social Security income.
Income Limits and Phase-Out:
• The full deduction is available for single filers with an AGI of $75,000 or less, or married couples filing jointly with an AGI of $150,000 or less.
• The deduction gradually reduces for incomes above these thresholds.
The deduction is completely phased out for single filers with AGI above $175,000 and married couples filing jointly with AGI above $250,000.
This deduction is available whether you take the standard deduction or itemize your deductions.
This provision applies for tax years 2025 through 2028.
This deduction is in addition to the standard deduction and the existing extra standard deduction already available to seniors.
Changes in Charitable Giving
OBBBA introduces several new provisions impacting charitable giving, which will take effect in various tax years starting after December 31, 2025.
Here are the key changes:
• Individuals who do not itemize their deductions can now claim an above-the-line deduction for charitable contributions, capped at $1,000 for individuals and $2,000 for married couples filing jointly.
• Itemizing taxpayers can only deduct charitable contributions that exceed 0.5% of their AGI.
• The existing limit allowing a deduction of up to 60% of AGI for cash gifts to qualified charities has been made permanent.
• The value of itemized deductions, including charitable contributions, is capped at 35% for individuals in the highest tax bracket.
• New tax credit for scholarship donations: A nonrefundable credit, capped at $1,700 per tax year, is available for contributions to Scholarship Granting Organizations supporting K-12 students who meet specific criteria related to household income and eligibility for public school enrollment.
For your high-income clients who are heavily charitably inclined, talk to us about bunching gifts in a donor-advised funds in 2025 to preserve their 37%.
Income Tax Deduction for Certain Car Loans
OBBA includes a provision allowing a temporary income tax deduction for interest paid on certain automobile loans.
This deduction applies to loans for new vehicles, including cars, motorcycles, SUVs, minivans, vans, and pickup trucks weighing less than 14,000 pounds whose final assembly occurred in the United States.
The vehicle must be for personal use, not fleets or commercial purposes. However, self-employed individuals using their car for business might still be able to deduct the business-use portion of their car loan interest, separate from this OBBA provision.
Your clients can deduct up to $10,000 in interest payments annually.
The deduction is available for loans taken out between 2025 and 2028.
The deduction phases out for individuals with modified adjusted gross incomes between $100,000 and $150,000, and for joint filers with incomes between $200,000 and $250,000.
Your clients can claim this tax break regardless of whether you itemize your deductions or take the standard deduction.
Tax Relief on Tips
If you work in the service industry, this is huge. This applies to:
• Restaurant servers and bartenders
• Hotel and casino workers
• Hair stylists and barbers
• Delivery drivers
• Any worker who receives tips
(I am sorry, but when you give clients “hot tips” on the market, that doesn’t make your fees tip income. It is the wrong kind of tip! At least you do not have to carry heavy trays, or smile and ask, “How is everything tasting?” for your 1%.)
Remember that qualified tip income is an above-the-line deduction, not an exclusion. This means that individuals can subtract up to $25,000 of their qualified tip income from their gross income when calculating their federal income tax liability.
The deduction is subject to income limitations. For single filers, it begins to phase out when their adjusted gross income (AGI) exceeds $150,000 and is fully phased out for single filers with AGI over $400,000. For those filing jointly, the phase-out starts at $300,000 AGI and is eliminated at $550,000 AGI.
Tips remain subject to Social Security and Medicare taxes (FICA taxes) even with the income tax deduction. This means employees and employers are still required to pay these taxes on tips. Employees must still report all tips received to their employers, who then report them to the IRS on Form W-2.
Mandatory service charges are not considered tips and are not eligible for the deduction.
Tax Relief on Overtime Pay
The OBBBA provides a tax deduction for a portion of qualified overtime pay. However, overtime is still considered wages subject to other taxes, and withholding will continue throughout the year.
It includes a provision for a temporary deduction for qualified overtime pay, effective for tax years 2025 through 2028.
This deduction does not mean that overtime pay is entirely exempt from taxes. Overtime is still subject to Social Security, Medicare, and state taxes. >The deduction applies to federal income tax, reducing the overtime wages included in an individual’s taxable income. >The deduction is capped at $12,500 for individuals and $25,000 for joint filers. >The deduction is phased out for individuals with modified adjusted gross incomes exceeding $150,000 and $300,000 for joint filers.
Baby Savings Accounts: The Trump Account
For children born between 2025 and 2028, parents can open special “Baby Savings Accounts” or the “Trump Account,” which allows your clients to jumpstart their newborn’s retirement savings with government and potentially employer help.
These accounts are essentially traditional IRAs for children under 18, with some specific provisions. A key feature is a one-time $1,000 government contribution for eligible children born between 2025 and 2028.
Here is a breakdown of the key aspects:
• Trump Accounts can be opened for U.S. citizen children under 18.
• Parents or guardians can contribute up to $5,000 annually, and employers can contribute up to $2,500 annually, subject to adjustments.
• The government will contribute an initial $1,000.
• Contributions are made with after-tax dollars, but investment growth is tax-deferred.
• Initially, investments may be limited to options like S&P 500 index fund.
• Distributions are generally not allowed until the child turns 18, at which point the account is treated like a traditional IRA.
• Employers must adopt a written plan to contribute to these accounts.
In Conclusion
The One Big Beautiful Bill Act represents the most comprehensive individual tax reform in nearly a decade. From making the TCJA provisions permanent to eliminating some taxes on tips and overtime, these changes will affect virtually every client.
Lower tax rates are here to stay, so no more worrying about 2025 expiration dates. Seniors get additional relief through a new $6,000 deduction for those 65 and older. Parents can jumpstart savings with Baby Savings Accounts that include government contributions. Higher standard deductions remain permanent and continue to grow with inflation.
Our next post will explore the business and estate provisions that could reshape how companies invest, grow, and pay taxes. Whether your client is a sole proprietor or runs a multi-million-dollar operation, the business tax changes are equally important to understand.
Sources
1. The One Big Beautiful Bill Passed: Learn What’s Changing, by Tax Act, July 8, 2025, https://blog.taxact.com/one-big-beautiful-bill-act/
2. Trump’s ‘big beautiful bill’ could deliver 45.5% ‘SALT torpedo’ for high earners, tax pro says, by CNBC Kate Dore, July 11, 2025, https://www.cnbc.com/2025/07/11/trump-big-beautiful-bill-salt-tax.html
3. One Big Beautiful Bill Act Changes Tax Incentives for Charitable Giving, by Ray McCabe, July 9. 2025, https://www.barclaydamon.com/alerts/one-big-beautiful-bill-act-changes-tax-incentives-for-charitable-giving.
4. Section 163(j) Business Interest Deduction Limit, by Wolters Kluwer, n/d, https://answerconnect.cch.com
5. The One Big Beautiful Bill Act Significantly Expands Qualified Small Business Stock Benefits, by Crystal Howard, Anthony Anderson, Ryan Osugi, July 9, 2025, https://www.spencerfane.com/insight/the-one-big-beautiful-bill-act-significantly-expands-qualified-small-business-stock-benefits/
6. “One Big Beautiful Bill Act” Tax Policies: Details and Analysis, The Tax Foundation, July 4, 2025, https://taxfoundation.org/research/all/federal/big-beautiful-bill-senate-gop-tax-plan/
R 1 – One Big Beautiful Bill Act, Congress.Gov, July 4, 2025, https://www.congress.gov/bill/119th-congress/house-bill/1
