The One Big Beautiful Bill Act(OBBBA) was passed on July 4th and it has taken some time to parse through it. I wanted to touch on some highlights that I feel are pertinent to my clients. However, if there are any other issues you have heard discussed that I don’t address, please, do not hesitate to reach out to me for clarification. Here are some of the highlights:
1. Tax Cuts are now permanent
There has been a lot of hand wringing over this as the tax cuts granted in the 2017 TCJA were set to expire at the end of the year. However, with the OBBBA those tax rates are now made permanent with no expiration date currently in sight. That means the top tax bracket remains at 37%. Another item of note is that these current brackets will be indexed for inflation starting in 2026. There were significant savings for almost all taxpayers when this was instituted in 2017. The only brackets that remained the same were the entry 10% bracket and the 35% bracket. It’s a good thing for you that these are now permanent.
2. Estate and Gift Tax Exclusion Limits are now permanent
The lifetime gift and estate tax exclusion was already historically high at $13.99 million for 2025 (this also was enacted under the TCJA). It will jump to $15 million next year and will also index for inflation in future years. This provides needed clarity for higher net worth clients and whether advanced planning tools such as trusts need to be instituted. Keep in mind, this is at the Federal level. It’s still important to understand the estate or inheritance tax at your state and local level. Gifting strategies and charitable contributions are a great way to pass along assets to your heirs in your lifetime and also keep more money in your pocket instead of the government.
3. The SALT (State and Local Tax) cap was expanded…for now
This was one area that the TCJA didn’t help those of us living in the northeast who pay ridiculous real estate taxes. The state and local tax (SALT) deduction cap was significantly increased, from $10,000 to $40,000. However, it will now phase out based on income, starting for individuals or couples filing jointly with more than $500,000 annual adjusted gross income. It will phase out completely for those making $633,333 or more per year. Those cutoffs will increase 1% annually, but only for four years since, unfortunately, this provision will sunset in 2029, reverting back the SALT cap on deduction limit of $10,000. It’s important to note as well here that you need to be an itemizer on your returns to recognize this as a benefit. If you take the standard deduction this will not apply. It’s worth a conversation to see if these increases make sense for you to switch to itemized from standard deductions.
4. Expanded use of the 529 continues
Tax-advantaged 529 accounts can now be used to cover a wider array of qualified educational expenses, including some trade credential programs. Qualified education expenses for elementary, secondary, private or religious school (kindergarten through 12th grade) have been expanded beyond just tuition to include costs for books, online education materials and tutoring fees. Additionally, starting in 2026, the annual limit for K-12 expenses will increase to $20,000 (up from $10,000). This is just another excellent growth area for the 529 plan. When I first started utilizing these plans, there were legitimate concerns about what happened if your child did not attend a traditional college. Those concerns should be obsolete at this point. It’s a great vehicle for tax free savings, particularly with it’s expanded use.
5. Social Security Tax Cuts
This one has been the most confusing. The original plan was to eliminate taxation on Social Security income for certain individuals. This was unable to be done due to constitutional rules. As a compromise the OBBBA offers seniors 65+ a $6,000 additional deduction as a work around to the tax. HOWEVER, this deduction phases out quickly for higher earners (it applies to those earning less than $150K if married filing jointly and $75K if filing single). Unfortunately, It also sunsets after 2028. The good news is that a married couple both 65 or over, each qualify for the temporary senior deduction, meaning between this and the standard deduction you have $43,500 as a deduction.
6. Taxes on tips and overtime
Another solid addition for those in blue collar or service industries, the OBBBA grants a deduction of up to $25,000 on tips or overtime pay. It is important to note that there is a phaseout schedule based on income ($150K if filing single/$300K MFJ). And again, same as the senior deduction, it sunsets after 2028.
7. Car interest
The OBBBA allows for a deduction of up to $10,000 in car loan interest. Once again, there is an income phaseout schedule. This will apply to couples who earn less than $200K MFJ
8. Child Tax Credit
The child tax credit has been upped to $2,200 from $2,000
9. TRUMP accounts
These are still not clear; however, the thought here is to start saving early for your kids. They will act similar to a 529 plan in that they will be funded with after tax dollars but grow tax free from there. Additionally, the federal government will seed the accounts with $1,000. What can be purchased with that or inside the accounts is still unclear. They are currently scheduled to become available in July 2026 so I will pass along more information as I get it. Another issue to note, these are also under the same schedule to sunset after 2028.
Making both the tax brackets as well as estate tax exemptions permanent are a good thing. At the end of the day there should be more money in your pocket and less going to the federal government. If you don’t feel that you are, we should be running your tax returns through my tax planning software. The other additions certainly make for tax savings opportunities even if they are only for the next 4 years. This is still early, so there will potentially be modifications and clarifications made on the OBBBA in the coming months. If that happens, I will pass that along. As a frame of reference, the IRS is still issuing opinions on the SECURE 2.0 act that was passed in 2022. As I mentioned above, please don’t hesitate to contact me with questions on this blog or with things you have heard whispered in the hellish circles of social media.
As always feel free to pass this along to anyone you feel may benefit.